Europe's largest companies are off to a strong start in the fourth-quarter earnings season. While a few outliers have disappointed, the majority of the continent's leading companies are exceeding expectations and providing positive outlooks.
Novo Nordisk, the renowned maker of popular weight-loss drugs, beat estimates and signaled a need for analysts to revise their outlooks upwards. LVMH Moet Hennessy, the luxury giant, reported faster-than-expected sales growth and impressive cost control. ASML Holding, a leading manufacturer of microchip-making equipment, reported faster-than-expected order growth despite challenges stemming from the U.S.-China tech wars. SAP, the German database provider and arch-rival to Oracle, also raised its profit outlook.
Limited Reliance on Europe for Sales
An intriguing commonality among these disparate companies is their independence from Europe for sales. Novo Nordisk relies heavily on the U.S., where more than half of its sales originate. LVMH enjoys a more balanced regional breakdown, although its European sales figures are boosted by purchases made by Asian tourists visiting Paris. ASML's exports primarily go to regions outside Europe, with only 4% of shipments going to Europe, the Middle East, and Africa last year.
Adapting to Europe's Stagnant Economy
Europe's largest companies have long adjusted to the stagnant European economy. Recent data revealed that the eurozone economy grew by a mere 0.5% last year compared to the U.S.'s 2.5% growth. Over a longer timeframe, the U.S. economy has outpaced eurozone GDP by more than 20% since the beginning of the century.
Positive Surprise for European Earnings
Goldman Sachs reports that when weighted for market capitalization, European earnings have surpassed expectations by 2%. Conversely, an equal-weighted analysis of European earnings reveals a 1% miss.
Smaller companies on the Stoxx 600, specifically the smallest 200, have reported a 5% miss in earnings. Goldman Sachs attributes this partly to their "high domestic exposure."
Despite Europe's economic challenges, the largest companies on the continent continue to excel. With their impressive performances and limited reliance on European sales, they are successfully navigating and thriving amidst a difficult economic landscape.
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