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Earnings disappointments pull European stocks back from month highs

Stock MarketsJul 19, 2018 10:11
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© Reuters. FILE PHOTO: The German share price index, DAX board, is seen at the stock exchange in Frankfurt

By Helen Reid

LONDON (Reuters) - A rally in European stocks fizzled out on Thursday as poor results drove down advertising agency Publicis and a slide in metals prices dragged on the market.

As the earnings season got into full swing, the pan-European STOXX 600 (STOXX) fell 0.2 percent, down from the one-month high it reached in the previous session, as investors focused on a mixed bag of company results.

France's Publicis (PA:PUBP) shares tumbled 7 percent after an unexpected drop in second-quarter sales caused by underperformance at its U.S. healthcare communications business.

"While operating margin was significantly ahead of expectations, the focus will be on the weaker revenue numbers, especially as [U.S. advertising agency] Omnicom earlier this week also underperformed expectations," wrote Liberum analysts.

Publicis took British rival WPP (L:WPP) down 3.8 percent along with it, and the media sector (SXMP) fell 0.9 percent.

Europe's biggest tech stock, business software provider SAP (DE:SAPG), pared losses after a decline at the open, trading down just 0.7 percent by 0825 GMT. Its second-quarter results showed weaker-than-expected licenses growth, though it raised its outlook.

"Investors will weigh lower-than-expected licence growth and muted underlying margin expansion against continued momentum in cloud," said Goldman Sachs (NYSE:GS) analysts.

Basic resources stocks (SXPP) dragged, down 1.5 percent and near a three-month low, as metals prices resumed their selloff after a brief respite.

Overall, investors are optimistic going into the European earnings season, which is expected to deliver stronger growth than the first quarter.

"Earnings globally are still coming in on average higher than expectations," said Christopher Peel, chief investment officer at Tavistock Wealth. "I don't see anything going to stop it unless the trade tariff spat escalates and starts to bite."

Topping the STOXX was wet snuff and cigar maker Swedish Match (ST:SWMA), up 9.4 percent after second-quarter profit and margins beat the company's own expectations.

Also among winners, French telecoms firm Iliad (PA:ILD) was boosted 7.5 percent by news the company had reached 1 million subscribers in Italy and would extend its low-cost offer.

Strong results drove industrials stocks higher. Swiss engineering firm ABB (S:ABBN) climbed 4.7 percent after its second-quarter profit topped estimates. Swedish industrial machinery supplier SKF (ST:SKFb) gained 1.8 percent.

Finnish ship technology and power-plant maker Wartsila (HE:WRT1V) was the exception: its shares fell 5.1 percent after it reported smaller-than-expected quarterly profit, citing delivery timings.

Lock maker Dormakaba (S:DOKA) sank 16.4 percent, set for its worst day in 16 years, after a profit warning and postponement of mid-term targets by two years.

"The current share price levels probably imply stable to only slightly improving EBITDA margins and that dormakaba is unlikely to be able to outgrow GDP," wrote Baader Helvea analysts.

Bank stocks (SX7P) supported the index as Sweden's Nordea (ST:NDA) rose after results and Spain's Sabadell (MC:SABE) gained from a real estate deal.

Earnings disappointments pull European stocks back from month highs

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