European stocks are heading into second-quarter earnings season with a headline number that looks impressive—but the real story is more complicated. According to data from LSEG's I/B/E/S service, companies in the STOXX 600 index are expected to report a 16.7% jump in profits compared to the same period last year. That would mark the strongest earnings growth for the index in more than three years.
However, that figure is heavily skewed by one sector: energy. When energy companies are removed from the calculation, the forecast drops sharply to just 6.4% earnings growth. The energy sector itself is projected to see profits surge by roughly 125%, driven by higher oil and gas prices.
What's Driving the Energy Boost?
The energy sector's outsized gains stem largely from geopolitical tensions that have pushed up commodity prices. Disruptions to shipping through the Strait of Hormuz—a critical chokepoint for global oil supplies—have helped keep crude prices elevated. That has been a tailwind for European oil majors such as TotalEnergies, which recently warned of sharply lower LNG earnings despite higher Q2 profits from the Iran war oil boost.
Sales across the STOXX 600 are also expected to rise 11.1% year-over-year, up from 10.5% a week earlier, according to LSEG. Again, energy is a major contributor, but the broader picture shows that many sectors are still struggling to generate strong top-line growth in an environment of persistent inflation and higher interest rates.
What It Means for Investors
For everyday investors, the key takeaway is that Europe's earnings season is not as strong as the headline suggests. A 6.4% profit gain outside of energy is respectable but hardly spectacular. It reflects an economy that is growing slowly, with companies facing margin pressure from rising costs and cautious consumer spending.
This pattern is not unique to Europe. In the US, earnings growth has also been concentrated in a few sectors, particularly technology and energy. But the European market is more exposed to energy and financials, making it especially sensitive to oil price swings. If energy prices were to fall—due to a ceasefire in the Middle East or a global economic slowdown—the STOXX 600's earnings growth could evaporate quickly.
Investors should also watch for signs of weakness in consumer-facing sectors. While Premier Foods sees growth in birthday cakes and sauces, many other companies are holding profit outlooks steady rather than raising them, suggesting caution about the months ahead.
Broader Market Context
European stocks have been stalling recently as AI optimism clashes with oil price jitters. The STOXX 600 has struggled to make sustained gains, with investors torn between excitement over artificial intelligence and concern about inflation and geopolitics.
Meanwhile, earnings reports from other regions have been mixed. In Asia, TSMC posted a record 77% profit surge driven by AI chip demand, but that didn't prevent a selloff in chip stocks. And in the US, GE Aerospace raised its 2026 profit forecast on resilient demand for engine parts and maintenance, showing that industrial companies are finding ways to grow even in a tough environment.
What to Watch Next
As more European companies report over the coming weeks, investors will be looking for clues about whether the energy-driven earnings growth can be sustained. Key questions include: Will oil prices stay high? Can other sectors, like industrials or healthcare, pick up the slack? And how will the European Central Bank's interest rate decisions affect corporate borrowing costs and consumer demand?
For now, the message from LSEG's data is clear: Europe's earnings season is riding an energy profit jump, but the rest of the market is still waiting for a stronger recovery.
