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Europe: Earnings disappointments pull stocks back from month highs

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[LONDON] A rally in European stocks fizzled out on Thursday as poor results drove down advertising agency Publicis and a slide in metals prices dragged on the market.

As the earnings season got into full swing, the pan-European Stoxx 600 ended the session 0.2 per cent lower, down from the one-month high it reached in the previous session, as investors focused on a mixed bag of company results.

France's Publicis shares tumbled 8.8 per cent after an unexpected drop in second-quarter sales caused by underperformance at its US healthcare communications business .

"While operating margin was significantly ahead of expectations, the focus will be on the weaker revenue numbers, especially as [US advertising agency] Omnicom earlier this week also underperformed expectations," wrote Liberum analysts.

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Publicis took British rival WPP down nearly 3 per cent along with it, and the media sector fell 1.4 per cent.

Europe's biggest tech stock, business software provider SAP , had a choppy session but ended 3.5 per cent lower. Its second-quarter results showed weaker-than-expected licenses growth, though it raised its outlook.

"Investors will weigh lower-than-expected licence growth and muted underlying margin expansion against continued momentum in cloud," said Goldman Sachs analysts.

Basic resources stocks dragged, down 1.6 per cent and near a three-month low, as metals prices resumed their selloff after a brief respite.

Overall, investors are optimistic going into the European earnings season, which is expected to deliver stronger growth than the first quarter.

"Earnings globally are still coming in on average higher than expectations," said Christopher Peel, chief investment officer at Tavistock Wealth. "I don't see anything going to stop it unless the trade tariff spat escalates and starts to bite."

Topping the Stoxx was French telecoms firm Iliad, up 7.4 per cent on news the company had reached 1 million subscribers in Italy and would extend its low-cost offer.

Strong results drove industrials stocks higher. Swiss engineering firm ABB climbed 2.8 per cent after its second-quarter profit topped estimates. Swedish industrial machinery supplier SKF gained 1.3 per cent.

Finnish ship technology and power-plant maker Wartsila was the exception: its shares fell 5.3 per cent after it reported smaller-than-expected quarterly profit, citing delivery timings.

Lock maker Dormakaba sank more than 17 per cent, its worst day on record, after a profit warning and postponement of mid-term targets by two years.

"The current share price levels probably imply stable to only slightly improving EBITDA margins and that Dormakaba is unlikely to be able to outgrow GDP," wrote Baader Helvea analysts.

REUTERS