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STOCKHOLM (Reuters) - World number two truck maker Volvo AB (VOLVb.ST) raised its outlook for the North American market and reported the first savings from a drive to cut costs across the sprawling group, sending its shares to their highest in nearly three years.
Truck makers are heading into 2014 with U.S. demand gaining pace, while an anticipated hangover in Europe following a buying spree of older but cheaper trucks ahead of new emission rules is offset by a firmer economy and a growing need to replace ageing fleets.
Volvo, vying for market leadership with Germany's Daimler AG (DAIGn.DE), said demand was improving in mature economies on both sides of the North Atlantic and in Japan, though emerging markets in South America and Asia were slowing somewhat.
"We see a gradual improvement in sentiment on the European market ... we have adapted our capacity accordingly and we start to see the effects from the efficiency program now coming into our results," Chief Executive Olof Persson said.
While keeping its outlook for the European market unchanged at 230,000 heavy trucks, Volvo said it now expected the North American market to expand roughly 8 percent to 260,000 units this year, compared with previous guidance of 250,000.
"We are also planning for a slight increase in the production level towards summer," it said, referring to its operations in North America, its second-biggest market after Europe and accounting for over a quarter of its truck sales.
Volvo, Sweden's biggest company by sales and its top private sector employer, however lowered its guidance slightly for Brazil - a major market for truck makers in recent years due to lavish government subsidies of truck purchases - due to a slowdown in South America's biggest economy.
For Volvo, 2014 is the year in which it must show evidence its sweeping efficiency measures are feeding through to the bottom line, with growing pressure to deliver from the likes of activist fund Cevian, its second-biggest owner by votes.
Volvo, whose profitability has traditionally lagged rivals such as Scania AB SCVb.ST, reached an operating margin of 3.9 percent, in line with analyst forecasts and far better than a year ago, but still a far cry from the 10.7 percent reported by its smaller Swedish rival.
Volvo in 2012 embarked on a scheme including the cutting of thousands of jobs aimed at raising its operating margin by 3 percentage points by the end of 2015. At the time, its margin stood at nearly 9 percent.
"I see this first quarter as the first stepping stone in the right direction, but we have a lot of work still to be done and we are going to keep the focus," Persson, who has championed the efficiency measures, told a news conference.
The Gothenburg-based truck maker said cost cuts in areas such as research and development and marketing helped reduce spending by 400 million crowns in the quarter, while it had shed 900 of 4,400 white-collar jobs it plans to cull.
The company's first-quarter operating earnings excluding restructuring charges rose to 2.59 billion crowns ($393.8 million) from a year-ago 496 million, roughly on par with a mean forecast 2.52 billion in a Reuters poll of analysts.
Volvo, which makes trucks under the Renault, Mack and UD brands as well as its own name, also said order intake of its trucks fell 10 percent year-on-year in the first quarter, lagging the 7 percent decline seen by analysts.
The fall in order intake was mainly due to a short-term slump following the introduction of the European emission rules at the turn of the year and Volvo said it expected demand to pick up through the course of the year.
Volvo shares were up 0.8 percent at 104.1 crowns by 0917 GMT, having risen as high as 105.7 crowns, their highest since mid 2011.
($1 = 6.5777 Swedish Crowns)
Editing by Alistair Scrutton and David Holmes