Bloomberg News

European Stocks Gain for Second Week on Company Earnings

April 27, 2012

European stocks advanced for a second week after better-than-forecast earnings outweighed disappointing economic data and political uncertainty in France and the Netherlands.

Volkswagen AG led gains in automakers after first-quarter profit beat analysts’ estimates. Vinci SA paced building companies higher as sales topped forecasts. Cable & Wireless Worldwide Plc gained after agreeing to be bought by Vodafone Group Plc while Rhoen Klinikum surged after receiving an unsolicited takeover offer.

The Stoxx Europe 600 Index (SXXP) advanced 0.5 percent to 259.12 this week, extending last week’s 1.7 percent rally. The measure has still lost 4.9 percent since its 2012 high in March amid renewed concerns that the euro-area is yet to contain its sovereign-debt crisis.

“Equity investors are relying on supportive earnings and valuation considerations to offset top-down challenges that have intensified,” Ian Williams, a London-based strategist at Peel Hunt, wrote in a note to clients. “The euro-zone’s economic weaknesses are prompting a political backlash, the U.S. recovery is losing pace and the U.K. is back in recession.”

National benchmark indexes rose in 12 of the 18 western European markets. The U.K.’s FTSE 100 Index (UKX) gained 0.1 percent, Germany’s DAX added 0.8 percent and France’s CAC 40 climbed 2.4 percent. Spain’s IBEX 35 Index advanced 1.5 percent even as Standard & Poor’s cut its credit rating for the country for the second time this year.

The Stoxx 600 sank to a three-month low on April 23 after reports showed manufacturing contracted in the euro area and China, while French President Nicolas Sarkozy became the first incumbent since 1958 not to win the opening round of the nation’s election. Dutch Prime Minister Mark Rutte also offered to resign after struggling to clinch an austerity deal.

U.K. Recession

Reports this week also showed that the U.K. slipped into its first double-dip recession since the 1970s, while an index of executive and consumer sentiment in the euro area fell to 92.8 from a revised 94.5 in March. In the U.S., the economy expanded less than forecast in the first quarter while more Americans than estimated filed for jobless claims last week.

More than 100 of the Stoxx 600’s companies posted results this week. Of those that have reported since April 10, earnings topped estimates by 6.9 percent on average, according to data compiled by Bloomberg.

Volkswagen surged 13 percent after the world’s second- largest carmaker reported first-quarter profit that beat analysts’ estimates on higher earnings at the Audi luxury brand. Operating profit rose 10 percent.

Porsche SE jumped 10 percent. Daimler AG gained 2.1 percent as the maker of Mercedes-Benz cars reported an unexpected increase in first-quarter profit.

French tiremaker Michelin & Cie. increased 9.2 percent. The company reported a 5.1 percent rise in first-quarter revenue on higher demand for specialty tires to equip earthmovers, aircraft and agricultural vehicles.

Vinci Rises

Vinci gained 5.1 percent after the company posted a 6 percent increase in the first-quarter sales, beating analysts’ estimates.

Royal Philips Electronics NV, the world’s biggest light- bulb maker, Electrolux AB, the world’s second-largest appliance maker rallied 6.5 percent and 5.7 percent respectively as they reported first-quarter earnings that topped analyst estimates.

Cable & Wireless jumped 12 percent after Vodafone agreed to buy the U.K. company for 1.04 billion pounds ($1.7 billion).

Rhoen Klinikum surged 47 percent after Fresenius SE offered to buy the German hospital operator for 3.1 billion euros ($4.1 billion).

Man Group Plc jumped 12 percent amid speculation the world’s largest traded hedge fund manager may be a takeover target. Societe Generale SA said while a takeover bid could not be “ruled out,” it is unlikely to happen in the near term given the uncertain market backdrop for a potential buyer. UBS AG earlier in the week said the company was a “likely” takeover target.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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