Actual finance blog

Swedish truck maker AB Volvo said Thursday that higher costs contributed to a 2 percent drop in profits in the first quarter even though a buoyant performance in North America helped it record its strongest-ever sales for the period.

The sales performance impressed investors and the company’s share price spiked 5 percent to 94.10 kronor ($13.97) in early market trading on the Stockholm stock exchange.

The Goteborg-headquartered group recorded a net profit of 4.01 billion kronor ($595 million) for the first three months of the year, down slightly from the 4.08 billion kronor earned in the same period a year earlier. Costs, and especially those linked to research and development, dragged the bottom-line figure down compared with last year.

However, revenues jumped 10 percent to 78.84 billion kronor however _ the highest Volvo has ever recorded during a first quarter. They were boosted primarily by sales in the company’s key truck unit in North America. The trend in Europe stayed more or less unchanged from the previous year after a fall in demand in the fourth quarter, it said.

CEO Olof Persson said his company “showed its strength in being a global operation, when setbacks in some of our important markets were offset by positive developments in other markets.”

He also said that Volvo will keep investing in growth markets “by developing new products and further strengthening the sales and service networks.”

Volvo appeared a bit more optimistic about the European outlook as it revealed plans to ramp up production and raised its forecast for the heavy-duty truck market. It now expects an order intake of 230,000 trucks in 2012.

The forecast for North America remained unchanged, while production will be reduced in South America in May and June as the market switches over, and adapts to stricter emission requirements.

“We anticipate the demand will rise again in the second half of the year,” Persson said, noting the full-year forecast for Brazil therefore remains unchanged.

The outlook for Japan was also kept unchanged.

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From oil fields to wind turbines to coal mines, size and scale rule the economics of energy.

But the nuclear industry is thinking small these days.

The latest evidence came last week when Ameren Missouri and Westinghouse Electric Co. announced plans to pursue a $452 million federal subsidy to advance development of small modular reactors that could be built alongside the utility’s much larger Callaway nuclear plant near Fulton, Mo.

While some utilities are still pursuing full-scale plants, there is a parallel push for smaller reactors that could be easier for utilities to finance and minimize sticker shock for regulators and consumers. But despite a lower total cost, there’s no evidence yet that tiny fission factories would be able to produce electricity at a competitive cost in an era of abundant, cheap natural gas.

“There just isn’t any proof that small reactors are going to be any more economic than larger ones,” said Peter Bradford, an adjunct law professor at Vermont Law School and a former Nuclear Regulatory Commission member. “At this point, it’s all about hype and hope.”

The so-called small nuclear reactors promise the same benefits as larger ones: namely, an option for around-the-clock, low-carbon electric generation that could be a key in replacing aging coal plants.

For utilities considering nuclear technology, the smaller size means a smaller price. Even using the most generous cost estimates, a new nuclear plant the size of Ameren Missouri’s existing Callaway plant could rival or exceed the $7.5 billion market value of the utility’s entire parent company.

But the differences go beyond size. For one, the small reactors envisioned would be modular, able to be manufactured at a central factory, shipped by rail, ships or truck and assembled on site. That means a potentially larger market for vendors like Westinghouse.

“This (small) plant will appeal to a very broad market,” Kate Jackson, a Westinghouse senior vice president and chief technology officer said last week.

SEARCH FOR ALTERNATIVES

The pursuit of small reactors represents a new path to the oft-referenced nuclear renaissance.

It was only a few years ago that the industry focused strategy on certification of a few large reactor designs that would, in theory, eliminate the risk and uncertainty, cost overruns and construction delays that tainted the last nuclear plant boom.

While new reactors are going forward in Georgia and South Carolina, a full-tilt nuclear revival hit a wall for several reasons. Among them: the inability of utilities to finance projects that cost multiple billions of dollars.

In fact, more than half of the new reactors for which construction and operating licenses were sought have been deferred or cancelled, including Ameren Missouri’s proposed 1,600-megawatt Callaway 2 plant.

Andrew Klein, a nuclear engineering professor at Oregon State University, sees small reactors as part of a new strategy that could help utilities get over the hump by adding new capacity in small bites. They could then use revenue from the first small reactors to help finance subsequent units as more generating capacity is needed.

“It’s an entirely different business model,” he said.

The Obama administration, which is pushing for development of low-carbon energy technologies, sees potential, too. And the president wants the United States to take the lead in developing the industry.

Last month, Obama proposed $452 million to help speed up development of small modular reactors. The funding availability would come on top of $8 billion in loan guarantees for the Vogtle twin-reactor nuclear project in Georgia low fee payday loans.

