Europe close: Investors take profits as corporate earnings disappoint

(Sharecast News) - After a tentative start, European stocks sunk into the red by the close as weak corporate earnings dragged share prices of blue chips across the continent lower. Sanofi, NatWest, Remy Cointreau, IAG and Covestro were notable fallers during the session, as investors reacted badly to third-quarter figures.

The pan-European Stoxx 600 index finished 0.8% lower, with a 1.4% decline registered in Paris, falls of 0.8-0.9% in London and Milan, a 0.5% drop seen in Madrid and Frankfurt equities falling 0.3%.

Stocks were extending losses seen on Thursday after the European Central Bank chose to leave interest rates on hold after 10 consecutive hikes. However, the ECB said that inflation would likely remain "too high for too long" with risks to economic growth tilted to the downside.

"It's been another difficult week for European equity markets with most of the weakness being driven by disappointment over earnings as well as guidance downgrades, amidst concern over the outlook for demand as we head into the final quarter of this year," said Michael Hewson, chief market analyst at CMC Markets.

Ahead of Friday's earnings, analysts at Morgan Stanley said that just 27% of European companies that have reported results so far this earning season have beaten consensus expectations with revenues, while 40% have missed.

"[Results are] yielding a net negative breadth of sales misses of -12%. While this is an improvement from early results (-19%), it is still a stark deterioration versus prior quarters," they said.

Sanofi leads fallers on spin-off plans, profit miss

Sanofi shares tanked 19% in Paris after the company announced plans to split its consumer-healthcare and pharmaceutical business, as it missed profit expectations for the third quarter.

The move, which chief executive Paul Hudson said would allow it to focus on medicines and vaccines and become a "pure play biopharma company", follows similar moves by competitors Johnson & Johnson, GSK, Novartis and Pfizer, which have all spun off their consumer businesses in recent years.

The news came as Sanofi reported a 4% fall in third-quarter sales to €11.96bn, below the consensus forecast of €12.06bn. Business net profit was down 11% at €3.20bn, under estimates of €3.27bn.

NatWest dropped 11% in London after missing profit estimates and reporting a lower net interest margin (NIM) on the back of customers moving more cash into savings. Shares were at a two-year low, down over 10% on the day, after the bank guided to a NIM of "greater than 3%" for the full year, compared to previous guidance of 3.15%. Lloyds, Barclays and HSBC also finished firmly lower.

Remy Cointreau tumbled after the spirits maker downgraded its full-year sales guidance as it posted a drop in first-half revenue, highlighting a slower-than-expected recovery in the US. Sector peer Diageo fell on negative readacross, along with Pernod Ricard.

Airline IAG seemingly beat consensus forecasts but underwhelmed with its outlook, after warning about the impact of rising oil prices from conflict in the Middle East. In contrast, French-Dutch airline Air France-KLM erased earlier losses to finish higher after increasing revenues by 7% to €8.66bn.

German plastics group Covestro disappointed after saying that full-year profits would be at the lower end of guidance, saying "there was no significant revival of the economic activity in the third quarter".