Bloomberg News

Europe Stocks Drop as Lufthansa, Vallourec Cut Forecasts

June 11, 2014

European stocks fell from a six-year high as companies including Deutsche Lufthansa AG and Vallourec SA cut their profit forecasts.

Lufthansa slid the most since September 2001 after lowering operating-profit estimates for this year and next. Vallourec SA plunged the most in two years after predicting earnings will drop 10 percent in 2014. Airbus NV lost 3.1 percent after saying Emirates canceled its order for A350 wide-bodied aircraft. Inditex SA rose 1.1 percent after posting first-quarter profit that beat analyst estimates, and saying it plans a share split.

The Stoxx Europe 600 Index fell 0.6 percent to 347.74 at the close of trading, its biggest loss since May 15. The equity benchmark rose for a fifth day yesterday amid optimism that measures announced by the European Central Bank last week to increase inflation will send equities higher.

“This could potentially be the start of a very difficult second quarter for earnings,” said Andrea Williams, who helps manage about 50 billion pounds ($84 billion) as head of European equities at Royal London Asset Management. “There’s a big gap between where markets and earnings trends are going. The scale of Lufthansa’s cuts suggests that only a part of it is about the Venezuelan bolivar, and is probably a wider economic comment.”

Analysts have cut their earnings estimates for Stoxx 600 companies to a gain of 9.1 percent this year, compared with an increase of about 14 percent predicted at the beginning of the year, data compiled by Bloomberg show.

Ex-Dividend Trading

Nine Stoxx 600 companies including Vodafone Group Plc and Cie. de Saint-Gobain trade without the right to dividends today, shaving 0.2 point off the index. The volume of shares traded in Stoxx 600 companies was 3.2 percent higher than the 30-day average, data compiled by Bloomberg show.

The World Bank forecast that the global economy will expand 2.8 percent this year, down from a January projection of 3.2 percent. The Washington-based lender predicted slower growth for the U.S., China, Russia, India and Brazil. It left estimates for world growth in 2015 unchanged at 3.4 percent.

In the U.K., a report from the Office for National Statistics showed the unemployment rate fell to the lowest in more than five years. The jobless rate as measured by International Labour Organization methods dropped to 6.6 percent in the three months to April from 6.8 percent in the first quarter. The median estimate in a survey was 6.7 percent.

National benchmark indexes declined in all 18 western European markets today. France’s CAC 40 fell 0.9 percent, Germany’s DAX slipped 0.8 percent, and the U.K.’s FTSE 100 dropped 0.5 percent.

Airlines Decline

Lufthansa tumbled 14 percent to 17.09 euros after predicting operating profit of about 1 billion euros ($1.35 billion) this year and 2 billion euros next year. It had earlier forecast profit of as much as 1.5 billion euros in 2014 and 2.65 billion euros for 2015. The airline cited the effect of strikes and the devaluation of the Venezuelan bolivar for the reduction.

A gauge of travel-and-leisure stocks posted the second-worst performance of 19 industry groups in the Stoxx 600. IAG SA, the owner of British Airways, dropped 3.1 percent to 400 pence and Air France-KLM Group fell 7 percent to 11.05 euros.

Vallourec tumbled 11 percent to 35 euros. The French producer of steel pipes for the oil-and-gas industry said 2014 earnings before interest, taxes, depreciation and amortization will fall because of fewer orders from Petroleo Brasileiro SA, which is eliminating most of its tube inventories.

Airbus Retreats

Airbus lost 3.1 percent to 52.21 euros after saying that Emirates has canceled its planned purchase of 50 A350-900 planes and 20 of the larger -1000 variant. Emirates, the biggest buyer of the A380 aircraft, made the decision after reviewing its fleet requirement, Airbus said. The Dubai-based airline placed the order in 2007 and the first delivery was scheduled for 2019.

Rolls-Royce Holdings Plc slipped 5.5 percent to 1,017 pence. The maker of civil-aviation engines said Emirates’ cancellation reduces its order book by about 2.6 billion pounds.

Nutreco NV (NUO) dropped 2.4 percent to 31.30 euros after saying it has halted a process to sell its Iberian compound-feed and meat assets. The company said it didn’t get an offer that matched its expectations, following discussions with several potential buyers. The Dutch maker of animal-nutrition products and fish feed undertook a four-month sale process to find a buyer for the cash-generative business.

Bouygues SA (EN) retreated 6.3 percent to 32.02 euros. The family-run construction and media conglomerate will eliminate 17 percent of the jobs at its telecommunications unit after merger talks with Orange SA (ORA) and separately with Iliad SA (ILD) failed. Bouygues Telecom, France’s third-largest mobile-phone company, will cut 1,516 positions. Discussions with Iliad and Orange in the past two months were inconclusive, said Olivier Roussat, the unit’s chief executive officer.

Genel Energy

Genel Energy Plc (GENL), which owns stakes in oil and natural gas assets in Iraq’s Kurdistan region, lost 5.7 percent to 968.5 pence as militants from a breakaway al-Qaeda group captured the city of Mosul. The state-run North Oil Co. said yesterday that fighting in the northern Iraqi city forced a halt in repairs to the main pipeline from Kirkuk to the Mediterranean port of Ceyhan, Turkey. Gulf Keystone Petroleum Ltd., an oil producer in Iraqi Kurdistan, tumbled 9.9 percent to 81.5 pence.

Inditex advanced 1.1 percent to 111.50 euros. The world’s largest apparel retailer posted first-quarter net income of 406 million euros, exceeding the average analyst forecast of 391.2 million euros. The owner of Massimo Dutti also proposed a five-for-one stock split for shareholders.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net Alan Soughley, Will Hadfield


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