Between now and the end of March, 491 companies, representing 82% of the STOXX Europe 600, will report their annual results. Since the end of the last earnings season, consensus estimates have been revised down substantially while the level of economic activity has remained broadly stable. In contrast, we expect results to mark an improvement compared to the third quarter. We continue to expect European earnings growth to reach 14% in 2014 as economic growth accelerates, and think this will be the main driver of equity returns.
* Exposure has been a key factor explaining negative revisions
Since the beginning of the year, 2013 earnings have been revised down by close to 15%. This has mostly been driven by lower net income margins. The dispersion of sector revisions has been particularly low while exposure has been a key factor differentiating earnings momentum. Our UK domestic exposure basket has seen positive revisions while EM industrials are down 26%.
* We expect a small improvement this season
Looking at the different factors influencing earnings season (revisions, economic activity and currency) we expect the season to be an improvement in terms of earnings surprises compared to the third quarter. However, this is mostly driven by substantially lower expectations coming into the season rather than an improved economic environment or more favourable FX evolution. Looking out to 2014, we expect earnings growth to reach 14% as global growth accelerates. We forecast an EPS level of 24.9 for the STOXX Europe 600.