European Earnings Surprises Lag in Second Quarter ScorecardBy
56% of European firms have beaten estimates so far in 2Q
Earnings growth largely driven by energy and materials sector
Almost half way into the second-quarter earnings season, analysts’ optimism over the rebound in European stocks is being dented.
Of the 44 percent of companies in the Stoxx Europe 600 Index that have so far reported, 56 percent beat earnings-per-share estimates, down from 66 percent in the first quarter, strategists at JPMorgan Chase & Co. including Emmanuel Cau and Mislav Matejka said in a research note.
The lag is prompting analysts to revise down earnings estimates which had been boosted by a sharp rebound in profits in the first quarter. The smaller percentage of beats in Europe is mainly due to the stronger euro weighing on exporters and “more elevated consensus expectations versus the U.S.,” the JPMorgan strategists wrote.
Still, so far European firms have reported EPS growth of 16 percent from the year earlier period, which is 3 percent ahead of expectations, according to JPMorgan. That compares with earnings 5 percent above analyst estimates in the U.S. When you strip out the energy sector, which has largely driven growth in Europe, the number falls to just 7 percent, the strategists said.
Weakness in European earnings revisions is not necessarily a negative for the market, strategists at Credit Suisse Group AG including Andrew Garthwaite said in a research note. Revisions would need to fall much further to become a drag on stocks, they wrote.
Still, “overall earnings revisions in Europe are very closely following the euro trade-weighted index, which implies modest further downgrades,” they said.
Investors have poured a net $71 billion into European equity funds this year, almost fully recovering last year’s withdrawals, Jefferies LLC said in a research note citing EPFR Global data. Last week’s inflow of $4.7 billion was the 33rd consecutive week of net purchases, according to the data. Europe’s Stoxx 600 index has risen almost 5 percent in 2017, but is about 5 percent lower than its year-to-date high in May.
U.S. companies are faring better. So far, 78 percent of S&P 500 companies have beaten earnings expectations. All sectors have shown positive earnings growth this quarter, according to JPMorgan.
— With assistance by Blaise Robinson