Europe's largest listed companies are heading into their strongest quarter of profit growth in nearly two years. Analysts tracked by LSEG I/B/E/S now expect the STOXX 600 index to report a 22.4% rise in second-quarter earnings, the best performance since the third quarter of 2022.
The upgrade comes as earnings season has steadily lifted the bar. With results already in from 236 companies and estimates for the rest, analysts now see second-quarter revenue up 12.6% from a year earlier, according to Reuters data. That is a step up from the 11.7% pace projected just a week ago.
Energy leads, but breadth is improving
Energy remains the headline driver. Profits in that sector are expected to jump 135.8%, reflecting higher oil and gas prices compared with a weak year-ago period. But the more important shift, analysts say, is that growth is broadening beyond the energy patch.
Excluding energy, earnings are now seen rising 11.5% — more than double the 5.5% pace forecast in early July. That suggests that the profit recovery is not just a story of commodity prices, but is starting to reach other parts of the market, including basic materials and consumer-facing industries.
Basic materials, which include mining and chemicals companies, are also expected to contribute strongly, helped by firmer commodity prices and cost discipline.
What this means for investors
For everyday investors, the key takeaway is that European corporate earnings are improving, and not just in the sectors that benefit from high energy prices. A broader earnings uptick can support stock prices and may signal that the region's economy is more resilient than feared.
However, it's worth remembering that earnings estimates are just forecasts — they can be revised down as more companies report. The fact that estimates have been rising through the season is a positive sign, but investors should watch whether the trend holds as the remaining companies deliver their numbers.
Also, the strong energy profit growth is partly a comparison effect: last year's second quarter was weak for oil and gas firms, so this year's jump looks outsized. That doesn't mean the sector's profits are suddenly sustainable at these levels.
For those with exposure to European stocks through index funds or ETFs, the improving earnings picture is supportive. But it's always wise to look beyond the headline number and consider how much of the growth is concentrated in a few sectors versus broad-based.
Investors may also want to keep an eye on how these earnings trends interact with other market forces, such as interest rate expectations. In Asia, for example, Bank of Japan officials have hinted at a September rate hike, which could affect global risk sentiment. Closer to home, Nordic companies like Maersk and Vestas are set to report next week, adding more color to the European picture.
Meanwhile, a 26% surge in WPP's shares recently lifted European ADRs, showing that single-stock moves can still move the broader market.
Looking ahead
The rest of the earnings season will be crucial. If the remaining companies beat expectations as the first 236 have, the final growth figure could come in even higher. If they disappoint, the 22.4% estimate could be trimmed.
Analysts will also be watching forward guidance — what companies say about the rest of the year. With inflation cooling but still above central bank targets, and the European Central Bank having started cutting rates, the outlook for consumer demand and corporate pricing power remains uncertain.
For now, the data points to a healthy rebound in European corporate profits. But as always, the devil is in the details — and the details will emerge over the coming weeks.
