European Stocks Slide for First Week in Five on Earnings

European stocks declined for the first week in five as worse-than-estimated earnings from BASF SE and ABB Ltd. raised concern the economic recovery is faltering.

BASF and ABB each fell more than 4.5 percent. Sulzer (SUN) AG slumped 19 percent as it planned to sell a unit. Siemens AG (SIE) and Metso Oyj (MEO1V) both declined at least 4.5 percent after cutting their forecasts. Banco Bilbao Vizcaya Argentaria SA (BBVA) and Banco Santander SA rose as the pace of recession in Spain slowed.

The Stoxx Europe 600 Index slid 0.3 percent to 298.91 this past week. The benchmark gauge has rallied 4.9 percent so far in July, after its decline in June that was the first in 13 months. A gauge of expected volatility in euro-area stocks, based on options prices, rose for the first week in three.

“Results in Europe are coming out as unimpressive,” Alberto Espelosin, who helps oversee $1.5 billion at Abante Asesores Gestion in Madrid, said in a phone interview. “Analysts will still have to pencil in slower growth. Stocks haven’t had a strong correction downwards yet and this could happen any time.”

Analysts have reduced their estimates for annual earnings at companies listed on the Stoxx 600 by 7.8 percent since the start of the year, according to data compiled by Bloomberg.

The Stoxx 600 plunged 11 percent from May 22 through June 24 amid speculation the Fed will begin tapering bond purchases as soon as September. The gauge has rebounded 8.4 percent since then after the Fed and other central banks pledged to continue stimulus measures.

Economic Data

Sales (NHSLTOT) of new houses in the U.S. rose more than forecast in June to the highest level in five years, the Commerce Department said July 24. The release helped offset data two days earlier that showed sales of previously owned houses unexpectedly fell last month.

Manufacturing indexes based on surveys of purchasing managers rose in the U.S. this month and unexpectedly climbed to a level that signals expansion in the euro area, London-based Markit Economics said this week. Chinese manufacturing weakened further in July, according to a preliminary survey of purchasing managers.

National benchmark indexes fell in nine of the 18 western European markets this week. The U.K.’s FTSE 100 slipped 1.1 percent, France’s CAC 40 (CAC) gained 1.1 percent and Germany’s DAX Index dropped 1 percent.

BASF, ABB

BASF retreated 5.9 percent. The world’s biggest chemical company said second-quarter earnings before interest, taxes and one-time items fell 5.4 percent to 1.83 billion euros ($2.41 billion). The average estimate of analysts in a Bloomberg survey had called for 1.99 billion euros.

ABB slid 4.7 percent. The largest maker of power transformers posted second-quarter net income of $763 million, missing the $779-million average estimate of analysts surveyed by Bloomberg.

Sulzer plunged 19 percent. The Swiss pumpmaker fell on July 23 by the most since October 2008 after saying that it is exploring a sale of its Metco coatings unit. The company said it will focus on oil, gas, power and water markets to revive earnings, as it also cut its full-year forecast.

Siemens dropped 4.5 percent. The company, which makes products from power turbines to high-speed trains, said July 25 it no longer predicts an operating profit margin of at least 12 percent of sales in the 12 months through September 2014, citing “lower market expectations.”

Structural Changes

“We are surprised that the stock is not down more given how central the 12 percent margin target was to the investment case on Siemens,” JPMorgan Chase & Co. analysts led by Andreas Willi wrote in a report to investors. A slowdown may spur speculation of “potential actions” and “structural changes,” they added.

The stock pared its weekly losses today as Siemens’s board prepared to meet next week to consider the future of Chief Executive Officer Peter Loescher after the company cut its profit forecast for the fifth time in his six-year tenure. Separately, Manager Magazin reported Siegfried Russwurm, a divisional head, may replace Loescher.

Metso Oyj declined 8.1 percent. The Finnish maker of mining equipment on July 25 reported second-quarter net income that missed analysts’ estimates and cut its forecast for full-year sales and pretax earnings, saying uncertainty in the global economy hurt orders.

German Elections

ProSiebenSat.1 Media AG, the German broadcaster controlled by KKR & Co. and Permira Advisers LLP, tumbled 16 percent. Liberum Capital Ltd. cut its rating on the stock to hold from buy, saying Germany’s advertising market may weaken before the federal Parliamentary election on Sept. 22.

A gauge of banks led gains among the 19 industry groups in the Stoxx 600 as Spanish lenders rallied. BBVA advanced 9.5 percent, while Santander (SAN) climbed 9 percent.

The pace of recession in Spain slowed in the three months through June, underscoring Prime Minister Mariano Rajoy’s forecast of a recovery. Gross domestic product shrank 0.1 percent from the first quarter, when it dropped 0.5 percent, according to the Bank of Spain’s monthly bulletin July 23. That beat the median estimate of a 0.3 percent decline forecast in a Bloomberg News survey. Spain will release the official data on July 30.

Royal KPN NV jumped 19 percent. The largest Dutch phone company agreed to sell its E-Plus mobile-phone business in Germany to Spain’s Telefonica SA (TEF) in a deal valuing the division at 8.1 billion euros. Telefonica rose 6.7 percent.

Axel Springer AG (SPR) surged 16 percent, its biggest weekly increase since 2003. Europe’s biggest newspaper publisher agreed to sell regional newspapers and women’s and television magazines to Funke Mediengruppe GmbH for 920 million euros.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net

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