The outlook for major European companies is improving as the latest earnings season gathers pace.
Current estimates suggest that companies in Europe’s main equity index could report second-quarter earnings growth of 17.3%. This figure combines results already published with forecasts for companies that have not yet reported.
Energy is expected to drive much of the increase. Profit growth in the sector is forecast at 122.6%. Without energy, earnings growth across the index is estimated at 7.2%.
The headline figure is strong, but it depends heavily on one sector. The wider market is still expected to grow, although at a much slower rate.
Most sectors are forecast to report higher profits. Healthcare is the only exception. This points to a broader improvement in corporate conditions, but the strength of that improvement is uneven.
Revenue is also expected to rise. Sales across major European companies are forecast to increase by 11.5%. This would be the strongest rate of growth since the final quarter of 2022. It would also end a period of 13 consecutive quarters in which revenue growth was either negative or close to flat.
The return of sales growth is important because it gives companies more room to support earnings through genuine business expansion. Profit growth based only on cost cuts can be difficult to sustain. Growth supported by higher revenue is generally more durable, provided companies can protect margins and control expenses.
The reporting season has already shown that market reactions remain selective. Some energy companies received a positive response after publishing their results. A semiconductor company fell after its earnings missed expectations.
This shows that a stronger overall backdrop does not remove company-specific risk. Results, guidance and valuation still matter. Businesses that meet expectations but issue cautious forecasts may face pressure. Companies that show clear revenue growth and stable margins are likely to be viewed more favourably.
JPMorgan European Discovery Trust plc is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.
