As we navigate through the European earnings season, Q2 2024 has brought a mix of optimism and caution. The key takeaway? While financials shine, consumer sectors struggle, casting a shadow over what could have been a stronger quarter.

Key Takeaways

• European Q2 EPS Growth: Tracking at 4%, in line with expectations. This marks the first positive quarter since 2022.
• Sector Highlights: Financials are defying pre-season expectations, offsetting weaknesses in consumer discretionary and energy sectors.
• Consumer Concerns: Weak demand is leading to increased guidance cuts, dampening an otherwise decent set of numbers.

Financials Propel Earnings Growth

With about 70% of companies having reported, European Q2 EPS growth stands at 3.6% year-on-year. This figure aligns with consensus expectations and suggests we may see the first positive earnings growth in six quarters. Financials have been a crucial driver of this improvement, outperforming earlier forecasts and providing a much-needed boost to the overall earnings landscape.

Consumer Weakness: A Growing Concern

Despite the promising numbers, the consumer sector has presented some troubling signs. Companies across various consumer-facing industries, including luxury goods, consumer staples, and autos, have reported continued weak demand in key markets like China and unexpected softness in the US. This trend has led to significant cuts in guidance, raising concerns about future growth prospects.

Performance Across Sectors

• EPS Beats: Approximately 55% of companies have exceeded EPS estimates, which is consistent with the long-run average. However, the standout performance comes from the financial sector, with 83% of financial services and 81% of banks surpassing expectations.
• Weak Links: On the other end of the spectrum, consumer products and basic resources sectors have lagged, with EPS beat ratios of 38% and 17%, respectively. This disparity highlights a broader trend: domestically oriented companies are faring better, with a 60% EPS beat ratio compared to 39% for globally diversified companies, the widest gap in a decade.

As the European earnings season progresses, the resilience of financials has been a bright spot, pushing overall EPS growth into positive territory for the first time since 2022. However, the drag from consumer sectors, marked by weak demand and increased guidance cuts, cannot be ignored. Investors and analysts will be closely watching how these dynamics unfold in the coming quarters, as they navigate a market landscape marked by both opportunities and challenges.