Oct. 24 (Bloomberg) -- Volvo AB, the second-largest maker of heavy trucks, and Scania AB reported lower-than-anticipated earnings and said they'll cut production after industrywide European sales fell for a fifth straight month.

Volvo plunged the most in at least 19 years in Stockholm trading. The Gothenburg, Sweden-based company won just 115 European orders in the third quarter, down from 41,970 a year earlier. Soedertaelje, Sweden-based Scania slipped 8.9 percent to a four-year low.

Heavy-truck sales fell 4.8 percent to 28,947 in September as the credit crisis and concern about a recession deterred buyers, the European Automobile Manufacturers Association said today. Volvo lowered its full-year forecast for the European and North American markets.

``Truckmakers are even more linked to the economic cycle than carmakers and are more vulnerable,'' said Luca Peviani, a hedge fund manager at P&G Sgr in Rome. ``Investment spending is more volatile.''

Truck manufacturers earn more money per vehicle than carmakers and a lack of assembly capacity allowed them to lift prices in boom years. Even during times of high economic growth car companies have struggled to boost profit because of overcapacity. Volvo sold its car unit to Ford Motor Co. for $6.43 billion in 1999 to concentrate on heavy trucks.

Volvo Profit Shrinks

Volvo's net income fell 37 percent to 1.98 billion kronor ($253 million), or 0.98 krona a share, from 3.12 billion kronor, or 1.54, a year earlier, the company said today. That missed the 3.26 billion-krona median estimate of analysts surveyed by Bloomberg. Sales rose 1.8 percent to 69.6 billion kronor, also missing estimates.

Scania said today third-quarter profit rose 3.6 percent, also less than analysts had anticipated, as European customers become more cautious in ordering new equipment. The company plans to adjust production ``in light of lower overall order bookings and higher inventories.'' Third-quarter orders fell 30 percent.

``It's very difficult to make new forecasts as the banking system is not functioning well and the liquidity squeeze is affecting our customers,'' Scania Chief Executive Officer Leif Oestling said in a presentation to analysts. Measures to boost liquidity in global markets may take ``a couple of quarters'' to have an impact on truck demand, he added.

Markets Shrivel

Volvo said the European market for heavy trucks may be flat this year, while North America will contract by 10 percent. The company had previously forecast growth of 10 percent in Europe, with North America industrywide truck deliveries unchanged.

``It's a sign that the market's falling fast,'' Anders Bruzelius, an analyst with Swedbank in Stockholm, who recommends that investors buy Volvo shares.

Volvo has cut production at two European factories and is eliminating 1,400 jobs at its truck division in response to slowing demand. The company, which also makes excavators and boat and aircraft engines, plans to eliminate 1,350 positions at its construction-equipment unit as a faltering U.S. housing market deters sales. Volvo said today it will need to adapt production further.

Volvo plummeted 6.20 kronor, or 14 percent, to 37.30 kronor, a five-year low. Shares of Scania dropped 8.9 percent to 54 kronor.

``We're heading towards the sharpest downturn I've ever seen in Europe,'' Volvo CEO Leif Johansson said during a presentation with analysts. ``We have a number of customers that aren't sure they'll be able to get credit. We will have to adjust to whatever comes our way.''

`More Severe'

MAN AG, Europe's third-largest truckmaker after Daimler AG and Volvo, said Oct. 10 it plans to reduce its workforce and cut production. Paccar Inc., the maker of Kenworth and Peterbilt trucks, is cutting production at its DAF Trucks unit in the Netherlands and is forecasting declining European sales in 2009.

The Iveco truck unit of Fiat SpA, was the manufacturer's only division yesterday to report a decline in third-quarter sales. Revenue fell 6.2 percent to 2.4 billion euros, hurt by a 26 percent drop in deliveries in Europe. Iveco cut production of its best-selling Daily truck model at its Suzzara, Italy, plant by about 10 percent in July. Fiat forecast the European truck market will contract 3 percent this year.

Volvo today said the construction equipment division, the second-largest after trucks, suffered a 44 percent decline in its order book in the third quarter and that ``there are increasing signs of demand weakening also in markets outside Europe and North America.''

To contact the reporter on this story: Chad Thomas in Helsinki at cthomas16@bloomberg.net; Marco Bertacche in Milan at mbertacche@bloomberg.net.

Last Updated: October 24, 2008 12:31 EDT