By Adam Haigh - Jan 25, 2012 7:29 PM GMT+0700
European stocks fell for a second day after Ericsson AB and Novartis AG (NOVN) posted earnings that missed analysts’ estimates. U.S. index futures retreated, while Asian shares climbed.
Ericsson, the world’s largest maker of wireless networks, plunged 14 percent after reporting fourth-quarter net income that missed analysts’ estimates. Novartis, Europe’s biggest drugmaker by sales, declined 3.4 percent. ARM Holdings Plc (ARM) climbed 4.1 percent after Apple Inc. posted quarterly profit that more than doubled.
The benchmark Stoxx Europe 600 Index slipped 0.8 percent to 254.04 at 12:27 p.m. in London. Futures contracts on the Standard & Poor’s 500 Index expiring in March lost 0.4 percent, while the MSCI Asia Pacific Index rallied 0.7 percent.
“Earnings estimates still look extremely optimistic,” Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said in a phone interview from Brussels. “We would be cautious on risky assets at the moment. Let’s not forget the overall economy is weak.”
Earnings per share for companies in the Stoxx 600 probably rose by 12 percent on average in 2011, according to more than 12,000 analyst estimates compiled by Bloomberg. They may increase by 7 percent this year, the forecasts show.
U.K. Economy Contracts
The U.K. economy shrank in the fourth quarter more than economists had forecast as manufacturers cut output and services stagnated, leaving Britain on the brink of another recession. Bank of England policy makers voted unanimously this month to keep their target for bond purchases unchanged, with some officials saying more stimulus is “likely” to be needed after the current program is complete.
Ericsson plunged 14 percent to 58.95 kronor, its largest drop since 2008, after reporting fourth-quarter net income of 1.15 billion kronor ($169 million), missing analysts’ estimates for profit of 4.24 billion kronor.
These results are “spectacularly dreadful, even with low expectations,” said Neil Campling, an analyst at Aviate Global LLP in London. “A further problem for the investment community going forward is Ericsson’s continued insistence on giving no guidance. We’d expect a plethora of downgrades to follow.”
Novartis fell 3.4 percent to 50.25 Swiss francs for the largest contribution to the Stoxx 600’s slide. The drugmaker said sales probably won’t grow this year and profitability will be hurt as the drugmaker’s biggest-selling medicine loses U.S. patent protection. Fourth-quarter net income excluding some costs rose to $3 billion, or $1.23 a share, from $2.8 billion, or $1.14, a year earlier. Analysts had predicted $1.24 a share, the average of 14 estimates compiled by Bloomberg.
Roche, Lonza Slide
Roche Holding AG (ROG) lost 2.3 percent to 160.90 francs after offering about $5.7 billion in cash for Illumina Inc. to bolster its cancer-drug sales. Roche proposed paying $44.50 a share for Illumina, 18 percent more than yesterday’s closing price. Roche will put the offer directly to shareholders after the San Diego- based company was “unwilling to participate in substantive discussions,” Roche said in a statement.
Lonza Group AG (LONN) tumbled 11 percent to 54.40 francs, its largest slide in more than two years, after saying it is seeking a successor to Chief Executive Officer Stefan Borgas and reporting a 46 percent decline in profit last year.
Banks retreated in Britain as the economy shrank more than forecast. Royal Bank of Scotland Group Plc fell 3 percent to 26.25 pence and Lloyds Banking Group Plc slid 2.8 percent to 30.8 pence. Barclays Plc slipped 1.7 percent to 214.8 pence and HSBC Holdings Plc declined 1.6 percent to 531.7 pence.
Petroplus Holdings AG retreated 8.3 percent to 22 centimes, extending the 84 percent slide yesterday when the largest independent European refiner said it planned to file for insolvency.
Apple’s Earnings
Declines in European shares came as Apple Inc. (AAPL) reported quarterly profit that more than doubled.
Apple reported per-share profit for its fiscal first quarter of $13.87, more than it earned in any full year before 2010. The company forecast revenue of about $32.5 billion and profit of $8.50 a share for its fiscal second quarter. That compares with analysts’ predictions for sales of $31.9 billion and profit of $7.96 a share. The stock trades at a price- earnings ratio of 10.9 times, based on estimated profits, according to data compiled by Bloomberg.
“It’s the largest company I’ve ever seen, with the fastest growth earnings, selling for the cheapest multiple, ever,” said Kenneth Schapiro, president of Condor Capital Management, which oversees $500 million in Martinsville, New Jersey. He spoke in a Bloomberg Television interview with Susan Li.
ARM Shares Gain
ARM’s shares rose 4.1 percent to 604 pence. ARM is the U.K. owner of chip technology used in Apple’s iPhone and iPad. Apple shares rallied 7.7 percent to $452.59 in early New York trading.
The Federal Reserve will release rate forecasts for the first time today. Business and political leaders gathered in Davos, Switzerland, for the start of the World Economic Forum’s annual meeting.
The Stoxx 600 has risen 3.9 percent so far this year amid signs that the U.S. economy is recovering and as investors speculated that the euro area will contain its debt crisis and China will reduce curbs on lending.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net
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