European blue chips set for strong third-quarter earnings growth
European companies enter the third-quarter reporting season with profit expectations still rising across the region's benchmark equity index. Forecasts point to robust earnings and revenue growth, with energy and basic materials providing much of the lift even as the pace eases from the previous quarter.
Highlights
- STOXX 600 companies' third-quarter earnings are now forecast to rise 21%, up from 19.4% last week, marking the second-best quarterly growth in 14 quarters.
- European blue-chip revenue is projected to increase 10.6% year-on-year, with ex-energy earnings growth at a more modest 9.7%, highlighting broad-based but uneven sector performance.
- Energy sector profits are forecast to surge 115.9% due to geopolitical disruptions, while real estate earnings are expected to fall 71.5% year-on-year, underscoring sharp industry divergence.
Upgraded forecasts before reporting season
As reported by Reuters, the latest LSEG I/B/E/S data show companies on Europe's STOXX 600 index are expected to post aggregate quarterly earnings growth of 21%. That is up from last week's forecast of 19.4% and would mark the second-best quarterly profit growth in the past 14 quarters.Revenue for European blue-chip companies is seen rising 10.6% from a year earlier, above the average of the past couple of years. Excluding the energy sector, expected earnings growth for STOXX 600 companies is a more modest 9.7%.
A Deutsche Bank report earlier this week says demand remains strong enough for companies to pass on higher prices, supporting sales growth. It also says energy costs account for a smaller share of sales than headlines suggest.
Sector divergence shapes market focus
Energy groups continue to benefit from the effects of the U.S.-Israeli war with Iran and from Ukrainian drone attacks on Russian refineries, which sharply cut exports from some of the world's biggest fossil fuel producers. According to the LSEG report, the sector is now expected to deliver profit growth of 115.9% in the third quarter.By contrast, companies in Europe's real estate sector are seen reporting earnings that are 71.5% lower than a year ago, underlining a sharp split across industries. Investors next week are set to watch results from chip equipment supplier ASML and Swedish telecoms equipment maker Ericsson for early signals on the tone of the earnings season.
Our earlier coverage on Iran-related energy disruptions explained how prolonged risks around Iran and the Strait of Hormuz are changing investor preferences in the oil sector. We noted that European majors with stronger refining, trading and regional gas exposure can capture wider margins and may look more resilient than peers even as they still trade at a discount to U.S. rivals.
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