Spain Suffers Worst Corporate Earnings Slide

When Will Spain Pop the Question?
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Spain's largest companies suffered the worst drop in quarterly earnings since the country's crisis began as new data showed the Spanish economy was shrinking at a faster rate than expected.

On a day when more than a third of Spain's Ibex 35 index reported full-year results Bankia, the nationalized lender, reported a net loss of €19.2bn, the largest in Spanish corporate history.

Meanwhile, ongoing restructuring woes at Spanish carrier Iberia saw International Airlines Group swing to a near €1bn full-year pre-tax loss from a profit the year before.

With eight companies still to report, the Ibex 35 index as a whole reported a net loss of €2.7bn in the fourth quarter, according to analysis by Mirabaud, the worst since the crisis began, with banks contributing to the bulk of the losses.

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But while the earnings reports highlighted the depth of the economic downturn last year, several corporate leaders voiced confidence that their companies would enjoy a better performance in 2013. The turnround is set to be especially pronounced at Bankia, which predicted it would post a full-year profit this year, while Telefonica pleased investors by showing signs that the deterioration in its Spanish business was stabilising.

Other large Spanish companies continued to be sheltered by profits from their international businesses while earnings at home were hurt by domestic woes, with one in four people jobless. Telefonica, Spain's former state telecoms monopoly, said sales at home slumped 13 per cent over last year, while Repsol, the oil group, saw fuel sales at domestic petrol forecourts fall 9 per cent.

The flurry of earnings reports came as new data revealed that the Spanish economy contracted at a faster pace than previously thought late last year.

In a sign of the continuing weakness in the country's credit-starved economy, output fell 0.8 per cent in the last three months of 2012 – the sharpest quarterly drop in more than three years – Spain's national statistics office said.

(Read More: Spain Economy Minister Suggests No Need for Bailout)

Analysts said the fall highlighted the challenge faced by the Spanish economy this year. "Official forecasts for the economy look far too optimistic," said Jonathan Loynes of Capital Economics, pointing out that the government was predicting a fall in GDP of only 0.5 per cent in 2013, about one point less than consensus forecasts.

Analyst expectations for corporate earnings in Spain has collapsed since the crisis began, with 12 month forecasts for earnings per share growth down by 42 per cent from their peak five years ago, according to analysis by JPMorgan.

"Everyone is saying we have seen the worst, and the second half is going to be better, but there are few signs of this. We have heard this before," said Ignacio Mndez Terroso, head of strategy at Mirabaud in Spain.