European Corporate Earnings Beat Expectations, Hitting 3-Year Growth Peak, Goldman Sachs Reports

European corporate earnings are broadly exceeding analyst expectations this reporting season, with first-half profit growth tracking at its most rapid pace in three years, a new report from Goldman Sachs shows. The analysis comes as approximately two-thirds of the companies in the STOXX Europe 600 index have released their results.

Resilient Growth Amid Headwinds

According to the Goldman Sachs report, the average earnings per share (EPS) surprise for STOXX 600 companies is running at 3%, slightly above the long-term average. First-half EPS growth is on track for 13% year-over-year, the strongest performance in three years, achieved despite a renewed energy supply shock in the region.

Even when volatile commodity sectors are excluded, EPS growth remains robust at approximately 7%. The median stock in the STOXX 600 is also delivering earnings growth of around 7%, a figure that closely mirrors the performance of the median stock in the U.S. S&P 500 index.

Sector Divergence and Sentiment

The strong overall performance masks significant divergence between sectors. Technology, Financials, and Commodities have delivered the strongest positive surprises. In contrast, consumer-focused sectors have been the primary source of disappointment, reflecting softer demand trends.

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Key takeaways on sector performance and sentiment include:

• All sectors except Basic Resources and Consumer Discretionary have seen their earnings estimates revised upward since the reporting season began.
• Earnings sentiment, measured by the net percentage of companies with upward revisions, has climbed to its highest level in more than three years.
• Over the past month, more than half of STOXX 600 companies have received earnings upgrades, while only one-third have been revised down.

Market Reaction More Pronounced

Investors have reacted more strongly than usual to the earnings announcements this season. Goldman Sachs noted that both positive and negative surprises have prompted an average stock price move of approximately 2% on the day of the report, a more pronounced reaction than historical norms.

Interestingly, the report highlighted that some technology companies with exposure to artificial intelligence, such as ASML, Nokia, and ASM International, did not see their shares rewarded on results day, despite beating earnings expectations. This suggests that high investor expectations may have already been priced into their stocks.