European Stocks Retreat as Orange, STMicro Sales Decline

European stocks declined, following the longest rally for the region’s equities in 40 months, as companies from Orange SA to STMicroelectronics NV (STM) reported lower quarterly sales.

Orange retreated the most in more than two years as France’s largest telecommunications company also posted earnings that dropped in the third quarter. STMicroelectronics slid the most in three months after Europe’s biggest semiconductor maker also reported a $142 million quarterly net loss.

The Stoxx Europe 600 Index retreated 0.6 percent to 318.99 at the close of trading. The equity benchmark has still gained 2.8 percent so far this month as U.S. lawmakers agreed to extend the government’s borrowing authority until 2014.

“Today there have been disappointing results from Orange, formerly France Telecom, and that’s definitely a drag to the telecom sector as a whole,” Christoph Hock, an equity sales trader at Alpha Wertpapierhandels GmbH in Frankfurt, said in a telephone interview. “The sector has had a massive run recently and is in overbought territory.”

A gauge of European telecommunications stocks has rallied 29 percent from a low on June 24, while the Stoxx 600 has gained 16 percent from the same date. The relative strength index for the gauge of phone companies has stayed above 70 since Oct. 9. Technical analysts say a reading greater than 70 means an index or security is overbought. If a second indicator also provides a sell signal, the price may decline.

Orange, STMicro

Orange dropped 5.4 percent to 10.08 euros after posting profit excluding some items that declined 7.7 percent as cost cuts failed to offset falling sales. Earnings before interest, taxes, depreciation and amortization of 3.37 billion euros ($4.6 billion) still beat the average analyst estimate of 3.34 billion euros, according to data compiled by Bloomberg.

STMicroelectronics tumbled 9.6 percent to 5.77 euros after taking a $120 million impairment charge for the third quarter. The company posted a $478 million loss in the year-earlier period. STMicro also delayed a profitability target after splitting up its venture with Ericsson AB.

Bankinter SA and Banco Popular Espanol SA retreated 4.6 percent to 4.34 euros and 2.4 percent to 4.07 euros, respectively, as a gauge of lenders posted the biggest decline on the Stoxx 600.

The European Central Bank confirmed today that it will require lenders to have a capital ratio of 8 percent. It also changed the rules for what qualifies as capital.

‘Suppurating Sores’

“There are some festering sores suppurating in the European banks which will have to be addressed,” Justin Urquhart Stewart, who helps oversee about $6.8 billion at Seven Investment Management Ltd. in London, wrote in an e-mail. “European markets will take note of the European Central Bank’s 8 percent capital requirement for banks.”

Heineken NV fell 4.5 percent to 50.46 euros. The world’s third-biggest brewer predicted that full-year profit will decline by a low single-digit percentage. It had forecast profit would be in line with 2012. The brewer of the eponymous lager posted third-quarter sales that missed estimates amid weak consumption in central and eastern Europe.

GlaxoSmithKline Plc lost 1.9 percent to 1,570.5 pence after it said third-quarter sales of pharmaceuticals and vaccines dropped 61 percent in China. The country’s authorities began a probe into alleged corruption involving the company in July. The U.K.’s biggest drugmaker said total revenue rose 1 percent to 6.51 billion pounds ($10.5 billion), missing the 6.64 billion-pound average estimate of analysts.

Telecity Drops

Telecity Group Plc (TCY) retreated 5.7 percent to 779.5 pence after Bank of America Corp. reinstated the data-center operator with an underperform rating, which is similar to a sell recommendation. The brokerage said that the company has little opportunity to increase prices because of new competitors and a slow-moving market.

Celesio AG surged 6.1 percent to 21.73 euros after two people with knowledge of the discussions said that McKesson Corp. may agree to pay about 22 euros a share for a majority stake in the German drug wholesaler.

Norsk Hydro ASA (NHY) gained 2.8 percent to 27.14 kroner after Europe’s third-largest aluminum producer posted earnings before financial items and taxes of 597 million kroner ($101 million) for the third quarter. That beat the average analyst estimate of 275 million kroner, according to data compiled by Bloomberg.

A report from the European Commission showed that a measure of consumer confidence in the euro zone has climbed to its highest level since July 2011. The index of household confidence improved to minus 14.5 this month from minus 14.9 in September. That matched the median forecast of 28 analysts in a Bloomberg News survey.

National benchmark indexes in every Western-European market, except Iceland, declined today. France’s CAC 40 dropped 0.8 percent, while the U.K.’s FTSE 100 and Germany’s DAX each lost 0.3 percent.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

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

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