Caution grips European stocks as investors punish earnings misses

Caution grips European stocks as investors punish earnings misses

European shares dipped on Tuesday as investors continued to harshly punish companies that missed expectations like Pandora, William Hill and Morrisons, while caution prevailed ahead of the U.S. midterm congressional elections.

The German share price index DAX graph at the stock exchange in Frankfurt
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, November 5, 2018. REUTERS/Staff

LONDON: European shares dipped on Tuesday as investors punished companies like Zalando and Pandora that missed expectations, while caution prevailed ahead of U.S. mid-term elections.

The pan-European STOXX 600 dipped 0.1 percent while the euro zone's leading index fell 0.3 percent.

While politics dented Italian stocks, company results dominated the wider market, with some poor showings hitting shares.

Zalando shares tumbled 7.4 percent after Europe's biggest online-only fashion retailer reported its slowest rate of sales growth since it was launched a decade ago, and recorded a loss due in part to unseasonably warm weather.

"The shift to mobile, fast fashion and beauty is driving down basket size, competition is putting pressure on gross margin, and Zalando's build out of distribution centers across Europe whilst transport costs are increasing has put upward pressure on the fulfilment cost ratio," wrote Berenberg analysts.

Pandora fell 4.2 percent after the Danish jewelry maker slashed its 2018 sales outlook for the second consecutive quarter, saying it would review its strategy and launch a new cost-cutting program.

Shares in Austrian engineering group Andritz fell 5.2 percent after it missed third-quarter operating profit forecasts due to higher costs at its metals unit and lower earnings at its hydro operations.

Many companies this earnings season have flagged a squeeze on margins from rising commodity and wage costs.

Worries over Italy's budget also weighed, and Italy's FTSE MIB lagged, down 0.8 percent.

Bank stocks fell 1.4 percent as government bond yields rose after euro zone finance ministers called on Italy to change its budget at a Eurogroup meeting on Monday.

Euro zone business growth slumped to a two-year low in October as growing trade tensions and tariffs, alongside rising political uncertainty, put a dent in exports and optimism, the euro zone PMI services survey for October showed.

Overall earnings expectations are holding firm despite weaker economic data.

"We think there's a lot of potential that might be unlocked on the European side but unfortunately there are some idiosyncratic stories that have slowed down the potential for European equities," said Monica Defend, chief strategist and deputy head of group research at Amundi.

More encouraging results gave a boost to some.

Staffing firm Adecco rose 4.4 percent after its results met expectations and margins were stronger, with analysts saying the shares had been pricing in much of the euro area's slowing economy.

Spanish wind turbine maker Siemens Gamesa surged 10.2 percent after reporting strong order intake.

Danish peer Vestas Wind also climbed 3.1 percent.

Morphosys shares jumped 7.2 percent after it forecast revenues at the upper end of its guided range.

Postal and logistics firm Deutsche Post gained 1.9 percent after its profit decline was less steep than analysts had expected.

(Reporting by Helen Reid, Editing by Josephine Mason and Mark Potter)

Source: Reuters