Article / 19 October 2017 at 12:09 GMT

Why European earnings have to deliver — #SaxoStrats

Head of Equity Strategy / Saxo Bank
  • Earnings results suggest 4-5% EPS growth in US and Europe
  • Consumer staples firms disappoint on organic revenue growth
  • Record highs in equities have investors demanding quarterly growth

Consumer staples
European consumer staples firms have disappointed on revenue growth so far this earnings season. Photo: Steven Bostock /

By Peter Garnry

The earnings season is in full swing, and commentators are already calling it a disappointing start. 

Whether that's true or not, it's definitely too early to comment on the earnings season as a whole. Would we can say is that the numbers so far suggest a healthy 4-5% positive surprise on earnings-per-share in both the US and Europe for Q3. We also expect a small positive surprise in US revenues and small negative surprise for their European counterparts.

Europe needs to deliver

The two most important earnings releases in Europe today are Unilever and SAP, and they both disappointed against sentiment; SAP shares are down 2% and Unilever shares are down 3%. 

As we alluded to in today's Morning Call, consumer staples companies such as Reckitt Benckiser, Nestlé, and Unilever have all disappointed on organic revenue growth, barely keeping up with growth in household spending.

As the bar plot below shows, the Q2 earnings season was a disappointment with revenue falling quarter-on-quarter but it was a success in terms of operating earnings. In the end, however, investors want to see growth coming out of European companies given that the euro area is growing by around 2.7% annualised and has record confidence levels across businesses and consumers.

European revenue growth
Source: Bloomberg and Saxo Bank 

Our view is that with the STOXX 600 around the highs from Q2 (and at record levels!), investors will demand quarterly growth on both the top and bottom lines to justifying buying European equities. 

If the earnings season disappoints we could see markets getting more fragile.

Source: Saxo Bank 

— Edited by Michael McKenna

Peter Garnry is head of equity strategy at Saxo Bank


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