Investing.com -- Earnings season for Stoxx 600 companies is progressing with stronger-than-expected results in the fourth quarter, though near-term expectations remain under pressure.
As per analysts at BofA Securities, with around three-quarters of the companies having reported, Q4 earnings per share growth is tracking at 5% year-on-year, which is five percentage points above consensus estimates at this stage.
The strength has been driven largely by financials and healthcare, while resource companies have weighed on performance in line with expectations.
The solid results have led to an upward revision of Q4 EPS expectations, with consensus now projecting 3% year-on-year growth for the quarter, up slightly from the 2% increase in Q3.
However, this momentum has not carried over into Q1 2025 forecasts, which have been revised downward.
Since mid-January, expectations for Q1 earnings have been cut by nearly 3%, with consensus now forecasting flat growth, down from the 3% projection at the beginning of the earnings season.
Performance has varied across market segments. Large and mid-cap companies have been responsible for the bulk of Q4 EPS growth, while small caps have underperformed.
Small-cap earnings have remained flat so far, falling far short of the 15% growth that had been expected. Consensus now projects small caps will end the quarter with a 7% decline in EPS.
In contrast, cyclicals have posted a notable turnaround. Earnings growth in the sector has reached 11% so far, well ahead of the 6% consensus estimate.
The beat ratio for cyclicals has climbed to 52%, up from 39% in Q3 and the highest since early 2023.
The sector is now expected to post 8% growth for the quarter, marking its first significant positive earnings performance in two years.
Following this recovery, cyclicals are now priced for further earnings momentum after a period of relative weakness over the past six months.
Despite the stronger-than-expected results in some areas, the overall EPS beat ratio for the Stoxx 600 has weakened.
Currently, 47% of companies have reported earnings above expectations, down from 54% earlier in the season and below the long-term average of 54%.
However, companies with exposure to the U.S. have fared better. So far, 55% of these firms have exceeded EPS expectations, compared to just 44% of domestically focused stocks. This marks the first time since early 2023 that U.S.-exposed companies have outperformed on this measure, likely benefiting from a stronger U.S. dollar during the quarter.
While earnings surprises have moderated, revenue performance remains robust. The sales beat ratio for the Stoxx 600 stands at 59%, the highest level since early 2023 and well above the long-term average of 53%.