During the latest reporting season, almost half of European companies fell short of earnings expectations, marking the most challenging period since Q1 2020.
Among 313 reporting companies, 50.2% reported a beat, leading analysts to predict continued struggles for the region, particularly given elevated interest rates.
A sector breakdown revealed materials, consumer discretionary, and healthcare as underperformers, while technology and utilities boasted the highest proportion of beats.
The disappointing outcomes are linked to a weaker macroeconomic environment, limited GDP growth, and exposure to China’s economic challenges, including deflation and sluggish consumer demand.
Daimler Truck (Credits: FreightWaves)
The European economic landscape is beset by challenges stemming from Russia’s invasion of Ukraine, causing an energy crisis and record inflation.
In response, the European Central Bank has implemented record-high interest rates, raising the cost of financing for companies. The region narrowly avoided a technical recession, with a 0.1% rise in GDP in Q4 following a 0.1% contraction in Q3.
A notable trend during this earnings season is the increasing prevalence of share buybacks among European companies, a departure from the traditional emphasis on dividends.
This strategic shift is exemplified by companies like Shell, Deutsche Bank, Novo Nordisk, UBS, and UniCredit, which have announced plans for share buybacks in 2024. Analysts attribute this trend to robust earnings in recent years, healthy balance sheets, and a scarcity of buyers for European shares.
Looking ahead, analysts express pessimism about a turnaround in the next reporting season, citing persistent challenges such as a growth slowdown, limited monetary policy support, and weak domestic consumer demand.
Nevertheless, they anticipate a significant divergence between companies exposed to U.S. consumers or fast-growing emerging markets, which may experience more positive outcomes, and those with less diversified geographic revenues.
