Europe Inc powers past lofty Q2 profit expectations

Strong profit growth and a wave of guidance upgrades seem to have shifted investor sentiment, with European stocks hitting a new record this week and on track for the fourth straight weekly rise.

(Samuel Indyk)

European companies have exceeded already lofty expectations this earnings season, with second-quarter results pointing to a sharper-than-anticipated jump in profits and growing confidence about the outlook.

Companies in Europe’s benchmark STOXX 600 index .STOXX are now expected to report earnings growth of over 22% for the second quarter, according to LSEG I/B/E/S data, based on results from firms and market estimates for those that are yet to report. That would mark the sharpest growth since Q3 of 2022.

Even excluding the energy sector, which has benefited from elevated oil and gas prices since the outbreak of the U.S.-Israeli war on Iran, profit growth stands at a robust 11.5%.

“A key driver has been sales growth of 10% yoy, which reached its fastest pace since 2022, despite comparably low inflation,” writes Deutsche Bank.

They note that corporate guidance has also been strong, with the highest ratio of upgrades to downgrades since at least Q1 of 2024.

Barclays identifies a similar upbeat picture, particularly with the tone coming from management teams.

“Firms are positive on outlook, raising capex and confident about margin strength,” Barclays says.