Markets & Finance

European Indexes Slip

Earnings news was in focus Thursday

From Standard & Poor's European MarketScope

European indexes fell slightly in morning trade Thursday. Oil held at above US$58 a barrel, despite a surprise drop in U.S. gasoline stocks. Wall Street was expected to open lower ahead of the U.S. Empire State survey, weekly jobless claims and the February import-export report.

UK: The FTSE 100 index continued to trade lower at mid-session, weighed down by bank and mining stocks. However, investors raised a toast as Diageo and Reed Elsevier published pleasing earnings, taking the Media and Beverages sectors higher. Datawise, UK retail sales posted their biggest fall since January 2003.

In earnings: the world's largest alcoholic drinks group Diageo (+3.87%) uncorked a rise in first half earnings to 34.4p/sh despite pressure from a weaker U.S. dollar and difficult markets. Reed Elsevier (+6.95%) booked a 5% rise in fiscal year adjusted pretax profit. The Anglo-Dutch publisher said it will sell its education division.

Engineer Tomkins (-2.55%) reported a 7% fall in pretax profit to £244.8 million saying that lower level of demand and a weaker U.S. dollar will hit reported performance. In broker action: Defense contractor BAE (+1.64%) was fired up by a Credit Suisse target upgrade. Wolseley (-2.27%) sank on a Merrill downgrade to neutral. Liberty (-0.83%) and British Land (-0.73%) weakened on broker target cuts.

Germany: The Xetra-Dax index (-0.04%) was little changed at the mid-session stage Thursday after Wall Street's solid performance on Wednesday. Of local note, DaimlerChrysler (DCX) (+5.42%) was in talks with General Motors to (GM) sell Chrysler, according to Manager Magazine. Toyota (TM) has voiced a lack of interest in troubled Chrysler, which is shedding some 13,000 jobs. According to the FT, DCX has hired a banker for turning around Chrysler. Meanwhile, broker target hikes were the order of the day for DCX after 2006 operating profit, as reported yesterday, topped expectations, coming in at €5.52 billion.

In other news, Siemens (SI) (-0.76%) has drawn up a six point program to tighten its financial controls. This followed the recent bribery probe. Powergen, a UK unit of E.On (EON) (-0.06%), may today announce price cuts in gas and electricity to become cheaper than British Gas, according to The Times.

Metro's (-0.28%) sales rose 24% in China last year. This compares to global average growth of 7.5%. Broader market-listed Medigene (+4.13%) will increase its share capital to €30.84 million from €28.78 million to fund current R&D projects. Wacker Chemie's (-2.97%) 2006 core profit came in at €785 million, up 38% year-over-year. Annual sales rose 21% to €3.33 billion. Key on the broker front, ThyssenKrupp (+1.24%) was well bid after Credit Suisse upgraded the European steel sector to market weight.

France: The CAC 40 index (-0.04%) remained flat at mid-session, with mixed corporate results taking centre stage. Back home, BNP Paribas (-3.39%) was the worst performer, erasing 14.1 index points. Its fourth quarter net earnings rose 29% to €1.72 billion - ahead of expectations. Supporting the bottom line was the takeover of Italy's BNL last year. However, retail banking and margin pressure disappointed investors - similar to SocGen (-1.82%) yesterday.

L'Oreal (-0.8%) fell short of estimates; it posted fiscal 2006 sales of €15.79 billion, +8.7%. Conversely, leading the points gainers, Danone's (DA) (+4.49%) fiscal 2006 sales came in at €14.073 billion, up 9.7%. For 2007 it sees like-for-like sales growth of 6-8% and EPS growth of more than 10%. LVMH (+4.35%) saw 2006 net profit top expectations - rising 30% year-over-year to €1.88 billion.

Michelin (+5.47%), the best percentage performer, reported net profit down 35.5% to €573 million, but saw significant net sales and operating margin progression in 2007. Cap Gemini (+4.83%) reported fiscal 2006 sales of €7.7 billion, up 10.7%, and an almost doubled operating margin of 5.8% or €447 million.

In other news, Credit Suisse lifted Arcelor Mittal's (+2.12%) target to US$60 from US$52. The broker upgraded the European steel sector to market weight due to the exceptional strength of European steel demand.

Rocio Opazo-Aniotz, Claudia Perotti, Michael Sanderson, Emma Stevenson, Mariella Mongio, Pawan Girglani, Guarav Panchal, Julien Manrique, Isabell Witt, Sara Oscarsson, Ben Marino, John West

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