STOXX 600 Earnings Forecast Shows Europe's Energy Divide
European corporate profit expectations are strong on paper, but the contribution from energy is changing the underlying picture.
Reuters' October 9 outlook for European corporate results projected strong third-quarter earnings growth for companies in the STOXX 600, with energy and basic materials as major drivers. The report put overall earnings growth near 21% and a lower rate for the market when energy was excluded. These are analyst forecasts ahead of reporting, not audited company results.
The distinction is important because rising commodity prices can inflate producers' earnings while raising costs for industrials, retailers and transport businesses. A broad stock index can appear profitable even when the typical company is experiencing tighter margins. Sector contributions, revisions and currency effects therefore matter as much as the headline growth percentage.
Readers should distinguish year-on-year comparisons from quarter-on-quarter changes and look at the base period. Profits can grow very quickly after a weak prior year without representing equally rapid underlying economic expansion. Companies in the same index also report in different currencies and fiscal calendars.
Watch the actual reports from leading industrial, technology and consumer groups to see whether earnings surprise estimates outside the energy sector. This is a forecast-based analysis rather than a claim that the projected profits have already materialized.
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