Garden and construction tool maker Husqvarna (HUSQb.ST) flagged a modest upswing in demand next quarter after Europe and Asia helped it beat forecasts for second-quarter operating profit and its shares rose.

The Swedish company said on Tuesday that retailers were absorbing more of its output following a dismal 2009, but cautioned that the optimism was tempered by reluctance among its customers to build up their inventories or offer longer term visibility on orders.

Chief Executive Magnus Yngen told Reuters that he had not changed his outlook for modest, single-digit market growth this year, though he was upbeat on the outlook for raw material costs which he said would have a positive effect versus 2009. Its shares rose 5.7 percent to trade at 49.05 crowns, outpacing the broader Stockholm blue chip index, by 0734 GMT.

"It's a strong report in spite of the uncertain market view," said Peter Naslund, an analyst at Swedbank. "Husqvarna has taken market share and boosted its sales."

Looking to the third quarter, Husqvarna said robust demand from Europe and Asia would drive sales and lift revenue for its construction business area, though shipments to the United States were seen on par with levels seen a year ago.

U.S. sales in the second quarter suffered from the loss of listings with a major retailer, the company said, leading to a five percent decline in sales from a year ago.

Demand Rising

"Although it seems our industry has passed the bottom of the recession and end-user demand is on the rise, the trade still remains cautious regarding inventory management," chief executive Magnus Yngen said in a statement.

"Our estimate is that...shipments in the third quarter will be slightly higher compared with the third quarter of 2009."

The garden tool company was hit hard during the global recession last year as landscaping projects went on hold, retailers drew down their inventories and revised their supplier lists, leading to anaemic orders and sales.

The view has gradually brightened this year, with orders picking up as the weather grew warmer in June. Yngen said demand had risen between one and two percent in the first half of 2009 and would improve in most of its markets.

"We think the underlying market has turned and that demand for our products has grown somewhat," Yngen told Reuters. "We see a recovery but not a dramatic, quick and strong recovery."

Husqvarna, which makes tools ranging from chainsaws to hedge-trimmers, posted an operating profit of 1.3 billion Swedish crowns ($176.9 million) versus a year-ago 1.1 billion and a mean forecast of 1.2 billion in a poll of analysts.

In the United States, however, Yngen said shipments next quarter were not likely to exceed the year-ago numbers.