Europe: Earnings misses and tech fragility drag stocks down

[LONDON] European shares retreated from a six-week high on Monday as industrials and tech stocks slipped and disappointing earnings, including from brewer Heineken, dented investors' confidence.

The pan-European Stoxx 600 fell 0.3 per cent, starting a packed earnings week on the back foot after sealing on Friday its strongest weekly gain in nearly five weeks. Germany's DAX edged down 0.5 per cent.

A negative open on Wall Street also comforted traders to stick to a risk-off mode until the close.

Shares in Heineken tumbled 6.5 per cent to the bottom of the Stoxx after the world's second largest beer maker reported weaker than expected first-half earnings and cut its full-year margin guidance.

"Heineken's first-half EPS missed expectations due to the consolidation of Kirin Brasil, adverse currency effects and higher input costs," Liberum analysts said in a note.

France's Air Liquide fell 2.5 per cent to the bottom of the CAC 40 after its first-half operating income proved disappointing.

Another faller after earnings was Siemens Healthineers , which declined 2 per cent after the world's largest maker of medical-imaging gear reported a 10 per cent slump in net profit, driven down by a strong dollar.

Its parent company Siemens also fell 0.4 per cent, one of the biggest weights among industrials stocks.

Several companies however delivered positive results, including German industrial machinery group GEA, which rose 4.5 per cent to a three-month high after it reported.

"GEA Group's second-quarter figures are characterised by better than (expected) order intake, partially wiping out the 1Q18 slump, solid sales growth and operating earnings surpassing the 2Q17 level and expectations," Baader Helvea analysts said.

British bookmaker GVC, which owns the Ladbrokes and Coral brands, climbed 5.4 per cent to a record high after announcing it had sealed a joint venture with MGM Resorts to set up an online betting platform in the United States.

Shore Capital analyst Greg Johnson said US sports betting could grow to be a US$20 billion market, and saw a 10 per cent market share as potentially generating value of 270p per share for GVC.

"A tie-up with MGM significantly increases the chances of achieving such a market position with a lower risk profile."

Deutsche Bank shares also rose 2.9 per cent after the German lender said it had moved a large part of its euro clearing activity to Frankfurt from London.

TECH PAIN, FINANCIALS GAIN

Earnings aside, the tech sector declined 1.6 per cent, reflecting moves in Asia and Wall Street after shocking drops in big tech names Twitter and Facebook last week shook investors' belief in tech's resilience.

Cap Gemini and SAP, heavyweights in tech, fell 2.2 and 2.9 per cent.

Financials, on the other hand, provided the biggest boost to overall index gains. They remain, however, the worst-performing sector year-to-date.

After visiting clients, Citi analysts said US investors remain underweight on EU banks but had more interest in buying them than on any of their recent marketing trips.

Overall, MSCI Europe earnings are expected to grow 8.4 per cent year-on-year in the second quarter, Thomson Reuters data shows. Earnings growth for the index is also being revised up for 2018 and 2019.

But Goldman Sachs analysts say the rate of positive earnings surprises is trailing the historical average thus far in Q2.

REUTERS