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Investing.com -- Europe’s third-quarter earnings season started strongly with solid prints from LVMH and ASML, and around a quarter of Stoxx 600 companies are due to report by next week.
Consensus forecasts point to a 1% year-on-year decline in sales and a similar drop in earnings per share, with margins expected to hold steady.
Financials are seen providing most of the earnings support, offset by weakness in Utilities and Energy.
According to Bank of America, cyclicals excluding Financials and Resources are projected to post a smaller earnings contraction of 2%, improving from an 8% decline in the previous quarter.
BofA strategists argue that “a solid macro backdrop and easing FX headwinds point to a decent season,” with euro area economic surprises turning positive compared with the second quarter.
That shift, combined with a softer drag from euro strength, is expected to lift the proportion of companies beating earnings expectations toward 55%, above the below-average beat rate seen in Q2.
Cyclicals appear positioned for a better earnings surprise profile after lagging badly in Q2, while financials are expected to maintain strong beat momentum. Basic resources could also see improvement as commodity prices recovered during the quarter.
Q3 results are unlikely to trigger major revisions to 2025 earnings expectations, strategists said. Consensus EPS forecasts for next year have already been trimmed by 7% since April amid euro strength and steep downgrades in sectors exposed to global goods demand.
Autos and other cyclical goods producers have seen significant cuts, partly linked to tariff concerns.
Despite that, expectations for a recovery in 2026 have firmed, with consensus now looking for 12.5% EPS growth, which would be one of the strongest rebounds since 2010 excluding the Covid rebound.
“We do not see Q3 earnings season as a catalyst for downgrades, though we do project 7% downside for Stoxx 600 12-month forward EPS by Q2 next year, given our expectations for global growth to weaken over the coming months, in line with our economists’ projections,” the strategists said.
“Positive macro surprises also suggest financials’ EPS beat ratio should stay at robust levels,” the note says, while reiterating that easing FX effects should reduce a key headwind from earlier in the year.