STOCKHOLM (Reuters) -Volvo Cars reported on Thursday a small rise in adjusted profit for the third quarter despite tariffs and tough competition as a drastic cost-cutting programme delivered faster than expected.

The group, which is based in Sweden but majority-owned by China's Geely Holding, said operating profit before restructuring costs totalled 5.9 billion crowns ($627 million) in July-September against a year-earlier 5.8 billion despite a 7% sales drop with fully electric cars still accounting for less than a quarter of sales.

Profitability, however, improved from the second quarter, and analysts at JPM said in a note to clients that profits were above market expectations.

Hakan Samuelsson, a former CEO, was brought back this year as chief executive to help revive Volvo Cars' low share price. He has since launched a cost-cutting programme slashing 3,000 jobs, pulled earnings guidance and slowed down investments.

The carmaker's gross margin widened to 24.4% from the previous quarter's 17.7%. Samuelsson told Reuters that was due to the best-selling XC60 model getting a facelift as well as big savings thanks to increased cooperation with Geely's supply chain and the cost-cutting programme.

"What we're now seeing is really, wow okay, this is delivering faster than we thought and faster than we planned," Samuelsson said of the programme. 

LOWER US TARIFFS

Volvo Cars is one of the European carmakers most exposed to U.S. tariffs as most of its U.S.-bound cars are exported from Europe. However, it has recently taken steps to move production of some hybrids to America in the coming years.

Recent trade negotiations between the European Union and the U.S. resulted in a reduction of U.S. tariffs on European cars to 15% from August 1 retroactively, from 27.5% previously. 

"We still face several challenges, including continued price competition and the effects of U.S. import tariffs," Samuelsson said in a statement.

"However, the recent tariff agreement between the U.S. and EU offers much-needed clarity and also lowers tariffs for imports to the EU."

  ($1 = 9.4155 Swedish crowns)