The federal funding, which has yet to be appropriated by Congress, would support engineering, design certification and licensing of up to two plant designs that have the potential to be licensed and in commercial operation in a decade.

Westinghouse says it believes it has an advantage because the 225-megawatt reactor it’s developing is an offshoot of the company’s full-size AP1000 reactor that has already been certified by the Nuclear Regulatory Commission.

“The path from here to the end is shorter for us than anyone else,” Jackson said. No other vendor has been through the new licensing process and has technology that’s already been licensed.”

PIECE OF THE PIE

At least two other groups have indicated they will seek a share of the federal grant. Both are eyeing the Department of Energy-owned Savannah River site in South Carolina, and are being backed by NuHub, an economic development initiative in South Carolina.

Holtec International Inc. on Tuesday said it intends to seek a share of the federal funding to speed up development of its 160-megawatt small modular reactor. Two weeks ago, NuScale Power, based in Corvalis, Ore., announced plans to seek funding to accelerate development of its 45-megawatt nuclear modules at Savannah River site.

Other nuclear industry players are pursuing modular designs. And at least one other utility has publicly expressed interest in small reactors.

The Tennessee Valley Authority has said it is looking at Babcock & Wilcox’s small reactor design for a project on a utility-owned site near the Energy Department’s Oak Ridge National Laboratory.

For all the hype, small reactors, are still at least a decade away. And that’s if design, licensing and commercial development go at the pace hoped for by the nuclear industry.

And even then, the potential for small reactors hinges on how they compete in the energy marketplace. More than concerns about nuclear safety in the wake of Fukushima disaster in Japan or the dilemma of where to dispose of highly radioactive spent nuclear fuel, the technology’s future will be dictated by economics.

Jackson said Westinghouse aspires to make small reactors whose costs are equal to or less than full-size reactors.

For now, there’s no cost data for small reactors, and no firm evidence they will produce electricity at a lower price than larger plants.

“It’s too early to determine that,” Klein said. “We’re going to have to see some built.”

Ameren Corp. CEO Thomas Voss said at Tuesday’s shareholder meeting that if a new power plant was needed today, the lowest cost option would be a natural gas-fired power plant, not nuclear.

But gas prices have been especially volatile over the past several years. After spiking to more than $14 per thousand cubic feet in mid-2008, prices have plunged to less than $2 — the lowest level in about a decade.

That kind of volatility makes utilities hesitant to commit to natural gas-fueled power over the long haul, so Ameren continues to pursue nuclear development in Missouri to keep the option available in years to come, Voss said.

“We continue to believe nuclear power will to play a role in meeting Missouri’s energy needs,” he said.

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The cost of one of the country

European stocks faltered Wednesday after two days of gains but Asian markets jumped on speculation Japan might take new measures to spur its economy.

Stocks in Europe recovered their poise this week after a run of losses, with sentiment bolstered by solid U.S. corporate earnings, a surprise improvement in German investor sentiment and relatively well-received Spanish bond auctions. An upward revision to the International Monetary Fund’s global growth forecast also underpinned confidence.

How European markets close out the week will depend on Spain’s ten-year bond auction on Thursday. If it goes badly, investors will likely fret once again about the country’s ability to get a handle on its debts.

Spain has become the main source of concern in Europe’s debt crisis as investors worry about the government’s ability to push through a raft of austerity measures at a time when unemployment stands at a startling 23 percent and the economy is in recession.

The yield on the country’s ten-year bond on Monday spiked above 6 percent, not far off the 7 percent rate that eventually forced Greece, Ireland and Portugal into seeking financial help from their partners in the eurozone.

In the past two days, however, it has edged back down to more manageable levels. On Wednesday, it was down a further 0.15 of a percentage point at 5.74 percent.

Despite the drop in the yield, Spanish stocks continued to oscillate wildly. On Wednesday, the main IBEX index down 2.2 percent. Elsewhere in Europe, the FTSE 100 index of leading British shares was 0.1 percent lower at 5,760 while Germany’s DAX fell 0.5 percent to 6,769. The CAC-40 in France was 1.1 percent lower at 3,254 poor credit personal loans.

The euro was also faring poorly in the risk-averse environment, trading 0.4 percent lower at $1.3074.

Wall Street was poised for modest losses at the open after registering one of its strongest gains in a month. How it will actually perform will depend on the next run of U.S. quarterly corporate earnings.

“With the U.S. earnings season in full flow, investors will be looking to see if earnings reports continue to beat expectations,” said Chris Beauchamp, market analyst at IG Index.

Earlier in Asia, sentiment was buoyed by indications that the Bank of Japan may do more to prop up the economy. Kyodo news agency reported that Deputy Governor Kiyohiko Nishimura’s suggested the central bank might take additional stimulus steps to tackle deflation.

