European companies are expected to report strong third-quarter earnings growth, driven primarily by energy and basic materials firms, although the pace of profit expansion is likely to moderate slightly from the previous quarter, according to the latest LSEG I/B/E/S data released on Thursday.
Companies listed on the benchmark STOXX 600 index are forecast to post aggregate earnings growth of 21% year-on-year, up from the 19.4% projected a week earlier. If realised, this would mark the second-strongest quarterly profit growth in the past 14 quarters, the LSEG data showed, Reuters reported.
Excluding the energy sector, earnings growth for STOXX 600 companies is expected to reach a more modest 9.7%, highlighting the significant contribution of energy producers to the overall outlook.
Revenue growth is also expected to remain robust, with European blue-chip companies projected to report a 10.6% year-on-year increase in sales. The anticipated expansion is above the average recorded over the past couple of years.
A Deutsche Bank report earlier this week suggested that companies had sufficient demand to pass on higher prices, supporting sales growth, while energy costs accounted for a smaller share of revenues than recent headlines might indicate, Reuters reported.
Energy firms expected to lead earnings growth
European energy companies are forecast to record earnings growth of 115.9% in the third quarter, according to LSEG data.
The sector has benefited from disruptions to global fossil fuel supplies linked to the US-Israeli war with Iran and Ukrainian drone attacks on Russian refineries. The attacks have sharply reduced exports from some of the world's largest fossil fuel producers, supporting the earnings outlook for European energy majors.
The strength of the energy sector is expected to provide a substantial boost to overall European corporate profits, even as earnings growth across other industries remains more moderate.
Real estate sector faces sharp decline
In contrast, European real estate companies are expected to report a 71.5% year-on-year decline in third-quarter earnings, making the sector one of the weakest performers in the earnings season.
The divergence between energy and real estate highlights the uneven earnings outlook across European industries, with geopolitical developments and changes in market conditions playing a significant role in shaping corporate performance.
ASML and Ericsson results in focus
Investors will turn their attention to upcoming results from chip equipment maker ASML, Europe's most valuable listed company, and Swedish telecom equipment manufacturer Ericsson next week.
Their earnings reports are expected to provide important signals about the health of the semiconductor and telecommunications industries, as well as the broader trajectory of European corporate earnings.
Market participants will assess the companies' results and outlooks for indications of whether the strong aggregate earnings growth projected for the third quarter can be sustained in the coming quarters.