European corporates defy fears of earnings gloom as outlook improves

By Javi West Larrañaga

(Reuters) -The outlook for European corporate health has substantially improved, the latest earnings forecasts showed on Tuesday, as investors' worst fears for quarterly earnings fail to materialise.

European firms are expected to report growth of 4.3% in third-quarter earnings, on average, according to LSEG I/B/E/S data, above the 0.4% increase analysts expected a week ago.

However, consensus for revenue deteriorated with forecasts of a 0.9% decrease, compared with a 0.1% fall expected last week. That would confirm a trend, seen in five out of six most recent quarters, where company earnings have outpaced revenues.

Companies are increasingly relying on cost savings and restructurings to offset falling revenues as hard up consumers cut back.

THE ATLANTIC WIDENS

However, as earnings season is halfway done and more than half of STOXX 600 companies have reported results, the difference in performance between European and U.S. companies has become more noticeable.

Earnings of S&P 500 companies are forecast to rise 13.8%, a different LSEG I/B/E/S report found, and of the 315 companies that had reported by Friday, 83.2% posted earnings above analyst estimates, the highest beat rate in four years.

In contrast, out of the STOXX 600 companies that published their results, 55.3% have beat earnings expectations.

Not all geographies are faring equally, with Polish and Irish companies in the index expected to increase earnings 65% and 28.3% year-on-year, respectively, while Danish and Norwegian ones are forecast to see 20.8% and 14.9% falls, respectively.

Results from pharma giant AstraZeneca and defence firms Rheinmetall and Leonardo will reveal more about the mood among executives at Europe's top companies.

(Reporting by Javi West Larrañaga; Editing by Matt Scuffham)