That helped the Nikkei 225 index in Tokyo to soar 2.1 percent to 9,667.26 and the dollar to rise 0.5 percent to 81.46 yen.

Other stock markets were up too, including Hong Kong’s Hang Seng, which gained 1.1 percent to 20,780.73.

Mainland Chinese shares rose on hopes for financial reforms aimed at regulating private lending and creating new institutions to serve private borrowers better, analysts said. The benchmark Shanghai Composite Index rose 2 percent to 2,380.85. The Shenzhen Composite Index gained 2.1 percent to 956.49.

Oil markets were subdued, with the benchmark New York rate down 6 cents at $104.14 a barrel.

____

Pamela Sampson in Bangkok contributed to this report.

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Hosni Mubarak’s former vice president said he decided to run for president to prevent Islamists from turning Egypt into a “religious state.”

Omar Suleiman, who was also Mubarak’s long-serving intelligence chief, said in an interview published Thursday that the Muslim Brotherhood’s fielding of a presidential candidate”horrified” Egyptians. The Islamic fundamentalist Brotherhood, which has emerged as Egypt’s most powerful political bloc after last year’s uprising, reversed an earlier decision not to field a candidate.

Suleiman told the weekly El-Fagr that the Brotherhood would control all state institutions if it wins the presidency and warned Egypt would be isolated internationally if that happened. The Brotherhood already controls just under half of parliament’s seats and is the single largest bloc. Together with other Islamists, they have a 70 percent majority in the chamber.

“It is my belief that those who demand that I run, like a majority of this nation’s citizens, are in a predicament and indeed the whole state is in a predicament, especially after the Brotherhood decided to field one of its leaders for the presidency after it pledged not to,” Suleiman, 75, said in the interview.

“That change struck horror in the souls of members of the Egyptians society. If the Brotherhood’s candidate wins the presidential election, Egypt will be turned into a religious state. All state institutions will be controlled by the Brotherhood.”

Suleiman’s comments came as the Islamist-dominated parliament debated a draft bill to strip top figures from the Mubarak regime of their political rights, including voting and running for office, for 10 years. If adopted, the law would disqualify Suleiman from running in the May 23-24 presidential election along with another candidate, Ahmed Shafiq, who was Mubarak’s last prime minister.

During Mubarak’s three-decade secular presidency, the Muslim Brotherhood was repressed with thousands of its members jailed payday loan companies.

Government representatives told the legislature on Thursday that the draft law violated the constitution, with the Justice Minister Mohammed Attiyah saying that no one should be stripped of their political rights without a court order.

Lawmakers countered that the nation remains in a “revolutionary state” that empowers the legislature to make such a law.

Others warned that a Suleiman presidency would mean the imprisonment of lawmakers and what one lawmaker described as the return of Israel’s influence in Egypt. Suleiman was a frequent visitor to Israel while Egypt maintained the Arab world’s first and longest standing peace treaty with the Jewish state.

“We are in a state of self-defense, we are defending Egypt and ourselves,” said independent Islamist lawmaker Mahmoud Khodeiri, one of the country’s top legal experts. “Omar Suleiman means Mubarak returns to the palace, and we all go to prison, and these are the lucky ones because others will be sent to the gallows.”

Mubarak is on trial for his life, charged with complicity in the killing of protesters in the uprising that toppled his regime. He was arrested in April last year, but has since been detained in hospital.

Other presidential candidates are also facing legal challenges, including the Brotherhood’s Khairat el-Shater. Some have challenged el-Shater’s candidacy on the grounds he served time in prison in connection to his political activity under Mubarak. He was pardoned by the military generals who succeeded Mubarak, but his detractors argue that more time must pass before he can run, according to the law.

The election of a president is the last stage of Egypt’s turbulent transition to democratic rule. The ruling generals who took over from Mubarak have promised to step down by July 1.

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A California “social lending” company will offer to return $461,000 to at least 175 Missouri investors under an agreement with Missouri Secretary of State Robin Carnahan.

Lending Club, based in San Francisco, sells notes to individual investors, and uses the money to fund loans to individuals.  The loans back the notes.  The company seeks both borrowers and investors over the Internet.

Carnahan’s office said the company violated state law by failing to renew its state registration.  The law requires that most securities be registered before they can be sold to investors.

Lending Club registered its investments with the state in 2008, but let the registration lapse in 2010.

In a settlement with Carnahan, the company agreed to offer refunds, along with interest calculated at 8 percent annually, to investors who want them.  The firm also will pay $100,000 to the state’s Investor Education and Protection Fund and $5,000 to the Secretary of State’s office.

