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European Stocks Drop as Earnings Trail Forecasts

European stocks fell, even as the Stoxx Europe 600 Index completed its second straight monthly rally, after companies including BP Plc and UBS AG (UBSN) posted earnings that missed forecasts and investors awaited the outcome of a two-day Federal Reserve meeting.

BP led losses, dropping 4.4 percent, the most in more than ten months. UBS tumbled 5.9 percent. Anheuser-Busch InBev NV retreated 3.2 percent after reporting a decrease in beer sales. Bayer AG (BAYN) advanced after raising its sales and earnings forecasts for the year.

The Stoxx 600 declined 1 percent to 261.38 at the close in London. The gauge rallied 4.1 percent in July as policy makers resolved to preserve the euro and support economic growth. The measure has rebounded 12 percent from this year’s low on June 4.

“No one expected earnings to be very good,” said Pierre Mouton, a fund manager who helps oversee $6.5 billion at Notz Stucki & Cie. in Geneva. “After a couple of spectacular trading sessions, it is an opportunity to lock in gains.”

Federal Chairman Ben S. Bernanke may forgo announcing a third round of large-scale asset purchases, and may wait until September to unveil plans to buy $600 billion in housing and government debt, according to median estimates of economists in a Bloomberg News survey.

Stimulus Timing

Eighty-eight percent of economists say the Federal Open Market Committee will refrain from starting new purchases at a two-day meeting beginning today in Washington. Forty-eight percent say the FOMC will announce the buying at its Sept. 12-13 meeting, according to the July 25-27 survey of 58 economists.

“There is a lot of hope that both the Fed and the European Central Bank will take actions to support their economies,” said Notz Stucki’s Mouton. “There is a risk that the market will be disappointed if the Fed’s announcement doesn’t meet investors’ expectations.”

National benchmark indexes retreated in 16 of the 18 western-European markets today. The U.K.’s FTSE 100 Index slid 0.8 percent, while Germany’s DAX Index added 0.2 percent. France’s CAC 40 Index fell 0.6 percent.

The German Finance Ministry said it sees no need to award a banking license to the euro-area’s permanent rescue fund, the European Stability Mechanism.

“Germany thinks a license for the ESM isn’t the solution and that it’s a detail considering the amplitude of the crisis,” said Arnaud Scarpaci, a fund manager at Agilis Gestion SA in Paris, which oversees about $84 million. “But the real risk of disappointment for the market today comes from the Fed.”

U.S. Economy

Consumer spending in the U.S. was unchanged in June after a 0.1 percent decrease the prior month that was previously reported as little changed, a Commerce Department report showed. The median estimate in a Bloomberg News survey of economists called for a 0.1 percent rise. Incomes rose 0.5 percent, lifting the savings rate to 4.4 percent, the highest in a year.

U.S. house prices declined less than forecast in the year ended May. The S&P/Case-Shiller index of property values in 20 cities decreased 0.7 percent from May 2011, the smallest 12- month fall since September 2010. The median forecast in a Bloomberg News survey projected a 1.4 percent fall.

Confidence among American consumers unexpectedly rose for the first time in five months, another report showed. The Confidence Board’s index increased to 65.9 this month from 62.7 in June. Economists in a Bloomberg survey projected a reading of 61.5.

BP, UBS

BP (BP/) lost 4.4 percent to 425.05 pence, the most since Sept. 22. Europe’s second-biggest oil company reported a loss in the second quarter as the company wrote down the value of U.S. assets and production dropped.

BP reported a net loss of $1.4 billion compared with a profit of $5.7 billion a year earlier, the London-based company said today in a statement. Excluding one-time items and changes in inventories, profit missed analyst estimates.

UBS retreated 5.9 percent to 10.29 Swiss francs, the biggest decline since October. Switzerland’s biggest bank reported second-quarter profit that fell 58 percent, missing analysts’ projections, as its investment bank lost money on the Facebook Inc. share sale.

Net income declined to 425 million francs ($434 million) from 1.02 billion francs a year earlier. That fell short of the 1.09 billion-franc mean estimate in a Bloomberg survey.

Beer Sales

AB InBev (ABI) slid 3.2 percent to 64.17 euros. The world’s biggest brewer reported an unexpected drop in second-quarter beer-sales volume as demand fell in the U.S. and Europe.

Carlsberg A/S (CARLA), the world’s fourth-largest brewer, lost 5.4 percent to 490.30 kroner.

SGL Carbon SE (SGL), a producer of carbon and graphite materials, slipped 4.6 percent to 32.99 euros. The company cut its forecast for this year’s earnings before interest and taxes to about 160 million euros from 165.5 million euros, citing lack of demand improvement in the carbon fibers and composites business.

Hugo Boss AG (BOSS) tumbled 5.5 percent to 82.03 euros. The German luxury-clothing maker controlled by Permira Advisers reported quarterly gross-profit margins that missed projections.

Bayer rose 1.2 percent to 61.91 euros. The company said sales will increase about 4 percent to 5 percent this year to 39 billion euros to 40 billion euros, excluding currency and portfolio changes. The company previously forecast a sales increase of about 3 percent.

Core earnings per share will rise about 10 percent and earnings before interest, taxes, depreciation and amortization before special items will increase by a high single-digit percentage, Bayer said. The company previously predicted a slight improvement in both.

Infineon Savings

Infineon Technologies AG (IFX) jumped 6.7 percent to 5.93 euros. Europe’s second-largest semiconductor maker said it will cut spending “sharply” to cope with slowing chip demand that’s pulling down its sales and profitability. The company said it will reduce investment in the fiscal year starting Oct. 1 and has frozen recruitment.

Teleperformance SA, the French operator of call centers, gained 8.5 percent to 20.05 euros. The company reported a 36 percent jump in first-half profit and reiterated its targets for revenue and earnings growth.

Vestas Wind Systems A/S (VWS) surged 12 percent to 28.96 kroner, for the best performance on the Stoxx 600. The turbine maker said it reached an agreement with banks allowing it to draw on credit lines and second quarter shipments more than doubled.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

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

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