FOCUS:EU Company Results Show Strong Global Markets, Weak Europe

30th Jul 2010 16:20

By Terence Roth and Steve McGrath Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Leading European companies this week posted a string of improving second-quarter results, but their reports also contrasted booming demand from overseas and a stagnating market at home. French building materials company Lafarge SA (LG.FR) Friday said volumes are rising in Latin America, Asia, North America and the Middle East and Africa. Demand across Europe continues to decline. Mexican rival Cemex SAB (CX) said the same. Airlines report Europe trailing the rest of the world in recovering passenger and freight traffic. Makers of luxury goods have boosted sales outside Europe, with revenues stagnating or falling back at home. Car makers have witnessed the market for new cars fall by 6.2% in June from the same month a year ago. They worry that the phasing out of European governments' car-scrappage programs could bring down sales numbers for the rest of this year. Corporate sales and profit trends are never uniform, but second-quarter reports from European blue-chips in the main paint a picture of sluggish European business while foreign operations boomed. Many companies believe Europe will soon catch up, others are more doubtful and are looking elsewhere to expand their business. European recoveries typically begin with exports and slowly spread to the domestic economy as employment and confidence grows, particularly in Germany. "Europe is two stories in one right now. Eastern Europe is stabilizing and in Western Europe, people are shifting from old technologies to new technologies, said Ben Verwaayen, chief executive of Franco-U.S. telecoms equipment maker Alcatel-Lucent SA (ALU). "What we see in the U.S. will be reflected later on also in Europe. It's just a shift in time." That timing could prove hard to pin down. Economists warn of a host of hazards that are likely to delay that transition this time around. Powered only by exports, Europe's economic recovery could remain fragile and shallow, with the danger of a full relapse if demand from China, India and the U.S. falters. At home, the euro-zone economy faces oxygen loss from government spending cuts, a 10% jobless rate, housing bubbles, rising taxes, more job losses, credit shortages, stingy bank lending and deeply indebted households. Wolters Kluwer, a market-leading global information-services company based in The Netherlands, said in its second-quarter report that "Europe will remain challenging, while the markets in North America and Asia will continue to recover." Renault Chief Operating Officer Patrick Pelata highlighted the pressure that European consumers remain under when he said he expects auto prices to fall further in the second half of the year as customers buy cheaper car models. French rival PSA Peugeot-Citroen (UG.FR), which predicts that the European automobile market will contract by 8% this year, is shifting its sights outside Europe to China. "We are now confident that we will generate half of our vehicle sales outside Europe by 2015, compared to one-third at the beginning of the current year," said Chief Executive Philippe Varin. Despite recent signs of gathering economic recovery, many vital signs remain weak. Just Friday, the German government reported June retail sales falling 0.9% from May. The European Union statistics office at the same time disclosed that unemployment was still rising in June, though at a much slower pace. Cautious European households are keeping a tight grip on their pocket books, explaining a dormant consumer economy in most European markets. "The main issue in Europe is that there is practically no market growth," said Bart Becht, chief executive of the U.K. household and personal-care products group Reckitt Benckiser PLC (RB.LN). He said that when Reckitt, which owns a range of household, food and healthcare brands including Vanish, Calgon, Dettol, French's Mustard and Nurofen, set its targets six months ago, the European market was growing at 4%. "It's now closer to 1%," Becht said. French luxury goods and retail group PPR SA (PP.FR), makers of Gucci and Yves Saint-Laurent products, recorded slumping sales in Europe and plans to sell off its large retail businesses to reduce dependence on European markets. Its German sportswear brand Puma recorded a 7.2% drop in sales in Europe compared with 26% growth in the Americas. Technology companies already enjoying a broad global reach have tracked the same trend. German business software giant SAP AG (SAP) reported its U.S. sales rising by 40% in the Americas on the back of a major acquisition but falling by 12% in Europe, the Middle East and Africa. SAP Co-CEO Bill McDermot said that of the 11,000 software deals SAP secured in the second quarter globally, just 4,000 came from Europe and none of those was worth more than EUR3 million. With European companies now earning bumper profits outside the region, they are vulnerable to any downturn in the likes of China or Latin America, so they need to see trade in Europe increasing. But so far that isn't happening. "Demand in the European truck market improved during the period from a very low level last year," said Leif Ostling, president and CEO of Sweden's Scania trucks. "The recovery was limited by overcapacity among hauliers and low freight prices." -By Terence Roth and Steve McGrath, Dow Jones Newswires; 44-20-7842-9316; [email protected] (END) Dow Jones Newswires July 30, 2010 11:20 ET (15:20 GMT)