European corporate earnings are on track for their first positive quarter since 2022, significantly boosted by the financial sector, according to BofA Securities. With about 70% of companies having reported, European Q2 EPS growth is running at 3.6% year-on-year, aligning with consensus expectations.
Key Contributors to Earnings Growth Financials have been the standout sector, contributing positively to overall earnings growth. Excluding financials, EPS growth is flat, underscoring the sector’s critical role in pushing earnings into positive territory. Remarkably, 83% of financial services companies and 81% of banks have beaten EPS estimates, well above the long-run average.
Sectoral Weaknesses Despite the overall positive outlook, consumer discretionary and energy stocks have underperformed, dragging down overall growth. Companies in consumer-facing sectors have reported lacklustre demand in China and surprising weakness in the US, leading to significant guidance cuts.
Guidance and Future Expectations So far this season, 40 companies have revised their guidance downwards, citing weak demand as the primary reason. Q3 consensus EPS has been revised by 2% since late June, with 2024 and 2025 EPS expectations also reduced by 1%.
Broader Economic Indicators Domestically oriented companies have outperformed globally diversified ones, with a 60% EPS beat ratio compared to 39%. This performance disparity highlights the uneven nature of the economic recovery.
Margin Expansion and Sales Growth For Q2, consensus expects 5% EPS growth, driven by a 4% margin expansion and 1% sales growth. Despite mixed sectoral results, the overall trend is positive.