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The economy in the U.S. grew at a 3 percent annual rate in the last three months of 2011, the same as previously estimated, while corporate profits climbed at the slowest pace in three years, raising the risk that business investment and hiring will cool.

The increase in gross domestic product was the biggest in more than a year and followed a 1.8 percent gain in the prior period, revised figures from the Commerce Department showed today in Washington. Company earnings were up 0.9 percent from the third quarter, the smallest advance since the last three months of 2008.

While the report showed business spending on new equipment and software climbed more the previously estimated, figures this month indicate outlays are slowing following the expiration of a government tax credit. Consumers may be poised to take a leading role in the expansion as the biggest increase in employment since 2006 gives households the confidence and means to spend.

The average cell phone customer now switches carriers as soon as his or her second two-year contract is up. That startling decline in loyalty is causing wireless companies to rethink the way they do business, according to a new study released Monday.

The average length of relationships between carriers and their under-contract customers fell to an all-time low of 48 months last year, PricewaterhouseCoopers’ found in the latest edition of its North American wireless industry survey. The comprehensive annual study includes data from all of the region’s major carriers.

The trend has building for a few years. What’s shocking is how quickly it accelerated. In 2010, the average customer-carrier relationship was 59 months — nearly a full year longer.

The most precipitous decline came among smaller cell phone companies, but large carriers like Verizon (, Fortune 500), AT&T (, Fortune 500) and Sprint (, Fortune 500) didn’t fare much better. Their average relationships with customers under contract lasted just 51 months.

"Competition is fierce, and pricing is a key element," said Pierre-Alain Sur, global communications industry leader at PwC. "That accelerates the jump from one carrier to another at the end of a contract period."

If customers are going to cut and run frequently, carriers will need to rethink their pricing models — particularly when it comes to expensive smartphones.

They’ve been encouraging customers to upgrade to smartphones because the devices bring in a new revenue stream. Most providers charge smartphone customers a premium for data usage, with plans averaging about $25 per month.

But what carriers didn’t anticipate were the incredible costs of keeping smartphone customers satisfied.

To get smartphones down to the magic price point of $200, carriers pay an average subsidy of $280 for each device — four times as much as the $70 average subsidy on a feature phone. Plus, smartphone customers are data hogs, requiring wireless companies to spend tens of billions of dollars each year improving their 3G network capacity and building out their 4G networks.

Meanwhile, average revenue per smartphone user is actually declining.

As data use grows, people are talking on their phones less easy payday loans. The average subscriber used just 638 voice minutes per month in 2011, down from 720 minutes in 2010. Customers are cutting back their voice plans, sending carriers’ average revenue per smartphone user down to $83 per month last year. That’s a drop from $86 in 2010 and $93 from 2009.

Less loyalty, growing subsidies, higher infrastructure costs and declining revenues have created an unsustainable dynamic for carriers. Profit margins are falling, and analysts expect the trend to get worse.

The iPhone is a nightmare for carriers

That means sweeping changes are coming.

"The business model is shifting, so they have to find a solution," Sur said.

Carriers have a few options.

First, they can increase prices on their phones. That’s already started to happen. Verizon and AT&T now offer a small selection of 4G phones for more than $200, with some as high as $300.

Another tactic is for them to pressure handset manufacturers to reduce device costs. Some may bargain, but the maker of the single most popular smartphone — Apple’s (, Fortune 500) iPhone — is no pushover.

Carriers could also try to find alternative sources of revenue. Right now, most are "dumb pipes," taking no revenue from the content that travels over their networks. If carriers could nab a slice of app store sales or video purchases, that might reverse their fortunes.

Finally, cell phone companies could switch to the "bring your own device" model that is popular overseas.

North American carriers have embraced the subsidy model for decades for two reasons: incompatible technologies presented steep obstacles to switching, and the subsidy model seemed to build customer loyalty.

Now, the whole industry is migrating to the 4G-LTE standard. With loyalty going out the window, carriers may drop subsidies and contracts altogether. Some may even try leasing handsets to customers.

Whichever option carriers choose, they will have to act fast, Sur thinks.

"They are going to have to determine what’s going to be the business model of the future," he said. "Carriers are at an inflection point." 

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Two prominent liberal politicians have pulled out from a panel tasked with drafting a new constitution after Islamists won a majority of seats on the body.

The 100-member panel selected over the weekend includes nearly 60 Islamists and only six women and six minority Christians. The members were chosen by parliament’s two chambers, where Islamists have a majority.

The two pulling out are independent lawmaker Amr Hamzawy and veteran Christian activist Mona Makram Obeid paperless payday loans.

They announced they were quitting the panel on Monday on their Twitter accounts.

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Confidence among U.S. consumers unexpectedly dropped in March as this year