(May 20): Europe’s first-quarter earnings season was the best one in three years, buoyed by energy majors and tech giants. The performance may be difficult to sustain as the economic outlook sours and the war persists.
Per-share earnings for the MSCI Europe Index jumped 7.5% in the quarter, comfortably ahead of the 2.5% growth expected and the fastest clip since the first quarter of 2023, Bloomberg Intelligence data shows.
Energy firms led the gains as the closure of the Strait of Hormuz drove up commodity prices, boosting trading operations at BP plc, TotalEnergies SE and Equinor ASA. Earnings surged 22% in the first quarter, compared with pre-season estimates of 5.6% growth.
Earnings at Shell plc, which has the heaviest weighting in the MSCI Europe energy index, more than doubled from the prior quarter as surging oil and gas prices lifted profit to the highest level in two years, even as production declined.
The technology sector also surpassed expectations, with software companies defying threats of artificial intelligence disruption to deliver better-than-expected results and semiconductor firms continuing to benefit from robust AI spending.
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ASML Holding NV, which makes up almost half the weighting of the MSCI Europe technology index, is expected to drive more than 50% of the earnings growth in the tech sector this year, Bloomberg Intelligence analysts Laurent Douillet and Aditya Khanduja said.
Aggregate earnings-per-share revisions are up since the Iran conflict began, Goldman Sachs strategists led by Peter Oppenheimer calculated, highlighting that first-quarter earnings were “positive but concentrated”. Upgrades were driven almost entirely by the energy, basic resources and chemicals sectors.
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Conversely, luxury firms and carmakers were particularly weak this quarter, suffering from their exposure to tariffs, Chinese competition and weaker consumer sentiment as inflation bites.
This concentration of estimates upgrades in just a few sectors leaves “broader earnings momentum at risk of fading”, BI’s Douillet and Simbarashe Gumbo wrote in a note.
Even the best performers could soon be facing big hurdles. Energy majors “may find it challenging to maintain marketing margins amid persistently high prices, as various nations have implemented policies aimed at controlling prices at the pump”, according to Barclays analyst Lydia Rainforth.
ASML’s monopoly on extreme ultraviolet lithography tools — the most advanced equipment in chipmaking — leaves it exposed to export controls placed on Chinese clients, customer concentration and cyclicality, according to BI’s Douillet and Khanduja, while the negative market reaction to its outlook hike highlights the difficulty of satisfying soaring expectations.
European companies’ outperformance may therefore be short-lived. “Geopolitical uncertainty appears to be souring sentiment toward broader European equities,” BI’s Douillet and Gumbo said, adding that the rest of 2026 will be marked by a slowing global economy, currency headwinds and additional US tariffs.
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