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(Bloomberg) — European firms are reporting earnings significantly ahead of expectations, allowing for some relief in the market, but tariffs and the uncertain path of economic growth continue to cloud the outlook.
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Companies on the MSCI Europe index are averaging earnings growth of 3.8% so far, outpacing pre-season estimates of a 1.4% decline, with over half of the index’s market value having reported. Sales growth for the basket of European firms is also currently ahead of estimates, Bloomberg Intelligence data shows.
“First quarter earnings look solid with blended EPS starting to inflect higher, but top-line beats have been tepid,” said Barclays Plc strategists including Magesh Kumar Chandrasekaran and Emmanuel Cau. Still, they add that “guidance has been weak and sentiment on capex has turned cautious owing to tariffs,” citing exposed sectors including commodities, discretionary, industrials and utilities.
For now, investors seem to be taking the glass half-full approach. Amid signs of a potential thawing in trade tensions, the Stoxx Europe 600 Index (^STOXX) posted its ninth straight advance on Friday, recovering to pre-tariff announcement levels.
(^STOXX)
In terms of earnings, the positive surprise is being led by firms in the pharmaceutical, banking and technology sectors, which were also top performers in the fourth-quarter earnings season. Defensives have been delivering better than cyclicals, Barclays’ Cau said, with health care and utilities delivering the bulk of the beats while financials and technology follow closely behind.
Strategists at Societe Generale SA led by Roland Kaloyan favor defensives like utilities, health care, and staples. These sectors have “historically been more resilient to earnings cuts and where growth expectations for 2025 are lower compared to cyclical sectors,” they wrote in a note.
Outperforming Expectations
The region’s lenders posted profit beats and maintained guidance for the year, while market volatility saw Barclays Plc’ equity traders deliver their best quarter since 2022. This was tempered by higher provisions for loan losses and cautious commentary on the impact of tariffs on both lending and deals. Asia-exposed HSBC Holdings Plc sees a low-single-digit percentage drop in revenue and a $500 million increase in expected credit losses under a scenario of “significantly higher tariffs.”