By Carla Mozee, MarketWatch

Tobacco shares rise

LONDON (MarketWatch) -- U.K. stocks fell Thursday, with oil-and-gas shares leading decliners after oil prices were dragged to fresh multiyear lows, but shares of EasyJet PLC outperformed the benchmark FTSE 100.

The FTSE 100 shed 0.2% at 6,810.60, with the oil-and-gas group losing more than 3%. U.S. oil futures (CLH5) fell to their worst level since March 2009, with a sharp drop in prices triggered Wednesday after a larger-than-expected increase in U.S. crude supplies. Brent crude-oil prices were slightly higher Thursday after losing 2.3% in the previous session.

Oil major Royal Dutch Shell PLC (RDSB) was the second-worst performer on the FTSE 100 as its shares dropped 4.9%. Shell was able to post a rise in fourth-quarter profit on a current cost-of-supplies basis -- a metric similar to the net profit reported by U.S. oil companies -- in the face of falling oil prices. That profit rose to $4.2 billion, compared with $2.2 billion in the same period last year. But Shell also plans to reduce capital expenditure by about $15 billion over the next three years.

Also ending lower, shares of oil producers BP PLC (BP) and BG Group PLC each lost 1.9%, and Tullow Oil PLC pulled back 1.7%.

Stock in Carnival PLC fell 2.2% after rival cruise operator Royal Caribbean Cruises Ltd. (RCL) missed fourth-quarter profit expectations and said strengthening in the U.S. dollar contributed to a reduction in per-share earnings by seven cents a share since October.

In this U.S. earnings-reporting season, "the current boardroom mantra is that the strength of dollar is hurting profits and as a result of that, [financial] results have been good but the outlook has been a lot more cautious," said Richard Hunter, head of U.K. equities at Hargreaves Lansdown.

The U.S. reporting season has been seen as a key driver for markets overall, Hunter said. "At the end of 2014, we knew all about the risks and the downsides to the market but we weren't sure where the positive catalysts would come from." On the flip side, cautious outlooks could set companies up later to beat expectations, he said.

Soaring to the top of the index was EasyJet PLC . Shares jumped 6.2%, the best session in nearly four months, after Barclays upgraded the air carrier's rating to overweight from equalweight and raised its price target by 16% to 21.50 pounds ($32.53), citing strong U.K. demand and an attractive EasyJet valuation.

Diageo PLC shares swung higher by 3.1%. They had been lower earlier after the world's largest liquor company said first-half profit fell 18%, with sales in North America dropping. Diageo's brands include Smirnoff, Guinness and Johnnie Walker.

Also, shares of Imperial Tobacco Group and British American Tobacco PLC were up 2% and 0.4%, respectively. Panmure Gordon began coverage of the U.K. tobacco sector with an overweight stance. While it's trading close to its historic valuation high, said Panmure, it's also trading at a significant valuation discount to other European consumer-goods sectors whose products, like tobacco, sell quickly.

Regulatory concerns may increase before the U.K. general election in May, but the completion of the Reynolds American Inc.'s (RAI) purchase of Lorillard Inc. (LO) "would be perceived as a positive for both British American Tobacco and Imperial Tobacco," said Panmure analyst Jonathan Leinster in an note.

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