European companies have shown strong resilience under the impact of tariffs in the United States, with impressive financial performance exceeding market expectations, signaling a possible double-digit profit growth next year.
The third quarter of this year (July-September) marked the first quarter after Trump’s tariff increase, and numerous European companies have benefited from the growth in the American market. Not only did their financial reports surpass analyst expectations, but they have also raised their future performance outlook.
A basket of European stocks most vulnerable to tariff impacts compiled by Goldman Sachs Group Inc. outperformed the market in October. Previously, this basket of stocks had been lagging for most of the year.
With the latest quarterly financial reports, this stock portfolio – including companies such as Legrand from France, BMW from Germany, and sportswear brand Adidas – saw a rise of about 6%, which is double that of the Stoxx Europe 600 index and three times higher than the stock performance of European companies mainly focused on the local market.
Nicolas Domont, a fund manager at Optigestion in Paris, stated, “The impact of tariffs on European companies has been minimal so far, with only a few exceptions.”
Regardless of the tariff impact, the U.S. market has driven sales growth for many European companies, including a 14.1% increase in sales in the Americas for Hermes. Unilever exceeded sales expectations due to strong demand in the North American market. Swiss skincare brand Galderma, power and automation technology company ABB Group, and British multinational consumer healthcare company Haleon plc have raised their annual performance outlook due to strong performance in the U.S. market.
Data compiled by Bloomberg Intelligence (BI) shows that the market generally expects a 12% increase in earnings per share for companies in the next year’s Stoxx Europe 600 index. Gillian Wolff, a stock strategist at Bloomberg Intelligence, commented, “Tariffs are testing the profitability resilience of global companies, and so far, companies have successfully adapted. European exporters have cut expenses to offset the pressure from rising energy prices and tariffs.”
For example, Unilever’s sales growth in the North American market mainly comes from the demand for personal care products and high-end products. The company controls prices by reducing costs to prevent consumers from turning to cheaper competing brands. CEO Fernando Fernandez confirmed, “We continue to achieve significant sales growth in the United States.”
Currently, the U.S. imposes a 15% tariff on EU goods, 10% on British goods, and 39% on Swiss goods, in addition to implementing partial tariffs on industries such as steel.
European pharmaceutical companies such as Novartis, GSK, and Roche Holding are negotiating with the U.S. government to lower drug prices and have pledged to invest billions of dollars in exchange for exemptions from drug tariffs. A deal was reached in October with AstraZeneca in the UK.
By taking measures to mitigate the impact of tariffs, European companies’ prospects in the export sector are becoming more optimistic. Investors who were initially taking short positions (betting on stock price decline) are forced to cover their positions or choose to buy back stocks. The tariff issue is gradually fading from the market spotlight, with a decreasing frequency of mentions in earnings call conferences.
Ariane Hayate, a fund manager at Edmond de Rothschild Asset Management, said, “When Trump unexpectedly announced high tariffs in April, market uncertainty peaked. Fortunately, companies quickly adapted to the tariffs by shifting production to other countries or the U.S., whether they are large pharmaceutical companies or small consumer goods manufacturers.”
(References: Reports from Bloomberg)