Garden and construction tool maker Husqvarna (HUSQb.ST) posted a slightly smaller drop than expected in second-quarter profit as consumer product sales in the U.S. rose despite the global recession.

Husqvarna said shipments in the third quarter — just as in the second quarter -- would drop somewhat year-on-year as the global economic downturn kept hurting demand for lawn mowers and hedge cutters as well as chainsaws and power cutters.

"Uncertainty remains regarding shipments due to the recession. Consumer demand is likely to remain low and retailers are expected to continue to focus on maintaining inventories at low levels," it said.

Chief Executive Officer Magnus Yngen told Reuters that while the European market for its consumer goods — its biggest business before professional goods — may continue to decline, the U.S. market may have reached bottom. "I think we see that it is bottoming out," he said.

Husqvarna reported operating income of 1.12 billion Swedish crowns ($143 million), compared with a year-earlier 1.32 billion and a forecast for 1.09 billion in a Reuters poll from July 14.

Yngen said Husqvarna had taken market shares in the U.S. and had no plans for further major savings programs.

"The decline in operating income refers to lower volumes, particularly for Professional Products, as well as a less favorable product/country mix. Pricing in the quarter remained stable in both Europe and North America," Husqvarna said.

"Cash flow showed a continued positive trend, and our efforts to reduce inventories and accounts receivables have paid off."

Margin Pressure in 3Q

Sales in April to June — the firm's most important quarter as it marks the start of the gardening season — fell 7%, adjusted for changes in exchange rates and acquisitions, to 11.5 billion crowns, versus a forecast for 11.6 billion.

Husqvarna warned third-quarter operating margins would be hit by an unfavorable product mix as mass-market consumer products would make up a larger share of group sales, while the share of higher-margin professional products would be lower.

Evli Bank analyst Michael Andersson said the report was overall good news, with consumer goods sales in the Unites States unexpectedly rising for the third consecutive quarter. "That must be seen as a sign that market has hit bottom. Consumer products were also up in Europe."

Shares in Husqvarna however fell, by 5 percent to 44.50 crowns at 0842 GMT. A trader said a surprisingly strong report by Swedish appliances maker Electrolux on Thursday, helped by lower raw material costs, had pushed up investors' hopes for Husqvarna.

"Hopes grew Husqvarna may have earned as much from the (raw materials) price change. It (the share) is now back to roughly where it was before the Electrolux report," the trader said.

Evli's Andersson said professional products disappointed with its 23-percent decline in sales. "That is because of weakness in their construction segment. They also say this will be sustained in the third quarter and hurt margins."

Husqvarna estimates that more than nine-tenths of the world market for its products is located in North America and Europe, where customers have grown increasingly wary due to the economic slowdown. ($1=7.818 Swedish crowns) (Editing by Mike Nesbit)