Samuel Indyk and Danilo Mason
LONDON (Reuters) - Europe Inc avoided unrest caused by tariffs by U.S. President Donald Trump to achieve resilient first-quarter earnings, but investors still face a fog of uncertainty despite a new trade armistice.
Earnings in the first quarter are expected to grow by 1.9% from the same quarter a year ago, according to LSEG I/B/E/S, the fourth consecutive quarter. Excluding the energy sector, revenue is expected to grow by 7.3%.
The impact of Trump's tariffs and macroeconomic uncertainty occupies corporate communications, while some companies warn of the strong euro and its impact on revenue. The cyclical part of the market struggled, while bank earnings remained strong.
Here are five key points:
Uncertainty rule
Trump’s tariff plan has a shadow on revenue, and companies mostly respond by maintaining or extracting guidance even when their business starts relatively strongly this year.
"The last time we were uncertain about guidance, and the companies pointing out visibility was the first quarter of the beginning of Covid in 2020," said Magesh Kumar Chandrasekaran, equity strategist at Barclays.
“It’s the least clear income season from a guidance perspective.”
Despite the relatively optimistic first quarter (60% of companies beat estimates, while the usual quarter" of about 54%, the consensus estimates for the full year have been actively cut in the past two months.
"A lot has happened since the end of the quarter, and it's hard to put the first quarter earnings into the year," said Kevin Thozet, a member of the Carmignac Investment Committee.
Most people have been punished for ten years
As in recent quarters, market earnings lapses have been severely punished, in part because expectations have been degraded to the reporting season.
According to Goldman Sachs, the average relative price response for companies reporting lower than expected fell by 2%, the worst in the past decade. Rewards for income beats are consistent with historical averages.
“It may be expected that certain numbers in the first quarter will benefit from the preload and the benefits of the company’s forward push activity as they are not sure what will happen in the second quarter,” said Maarten Geerdink, head of European Equity Equity.
"So, even if earnings expectations are down, the market still thinks they can beat those numbers. It's also a big deal for these misses."
Euro rally adds to headwind
Companies not only worry about tariffs, but avoid dollar assets after Trump's tariff blitzkrieg, they alerted the euro's unexpected strength.
The single currency has soared about 10% against the dollar since the February lows, and it has been lifting slightly since the U.S./China tariffs pause.
This is a problem given that it generates 60% of the revenue of the European Stoxx 600 index companies abroad.
"It's an issue for exporters. When you're about taxes and a stronger currency, it becomes a double blow."
"The sharp cuts in (earnings expectation) are targeting the export market," he added.
Companies that marked currency movement as potential headwinds include Europe's largest companies SAP, Munich RE, Bayer, Presmiya, Unilever and L'Oreal.
The bank is unshakable
Bank revenues largely volatility in the market around U.S. tariffs. Many lenders have exceeded expectations and stuck to the 2025 forecast, which is significantly different from the general caution of businesses.
Even with pressure to regulate interest rates, their latest updates show resilience in the face of global trade and macro uncertainty. UBS estimates that nearly 90% of banks beat market consensus, which is largely driven by strong revenue performance.
The industry trades cheaply based on various indicators, and even after a 28% surge this year, it remains favored by investors attracted by high spending and stronger balance sheets.
Banks is looking at it as the most overweight division seat this month, with financial stocks expected to be the best performer this year, according to a survey by BOFA’s European fund manager.
"Bank numbers are very powerful," said Carlo Franchini, head of institutional account at Banca Ifigest.
Energy income resistance
Seven of the 10 major sectors tracked by LSEG I/B/E/S have increased earnings relative to the first quarter of 2024, but energy is not one of them, with earnings expected to fall by 28% from the same period a year ago.
"There is a very obvious correlation between profitability and oil prices, and oil prices have also fallen," said GSAM's Geerdink.
“It’s a function of two things, reducing economic activity, and OPEC produces far more production than expected.”
Oil prices fell to four-year lows last month due to concerns about Trump’s post-tariff demand, but have since rebounded slightly as trade tensions melted.
(Reported by Samuel Indyk and Danilo Masoni. Editors of AmandaCooper and Mark Potter)