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Volvo AB share price surges, boosts cost-reduction target by 54%

Volvo AB raised its cost-reduction target by 54% and revealed that its adjusted earnings rose thanks to strong demand in North America.

According to the companys statement, the reduction in Volvos expenditures by 2015 will be increased to a total SEK10 billion as the truckmaker focuses on cutbacks at its construction-equipment division. It is also in the process of reorganizing its truck-sales operations and reviewing its information-technology systems.

Volvo, which is currently the worlds second-biggest truckmaker and the largest Swedish company by sales, reported that its operating profit excluding restructuring charges for the third quarter increased from SEK2.50 billion a year ago to SEK2.91 billion ($401 million). The result topped analysts forecast of SEK2.07 billion.

Thrid-quarter revenue rose by 3.6% to SEK 67.2 billion, while net profit rose 9% to SEK 1.6 billion. Volvo also revised up its forecast for restructuring costs to between 6 and 7 billion kronor from 5 billion previously.

The Chief Executive Officer of the company – Mr. Olof Persson commented on the companys performance for the Financial Times: “I see this quarter as a small but a very solid step in our journey to become one of the most profitable in the industry. There is a lot of hard work still to be done.”

The companys margins, however, have declined during Mr. Perssons time as Chief Executive Officer. Still, his cost-reduction program has received a warm welcome by the companys investors.

Matthias Eriksson, a Stockholm-based equity strategist at Nordea Bank, commented for Bloomberg that Volvos performance over the quarter was “a step into the right direction”. He added: “They have identified more cost-cutting potential and have to continue to improve results in a major way in the coming quarters.”

Volvo AB rose 7.12% on Friday in Stockholm to settle the session at SEK 83.45 per share, marking a one year change of -11.55%. The company is valued at SEK 178.16 billion. According to the Financial Times, the 25 analysts offering 12-month price targets for Volvo AB have a median target of SEK 90.00, with a high estimate of SEK 110.00 and a low estimate of SEK 62.00. The median estimate represents a 7.85% increase from the last price of SEk 83.45.

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