European companies have presented their most disappointing financial statements in the last almost three years after the economic downturn and rising costs that negatively impacted profits. All this is another blow to investor confidence, which has already been shaken by the Italian budget crisis and Brexit, analysts Reuters say.
Stocks report sharp fluctuations in the days when reports are published, as companies report on disadvantages that are suffering from larger duties and lower global demand in the midst of stock market auctions and increased volatility.
Some of the largest companies in Europe, from cement manufacturers and vehicle manufacturers to engineering companies and airlines, warn of lower margins.
This reporting season in Europe is worse than the fourth quarter of 2015, according to I / B / E / S Refinitis.
Many investors hoped that a stable reporting season would help overcome political and macroeconomic weaknesses in the region – from the drama around the Italian budget to Brexit. The Pan-European Index STOXX 600 will soon send its worst year from 2011.
In addition, analysts have sharply reduced company earnings estimates, which is part of the STOXX 600 reference value, the fastest pace since July 2016. The reduction began even three weeks before the start of the reporting season, which indicates that confidence is already low.
"The biggest reason why the reporting season in the third quarter was weaker than the usual lack of very good results, which was indeed a serious issue beyond the usual deviations between expectations and data," commented analyst Morgan Stanley.
STOXX 600 revenues are expected to grow by 15.8% in the third quarter compared to the same period last year, up 8.4% for the full 2018. For comparison, last year's financial results of the largest public companies in Europe rose by 12.2%.
In this season the company tries to cope with higher raw material costs while fuel and salary prices are growing. At the same time, duties make additional inflationary pressures on some companies.
Examples are many
The largest cement producer LafargeHolcim has lowered the expected profit due to increased fuel and transportation costs.
Slower growth and higher costs also have a negative impact on the automotive sector, with European growth-based companies in China – the world's largest car market.
Auto makers, including Daimler and BMW, have lowered their expectations of profit due to trade duties and slowing down Chinese demand.
Negative surprises in this quarter also come from car parts suppliers, including Michelin, Nokian and Valeo, who suffer from a slowdown in sales growth.