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European Stocks Decline as Ericsson, Novartis Drop on Earnings

Chief Executive Officer of Ericsson AB Hans Vestberg
Chief Executive Officer of Ericsson AB Hans Vestberg. Photographer: Linus Hook/Bloomberg

European stocks fell for a second day after Ericsson AB and Novartis AG posted earnings that missed analysts’ estimates.

Ericsson, the world’s largest maker of wireless networks, plunged 14 percent after reporting fourth-quarter net income that missed analysts’ estimates. Novartis, Europe’s biggest drugmaker by sales, declined 2.5 percent. ARM Holdings Plc climbed 3 percent after Apple Inc. posted quarterly profit that more than doubled.

The benchmark Stoxx Europe 600 Index slipped 0.4 percent to 254.95 in London. The gauge has still risen 4.3 percent so far this year amid signs that the U.S. economy is recovering and as investors speculated that the euro area will contain its debt crisis and China will reduce curbs on lending.

“Earnings estimates still look extremely optimistic,” Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said in a phone interview from Brussels. “We would be cautious on risky assets at the moment. Let’s not forget the overall economy is weak.”

Earnings per share for companies in the Stoxx 600 probably rose by 12 percent on average in 2011, according to more than 12,000 analyst estimates compiled by Bloomberg. They may increase by 7 percent this year, the forecasts show.

National benchmark indexes fell in 12 of the 18 western-European markets today. The U.K.’s FTSE 100 Index slid 0.5 percent, France’s CAC 40 Index declined 0.3 percent and Germany’s DAX Index added less than 0.1 percent.

U.K. Economy Contracts

The U.K. economy shrank in the fourth quarter more than economists had forecast as manufacturers cut output and services stagnated, leaving Britain on the brink of another recession. Bank of England policy makers voted unanimously this month to keep their target for bond purchases unchanged, with some officials saying more stimulus is “likely” to be needed after the current program is complete.

Ericsson plunged 14 percent to 58.85 kronor, its largest drop since 2008 and the biggest contribution to the Stoxx 600’s slide today, after reporting fourth-quarter net income of 1.15 billion kronor ($169 million), missing analysts’ estimates for profit of 4.24 billion kronor.

These results are “spectacularly dreadful, even with low expectations,” said Neil Campling, an analyst at Aviate Global LLP in London. “A further problem for the investment community going forward is Ericsson’s continued insistence on giving no guidance. We’d expect a plethora of downgrades to follow.”

Novartis, Roche, Lonza

Novartis fell 2.5 percent to 50.70 Swiss francs. The drugmaker said sales probably won’t grow this year and profitability will be hurt as the drugmaker’s biggest-selling medicine loses U.S. patent protection. Fourth-quarter net income excluding some costs rose to $3 billion, or $1.23 a share, from $2.8 billion, or $1.14, a year earlier. Analysts had predicted $1.24 a share, the average of 14 estimates compiled by Bloomberg.

Roche Holding AG lost 2.8 percent to 160 francs after offering about $5.7 billion in cash for Illumina Inc. to bolster its cancer-drug sales. Roche proposed paying $44.50 a share for Illumina, 18 percent more than yesterday’s closing price. Roche will put the offer directly to shareholders after the San Diego-based company was “unwilling to participate in substantive discussions,” Roche said in a statement.

Lonza Group AG tumbled 13 percent to 53.15 francs, its largest slide in more than two years, after saying it is seeking a successor to Chief Executive Officer Stefan Borgas and reporting a 46 percent decline in profit last year.

Bank Shares Drop

Banks retreated in Britain as the economy shrank more than forecast. Royal Bank of Scotland Group Plc fell 1.1 percent to 26.75 pence and Lloyds Banking Group Plc slid 2.4 percent to 30.93 pence.

Petroplus Holdings AG retreated 13 percent to 21 centimes, extending yesterday’s 84 percent slide when the largest independent European refiner said it planned to file for insolvency.

Declines in European shares came as Apple Inc. reported quarterly profit that more than doubled.

Apple reported per-share profit for its fiscal first quarter of $13.87, more than it earned in any full year before 2010. The company forecast revenue of about $32.5 billion and profit of $8.50 a share for its fiscal second quarter. That compares with analysts’ predictions for sales of $31.9 billion and profit of $7.96 a share. The stock trades at a price-earnings ratio of 11.2 times, based on estimated profits, according to data compiled by Bloomberg.

“It’s the largest company I’ve ever seen, with the fastest growth earnings, selling for the cheapest multiple, ever,” said Kenneth Schapiro, president of Condor Capital Management, which oversees $500 million in Martinsville, New Jersey. He spoke in a Bloomberg Television interview with Susan Li.

ARM Shares Gain

ARM’s shares rose 3 percent to 597.5 pence. ARM is the U.K. owner of chip technology used in Apple’s iPhone and iPad.

BioMerieux, a French maker of tests for HIV and hepatitis, jumped 11 percent to 64.88 euros. The company rallied the most in four years after reporting a 5.2 percent increase in 2011 sales and forecast growth for this year.

The Federal Reserve will release rate forecasts for the first time today. Business and political leaders gathered in Davos, Switzerland, for the start of the World Economic Forum’s annual meeting.

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