Shares down on bleak outlook and earnings reports

LONDON Wed Oct 31, 2012 9:16pm GMT

1 of 2. A red London bus passes the Stock Exchange in London February 9, 2011.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - The FTSE 100 fell on Wednesday, ending the month on a down note as a string of gloomy earnings and outlooks from firms such as Barclays and GlaxoSmithKline weighed on sentiment.

The FTSE 100 was down 1.2 percent, or 67 points, at 5,782.70 at the close, more than shedding the previous session's gains, led down by a forecast of no growth in production next year from BG Group.

The oil and gas firm's stock slid 13.7 percent in heavy volume of 16 times its 90-day average, taking 24 points off the FTSE 100 after reporting earnings results. Although the results came in ahead of consensus estimates, the company saw a weaker production outlook.

"Today's production downgrade wipes out much of the projected earnings-per-share growth for BG," Investec Securities said in a note, as downgraded the company's rating to "Sell" after the results, which were released a day earlier than markets expected.

BG's results are an example of a broader trend where beating expected earnings is not enough to satisfy the markets.

"Earnings estimates have come down 14 percent this year, so all the earnings growth that you were supposed to be generating in stocks this year is gone," Mike Ingram, market analyst at BGC Partners, said.

"Many companies have forecasts which are there to be beaten, and you expect it to be beaten... If you look at share price reaction around the actual announcement of results, I don't think there's any real correlation between good results and good performance or bad results and bad performance," he said, citing BG Group.

Several heavyweight firms who missed estimated results on Wednesday also saw bleak outlooks in the near future. Barclays shed 4.7 percent after its third-quarter profits fell by a fifth due to charges for mis-selling insurance. The bank also said that U.S. authorities had opened two new investigations against it.

Pharmaceutical company GlaksoSmithKline lost 2.4 percent after posting a fourth consecutive quarter in which Britain's biggest drugmaker missed sales and earnings expectations, with Chief Executive Andrew Witty warning that Europe would continue to weigh on the company "in the next quarter or two".

Among the gainers by those who reported results, Standard Life slightly missed expected sales, but still rose 2.2 percent after recording assets under management that came in ahead estimates by Bank of America-Merrill Lynch analysts.

"In overall terms, the new business numbers look reasonable to us given the headwinds of recession and upcoming regulatory change," Kevin Ryan, analyst at Investec, said in a note.

Beyond earnings, Tullow Oil rose 1.5 percent after confirming the oil group had made a discovery in its Twiga block in Kenya.

Trading volumes recovered to around the 90-day average after two days of suppressed activity due to the closure of U.S. markets as a huge storm battered New York.

(Additional reporting by Francesco Canepa; editing by Ron Askew)

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