The European debt crisis is moving north into the region’s corporate engine room.
Companies from Schneider Electric SA to Daimler AG reduced forecasts for the year, while Sweden’s Sandvik AB said it will cut production. Pernod-Ricard SA, BASF SE and ABB Ltd. cautioned for a continued slowdown.
“The current economic situation is marked by a growing insecurity and volatility,” Daimler Chief Financial Officer Bodo Uebber said on a conference call today. Daimler “can’t hold onto targets that are then not realistic. We have to accept that it is so.”
Almost half of the companies in the Stoxx Europe 600 Index that have reported earnings this quarter missed estimates for net income as consumers and governments rein in spending. The effects of the debt crisis that started in Greece in 2009 have spread to Germany, the region’s largest economy. Business confidence there fell to the lowest in more than two and a half years this month as neighbors’ demand for its exports waned.
“The problems of southern Europe are spreading to the core of the continent,” said Markus Steinbeis, who helps manage about 1 billion euros ($1.3 billion) at Huber, Reuss & Kollegen Vermoegensverwaltung GmbH in Munich. “The earnings figures are showing slowing growth trend in the core. We will see slow growth ahead of us in Europe as a whole.”
The German economy may shrink in the current quarter after expanding in the previous three months as weaker global growth weighs on export demand, the Bundesbank said on Oct. 22.
“North of the line that used to define southern Europe things are not going as well as they used to,” said Remy Cointreau SA CFO Frederic Pflanz last week.
That’s prompting companies to institute their own austerity measures. Schneider, the biggest maker of low- and medium-voltage equipment, may step up restructuring as Europe’s economic slump deepens and Daimler pledged to reduce costs by 2 billion euros by the end of 2014. Volkswagen AG yesterday said pricing pressure in Europe has intensified and will continue, with the market set to remain at low levels for years to come. The company is keeping stocks of unsold vehicles below its normal target level.
“Tough times will linger” in Europe, said Volkswagen CFO Hans Dieter Poetsch yesterday.
The pain isn’t limited to the continent. North American companies have announced plans to eliminate 62,600 positions at home and abroad since Sept. 1, the biggest two-month drop since the start of 2010, according to data compiled by Bloomberg.
The slowdown is also crimping spending on less pricy consumer goods. Pernod-Ricard, France’s largest distiller, today forecast slower annual growth in its current fiscal year than last after western European liquor sales fell in the first quarter.
“I think there’s a slowdown in most parts of Europe, including the U.K.,” said Pierre Pringuet, chief executive officer of Pernod in a telephone interview today. “It’s in line with our expectations as a result of the austerity plan.”
Heineken NV, the world’s third-largest brewer, yesterday said that “cautious” consumer spending in the U.K., Netherlands and Spain led to a drop in western European beer volume. Danone, the biggest yogurt maker, last week said its dairy operations in Germany have been “under pressure” while markets in France and the U.K. were stagnant. Dutch coffee company D.E Master Blenders 1753 NV reported first-quarter revenue that trailed analyst estimates as German consumers reduced purchases.
Other companies defied expectations, helping lift the Stoxx Europe 600 today. Unilever posted revenue growth that beat estimates, boosted by demand for personal-care products in countries including Brazil. Reckitt Benckiser Group Plc yesterday rose to a record in London trading, driven by increased sales of health-related products.
Negative momentum in earnings growth is likely to continue in the fourth quarter of 2012 and the situation in the non-staples consumer-goods industry will remain difficult next year, according to Sebastian Frericks, an analyst at Bankhaus Metzler in Frankfurt.
“The European growth weakness is the big concern and with inflation forecast to persist there are good reasons for companies to be concerned about future quarters,” said Daniel Weston, chief investment officer at Aimed Capital Management LLC in Munich.