By Niklas Pollard and Johannes Hellstrom

STOCKHOLM (Reuters) - Swedish truck maker AB Volvo reported a smaller than expected fall in fourth-quarter earnings in the face of slowing demand and announced plans on Thursday for a payout to shareholders that exceeded market expectations.

The downturn in the volatile truck cycle that will be a test of Volvo's resilience with CEO Martin Lundstedt having spent his four years at the helm boosting flexibility across the group.

With forecast-beating earnings and shareholder payout, analysts saw clear signs Lundstedt's work is paying off.

"This is really what people have been waiting for," Handelsbanken Capital Markets analyst Hampus Engellau said.

"The first quarter will be weaker. But if it is weaker from these levels, that still makes for very strong figures."

Operating profit at the maker of trucks, construction equipment and buses fell to 9.2 billion crowns ($969 million) from a year-ago adjusted 10.6 billion, beating an analysts' mean forecast of 8.4 billion, according to Refinitiv estimates.

The rival of Germany's Daimler and newly listed Traton <8TRA.DE> said it was focused on adapting to lower volumes and while its production in Europe was well aligned with demand in Europe, further cuts were needed in North America.

"Our increased profitability and strong financial position allow us to invest in our future as well as return cash to our shareholders," Lundstedt said in a statement.

Strong truck sales ahead of the current slump have helped drive cash generation at Volvo in recent years, allowing it to give an extraordinary payout to shareholders a year ago and fuelling analysts' expectations for more of the same.

Volvo proposed raising its ordinary dividend to 5.5 crowns per share from a year-ago 5.0 crowns and said it planned an extra dividend of 7.5 crowns per share, up from the 5.0 crown per share bonus payout last year.

Analysts had on average forecast a total payout of 10.36 crowns per share for 2019, Refinitiv estimates showed.

The Gothenburg-based company maintained its forecast for heavy truck markets to contract just under 15% in Europe and nearly 30% in North America this year, an outlook broadly in line with that delivered by U.S. rival Paccar (NASDAQ: PCAR) earlier this week.

Order intake of its trucks, which includes brands such as Mack and Renault, was down 10 percent year-on-year in final quarter of last year, a far milder slump than the 45 percent decline recorded in the preceding quarter.

(Reporting by Niklas Pollard; editing by Johannes Hellstrom and David Evans)

Reuters