January 12, 2016 / 1:51 PM / 4 years ago

European earnings to trounce U.S. in Q4 with 30 pct surge

* Seen boosted by weaker euro, lower costs

* But energy, mining companies’ earnings to lag

By Atul Prakash

LONDON, Jan 12 (Reuters) - European companies’ earnings are expected to grow at their fastest rate in four years, significantly outpacing their U.S. peers as a weaker euro and signs of economic recovery swell profit margins.

Companies in the STOXX Europe 600 index are predicted to record growth of more than 30 percent in the fourth quarter, according to Thomson Reuters I/B/E/S data.

That would be the best performance since the same period of 2011, Datastream shows, and mark a sharp recovery from a third quarter slide of 4.7 percent.

Earnings for companies on the benchmark U.S. S&P 500 index, meanwhile, are expected to fall some 4 percent.

In Europe, where companies also outperformed their U.S. counterparts in the first two quarters of 2015, a recovering economy could help to offset concerns about a slowdown in China, a major market for some European firms.

The Organisation for Economic Co-Operation & Development (OECD) said this week that the euro zone should have steady economic growth while the U.S. economy was losing steam.

A rise in the dollar against the euro, driven by expectations of more U.S. rate rises, could also benefit the earnings of European companies.

“Margins are now more comfortable in Europe than in the United States and the benefits of a higher dollar should continue to be a tailwind for European earnings,” said Didier Duret, global chief investment officer at ABN-AMRO Private Banking, which manages about $500 billion.

Domestic demand in European countries was outperforming expectations and the industrial sector was also in a better shape than in the U.S., he added.


Analysts said profit margins of European companies were expected to be strong due to lower energy and commodity prices and still anaemic wage growth in Europe. U.S. companies’ profit margins have been declining.

Copper and crude oil prices slumped 25 percent and 35 percent respectively in 2015, and have come under further pressure this year, mainly on rising concerns about global demand for raw materials, particularly in China.

“Growth indicators are looking pretty good, funding costs are at a very low level and we see very little in the way of cost pressure coming through in Europe,” Robert Parkes, equity strategist at HSBC Global Research, said, adding that positive earnings newsflow would help calm a nervous market.

But the slump in oil and metals prices may well hit Europe’s energy and mining companies, with Thomson Reuters data showing earnings of the former expected to fall more than 30 percent.

British oil and gas company BP announced plans on Tuesday to cut 5 percent of its global workforce under a $3.5 billion restructuring programme.

“A majority of companies will beat expectations in the fourth quarter, but there could be major disappointments and prudent outlooks in energy and materials,” Patrick Casselman, senior equity specialist at BNP Paribas Fortis, said.

Overall, corporate earnings still look to have more room to grow more in Europe than in the United States, with analysts pointing to U.S. profit margins starting to peak and level out.

“Europe is still at an early stage given the weak earnings developments in the past few years, whereas the earnings cycle in the U.S. is much more mature,” Gerhard Schwarz, head of equity strategy at Baader Bank in Munich, said. (Additional reporting by Vikram Subhedar; Editing by Sudip Kar-Gupta, Jamie McGeever and John Stonestreet)

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