Europe's STOXX 600 seen posting Q3 earnings growth as consumer cyclicals weaken

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STOXX 600 Q3 earnings growth

Highlights

STOXX 600 companies are expected to post Q3 earnings growth of 20.7%, slightly down from last week's 21% forecast, according to LSEG I/B/E/S data.
Consumer cyclicals' Q3 earnings forecast shifted from 26% growth last week to a 2.6% decline after weak vehicle deliveries at Volkswagen and BMW in China.
The energy sector Q3 earnings outlook increased to 124.0% from 115.9%, and technology to 32.7% from 24.4% after strong results from ASML and Ericsson.

Earnings outlook shifts across sectors

As reported by LSEG I/B/E/S data cited by Reuters, companies on Europe's benchmark STOXX 600 index are expected to report aggregate quarterly earnings growth of 20.7%, slightly below last week's 21% forecast.

Revenue expectations have improved, with sales now seen rising 11.0% on average, up from 10.6% a week earlier. Energy companies are leading the earnings expansion, benefiting from supply disruptions linked to the Iran War and Ukrainian drone attacks on Russian refineries.

The consumer cyclicals sector, which includes automakers and luxury groups, is now expected to post a 2.6% decline in quarterly earnings, compared with a forecast for 26% growth last week. The downgrade follows weaker third-quarter vehicle deliveries at Volkswagen and BMW, mainly because of slumping demand in China, with Volkswagen reporting its steepest drop in more than four years.

By contrast, higher estimates for energy and technology offset most of the cut to consumer-related sectors. The energy sector forecast rose to 124.0% from 115.9%, while the technology sector's expected growth increased to 32.7% from 24.4% after ASML and Ericsson beat market estimates.

Investor focus turns to upcoming results

Michael Field, Morningstar's EMEA equity strategist, says the reporting season is likely to show a pronounced split in corporate performance. He says companies exposed to high energy prices and weak consumer sentiment may struggle, underscoring the growing divergence between defensive and cyclical businesses.

Investors are now watching next week's results for signs of whether that gap widens further. Among the 44 STOXX 600 companies due to report are software maker SAP, engineering group ABB and British lender Barclays.

Our earlier article on the WTO’s warning about trade disruptions explained how the wars in Ukraine and the Middle East are reshaping global trade flows and pushing companies to redesign supply chains and shipping routes for resilience. It highlighted forecasts for a sharp decline in Middle East exports and imports in 2024, and noted that more costly alternative routes and contingency planning may persist even after conflicts ease.

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