European Stocks: April-June Quarterly Earnings Review

■ Revenue is expected to decline again in the April-June quarter after three consecutive quarters, but earnings growth is expected for the fifth straight quarter.  

■ Given high valuations and limited expectations for earnings expansion, stock price gains may be limited in the short term. 
 
 
    According to the financial information company LSEG as of the 19th, the 382 Stoxx 600 companies scheduled to report quarterly earnings are expected to report a 1.5% year-on-year decline in revenue for the April-June quarter, marking the first decline in three quarters. Among the 10 sectors, four—including energy (down 11.7% year-on-year) and consumer discretionary (down 4.5%)—are projected to report declines, while six—including real estate (up 3.5%) and financials (up 3.3%)—are expected to see slight increases. Additionally, of the 320 companies scheduled to report quarterly earnings per share (EPS), EPS is expected to increase by 4.6% year-on-year for the April-June quarter. Despite market expectations of a 0.8% year-on-year decline in mid-July, the generally better-than-expected results suggest a fifth consecutive quarter of earnings growth. Four sectors, including information technology (IT) (+25.4% year-on-year growth) and healthcare (+18.2%), are projected to see gains, while six—including consumer discretionary (-27.7%), real estate (-22.6%), and energy (-20.5%)—are expected to experience losses. 

    Market-wise, the Stoxx 600's full-year EPS forecast for 2025 is projected to decline by 2.2% year-on-year, a significant downward revision from the 5.8% growth forecast in early April, resulting in a negative outlook. All sectors are experiencing downward revisions, but declines are especially notable in sectors such as consumer discretionary (+9.3% to +22.9%), energy (+0.3% to +15.3%), and materials (+7.8% to +11.9%), which are more sensitive to economic trends. Amid growing uncertainty regarding US government tariff policies, it is difficult to identify sectors that will drive overall EPS growth, like energy in 2022 or financials in 2023. For EPS forecasts for the coming year, the "Revision Index (RI)," calculated by subtracting the percentage of companies that lowered their forecasts over the past month from the percentage that raised theirs, stood at -2.7% last weekend, indicating a continued decline in market earnings expectations. On the 21st, the US and EU issued a joint statement confirming the agreement reached in tariff negotiations. The base tariff rate was set at 15%, lower than the 20% proposed in April, with the tariff ceiling for sectors such as automobiles, pharmaceuticals, semiconductors, and timber also set at 15%. This could partly offset the downward revisions to earnings forecasts of major European companies or reduce uncertainty about the corporate earnings outlook due to tariff rate decisions. These developments warrant attention. 

 
    The Stoxx 600's one-year forward price-to-earnings ratio (PER) is 14.3, higher than its average of 14.0 since 2018 and on the high side. Given the expected interest rate cuts by the European Central Bank (ECB) and limited fund flows from US stocks, further upward movement in the PER is unlikely. The anticipated growth in defense and infrastructure performance driven by fiscal expansion centered on Germany has been reflected in stock prices, but its realization remains uncertain, making it difficult for the index's upward momentum to strengthen in the short term.