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Scania Looks at Adding Production on Europe Replacements

July 19 (Bloomberg) -- Scania AB, the Swedish truckmaker controlled by Volkswagen AG, plans to increase production rates to ensure short delivery times after second-quarter orders rose 15 percent.

Sales contracts increased to 22,564 trucks and buses from 19,586 vehicles a year earlier, while deliveries jumped 33 percent, Soedertaelje, Sweden-based Scania said today in a statement. Net income fell 6 percent to 1.37 billion kronor ($210 million) as a strengthening Swedish currency and truck-price pressure weighed on earnings. Revenue gained 19 percent to 22.8 billion kronor.

“The economic climate remains uncertain, but there is a replacement need,” Chief Executive Officer Martin Lundstedt said in the statement. “Scania is continuing its efforts to expand annual technical production capacity toward 120,000 vehicles.”

The manufacturer is rolling out new vehicles that meet tighter emissions standards to drive sales in a bid to counter recessions across Europe. New registrations of heavy commercial vehicles weighing more than 16 metric tons in the region, excluding buses and coaches, fell 13 percent in the first five months of 2013, with double-digit declines in all major markets, industry association ACEA said on June 28.

Scania fell as much as 5.1 percent to 140.3 kronor, the steepest intraday drop since April 2012, and was trading down 2.7 percent at 10:30 a.m. in Stockholm, valuing the manufacturer at 113.8 billion kronor.

Margin Declines

Operating profit in the quarter rose 5 percent to 2.04 billion kronor. The operating margin narrowed to 8.9 percent of sales from 10.1 percent a year earlier.

JPMorgan Chase & Co. reduced its recommendation on Scania stock to neutral from overweight earlier this month, with a share-price estimate of 140 kronor, saying risks to growth in the European truck industry next year are increasing.

“We continue to view Scania as the best executor amongst our truck coverage but, with no upside to our price target, we prefer a neutral positioning until the risks in Europe and Brazil are understood or reflected in the stock,” Alexander Whight, a London-based analyst at JPMorgan, said in a note to clients on July 9.

Volkswagen, Europe’s biggest automaker, is forging a truck alliance between Scania and its Munich-based MAN SE truck division to reap cost savings and take on global market leader Daimler AG.

A domination and profit and loss agreement giving VW full control of MAN is now in effect after being entered in the corporate register, the truckmaker said on July 17. VW promoted former Scania CEO Leif Oestling to run its group trucks operation last year to lead cooperation efforts.

To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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