As we approach the halfway mark in Europe, earnings growth has provided a much-needed source of reassurance and optimism in the face of higher inflation, interest rates, commodities, and geopolitical tensions. As noted in April, STOXX 600 earnings growth expectations increased heading into earnings season from 17.7% to 25.1% (STOXX 600 22Q1 Earnings Preview: Earnings Growth Remains Resilient, April 12, 2022).
Earnings growth continues to improve during the quarter and now sits at 35.4% (14.9% when excluding Energy). Since April 1st, earnings growth improved by 14.6 percentage points (ppts). At a sector level, Energy has seen the largest improvement in earnings growth over the same period (77.4 ppts), followed by Consumer Non-Cyclicals (17.0 ppts), Industrials (15.1 ppts), and Basic Materials (14.3 ppts).
Of the 131 constituents that have reported earnings so far, 72.5% have beaten earnings expectations, well above the long-term average of 52.2% and prior-four quarter average of 64.7%. The current beat rate is also trending to be the highest on record since Refinitiv has tracked this data (Exhibit 1).
At a sector level, Basic Materials has the highest earnings beat rate of 92.9% followed by Consumer Non-Cyclicals (83.3%), and Energy (77.8%).
Exhibit 1: STOXX 600 Earnings Beat Rate %
We see the same picture for top-line results, with 76.7% of constituents beating revenue expectations, which is above the long-term average of 56.9% and prior-four quarter average of 69.8%. The current beat rate of 76.7% is also trending to be the highest on record (Exhibit 2).
At a sector level, Consumer Non-Cyclicals has the highest earnings beat rate of 100.0% followed by Health Care (85.7%), Energy (84.6%), and Financials (83.9%).
The revenue surprise factor of 5.4% (reported actuals vs. consensus at the time of reporting) is also the second highest on record since 2012, demonstrating that companies are significantly surpassing analyst expectations.
Exhibit 2: STOXX 600 Earnings Revenue Rate %
Analysts upgrading FY1 EPS estimates
The STOXX 600 Earnings Outlook report tracks analyst sentiment via the estimate revisions ratio. Analysts have continued to raise FY1 EPS estimates since mid-March as shown in Exhibit 3.
In the May 3rd report, we observe a sharp increase in the number of FY1 EPS estimates being revised upwards over the last seven days for week ending May 3rd.
Of the 1,640 analyst estimate revisions for the week ending May 3rd, 1,001 estimates were increased in comparison to 639 estimates which were decreased. This results in an upward revision ratio of 61.0%, a sharp increase from the prior week of 52.9%.
The current reading of 61.0% is above the long-term average (since 2018) of 48.8% and the highest weekly reading since November 2021.
Exhibit 3: STOXX 600 Earnings Estimate Revision Trend
Source: STOXX 600 Earnings Outlook, May 3, 2022
At a company level, Dassault Systemes SE (DAST.PA) saw the highest number of FY1 EPS upgrades over the last 7-day period ending May 3rd (18 estimate increases), followed by Capgemini SE (CAPP.PA) (16 increases), Pernod Ricard SA (PERP.PA) (15 increases), WPP PLC (WPP.L) (14 increases), and SKF AB (SKFb.ST) (13 increases).
Exhibit 4 highlights a list of 20 constituents with the highest number of analyst estimate increases in EPS for the week ending May 3rd. We also overlay each constituent’s StarMine Analyst Revision Model (ARM) rank. ARM is a stock ranking model that is designed to predict future changes in analyst sentiment by looking at changes in estimates across EPS, EBITDA, Revenue, and Recommendations over multiple time periods.
We observe a strong correlation between a constituent’s ARM rank and the number of upward estimate revisions, as most constituents have an ARM rank above 70 which is considered a bullish signal (1 = worst, 100 = best).
Exhibit 4: FY1 EPS Revisions for week ending May 3rd, 2022
Utilize SentiMine during Earnings Season
To help analysts and portfolio managers get through earnings season more efficiently, SentiMine helps users extract insights from text-heavy unstructured content such as earnings call transcripts using natural language processing (NLP), sentiment analysis and deep learning.
SentiMine automatically points users to key text within transcripts (green = positive sentiment, grey = neutral sentiment, red = negative sentiment) and provides sentiment across multiple categories such as revenue, EPS, market volatility, exchange rate impact, share buy-backs, epidemics, and competition. SentiMine is available in Refinitiv Workspace for Analyst & Portfolio Managers via the company events page.
Looking at Exhibit 4, we can use SentiMine to infer contributing factors that may have caused analysts to upgrade FY1 estimates for key companies including Mercedes Benz and TotalEnergies.
Mercedes-Benz Group AG (MBGn.DE) beat earnings expectations (€3.26 actual vs. €3.13 consensus), as the ongoing semiconductor shortages impacted volume, yet average selling prices remained high due to strong pricing power, a sought-after characteristic in the current environment of possible stagflation. Supply chains appear to be managed well even in the face of recent COVID lockdowns in Shanghai as shown in Exhibit 5.
Exhibit 5: SentiMine for 22Q1 Mercedes-Benz Group Earnings Transcript
Source: Refinitiv Workspace
TotalEnergies SE also beat analyst expectations, posting a 22Q1 EPS actual of €3.24 vs. €2.83 and a year-over-year growth of 256.9%. The company posted a record-high net income of $9 billion this quarter given strong oil prices, a surge in European natural gas price, and increased focus on renewables. However, SentiMine also flags warnings from management who indicate ongoing geopolitical risks may cause further macro uncertainty and will likely result in higher volatility.
Exhibit 5: SentiMine for 22Q1 TotalEnergies SE Earnings Transcript
Source: Refinitiv Workspace
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