European Finance Chiefs Prepare for Slowing Growth, Trade Uncertainty

Date : 11/09/2018 @ 1:03PM
Source : Dow Jones News
Stock : Barclays (BCS)
Quote : 8.455  -0.085 (-1.00%) @ 3:39PM

European Finance Chiefs Prepare for Slowing Growth, Trade Uncertainty

Barclays (NYSE:BCS)
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By Nina Trentmann 

Declining economic growth, trade uncertainty and rising raw materials costs are presenting finance chiefs at European companies with a cocktail of challenges, resulting in slower earnings growth.

As of Friday, 49% of the 369 companies in the Stoxx Europe 600 that have reported their quarterly results beat analysts' earnings per share expectations in the third quarter. That is lower than the 56% recorded in the same period a year ago. Earnings per share are up 9.7% year-over-year, slightly higher than the 9.4% earnings per share growth recorded in the third quarter of 2017.

Investor expectations were higher following increased growth in Europe during earlier quarters this year, adding to the pressure on companies to improve their results. "It is harder to beat expectations when you come from a higher base," said Emmanuel Cau, head of European equity strategy at Barclays PLC.

Decreased economic activity in Europe and China, Britain's 2019 exit from the European Union and the impact of trade tensions between the U.S. and China also cloud the horizon. And companies have warned about the economic impact of these factors on their businesses.

"The challenges in the macroeconomic environment are growing," BASF SE Chief Executive Martin Brudermüller said on Oct. 26, when the company released its earnings, according to a press release.

Net income at the German chemicals company in the third quarter declined 10% year-over-year to EUR1.2 billion ($1.36 billion), while earnings before interest, tax and special items dropped 14% to EUR1.5 billion, compared with third quarter in 2017. Earnings per share fell 10% in the third quarter to EUR1.31, down from EUR1.45 reported in the prior year quarter. Analysts had forecast earnings per share of EUR1.36.

Car maker Volkswagen AG reported a rise in third-quarter sales and profit but also highlighted the changes in economic sentiment. "If I compare the global economic framework condition, from today to 12 months ago, life certainly seems to have got even more challenging," Chief Financial Officer Frank Witter said during the company's Oct. 30 earnings call, according to FactSet.

The drop in sentiment comes after several quarters of strong earnings posted by companies in the Stoxx Europe 600.

But in the third quarter, the eurozone's gross domestic product grew by 0.2% in the three months ended Sept. 30, down from 0.4% recorded during the three months to June 30, according to the EU's statistics agency. In 2017, GDP grew by 2.5%, the fastest growth rate since 2007.

Executives are taking various measures to prepare their companies for a potential period of uncertainty. "Companies are rethinking their supply chains and their production lines," said Mislav Matejka, global equity strategist at JP Morgan & Chase Co.

Some executives, especially in the car industry, are focusing on their cost base, while others are increasing prices to compensate for higher raw materials costs.

Compagnie de Saint-Gobain SA, a French building-materials maker, raised prices for its products by 3.5% year-over-year in the three months through September, compared with a 3% increase in the second quarter and 2.1% in the first quarter, according to Chief Financial Officer Guillaume Texier. "We are pushing prices in all geographies, a little bit everywhere," he said in an interview.

Dutch company Akzo Nobel NV raised prices for its coatings by 7% in the third quarter, compared with a 5% increase in the second quarter. Prices for its paint products on average rose by 5% in the third quarter, up from 4% in the second quarter.

"We continue to push through price increases," Maarten de Vries, the company's finance chief said. The paint-maker reported a 4% drop in revenue to EUR2.3 billion for the third quarter, compared with EUR2.4 billion in the prior year-ago period.

"European corporates still have the ability to increase prices," said Barclays' Mr. Cau, a sign that the underlying economics are still somewhat healthy. Around 85% of companies in the Stoxx Europe 600 have either maintained or raised their full year guidance, according to Mr. Cau.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

 

(END) Dow Jones Newswires

November 09, 2018 12:48 ET (17:48 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.

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