MILAN/LONDON (Reuters) - Companies listed on the pan-European STOXX 600 index are expected to report a 0.6% rise in second-quarter earnings, tentatively averting a corporate recession even as growth expectations for the full year dim, according to data from I/B/E/S Refinitiv.
The change is a reversal from 0.5% fall estimated a week ago. If growth is confirmed Europe would avoid the first back-to-back quarterly earnings decline since the second and third quarters of 2016.
Earnings in the first quarter of this year fell 2.0%.
The new estimate released late on Tuesday is still down from more than 3.6% growth expected two months ago and marks a sharp decline versus the same quarter of last year when earnings rose 9.7%.
As we approach the halfway mark in the second-quarter results season, investors shift their focus to future quarters, for which analysts have been steadily downgrading their expectations.
“(Forward) earnings forecasts are currently high across the board. If we have a global slowdown, global earnings expectations will be significantly at risk,” said Alain Bokobza, head of equity strategy at Societe Generale.
European earnings expectations for the third quarter have fallen from 1% at the start of the month to 0.4% as of Tuesday. It worsened for the first-quarter of 2020 to a growth of 15.5% versus 19% seen on July 2.
Full-year growth expectations have faltered from 10% at the end of last year to just 3%.
(GRAPHIC - FY earnings growth expectations: tmsnrt.rs/2yogh9t)
This quarter’s results season has been seen as a crucial test of the stock market rally as investors turn their attention to the region’s corporate health, while the European Central Bank prepares for potential stimulus measures to shore up the slowing economy.
Europe’s STOXX 600 second-quarter revenue is seen rising 2.7%, an increase from 0.9% seen a week ago and compared to the 3.2% growth posted last year.
A fifth of companies, or 115, have reported earnings for the three months to end-June so far, with just over half beating analysts’ estimates, the Refinitiv report said. That’s broadly in-line with historic averages.
The majority of healthcare companies that have reported so far have exceeded forecasts, while telecoms and the basic materials sector have suffered the highest number of below-consensus numbers, the report shows.
(GRAPHIC - Refinitiv earnings forecasts: tmsnrt.rs/2MrsgLV)
Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan, editing by Louise Heavens