Europe crushes zero-growth forecasts with 5.7% Q3 earnings-per-share jump

Europe’s earnings crushed expectations in Q3 2025, delivering 5.7% earnings-per-share growth for the MSCI Europe Index, which was way ahead of the 0% forecast made earlier in the quarter by both Reuters and Bloomberg Intelligence.

With nearly the entire reporting season wrapped up, around half of the companies have reported earnings that beat forecasts, forcing analysts to raise their guidance and rethink all that noise about tariffs, shaky currencies, and macro risks that never really hit the way people thought they would.

Low interest rates, tighter cost structures, higher prices, and a slowly recovering economy all played into the beats. The Stoxx Europe 600 is now up 14% year-to-date. Banks came out on top, jumping 55% so far in 2025.

Energy companies also came through, even if their revenue came in lighter than expected. Refining margins carried them over the line.

And the outlook is getting hotter. Guidance for 2026 earnings is now projected to climb by 11%, and 12% for 2027, not too far off from the S&P 500’s 12% and 14% projections.

Banks, energy, and autos drive recovery

Guillaume Jaisson, who leads the strategy team at Goldman Sachs, said, “The earnings season continues to deliver,” adding that most of the guidance has been confirmed and forecasts are now either holding up or moving higher.

So much for that analyst caution.

While stocks in Europe are starting to look more expensive, they’re still nowhere near overheated. The average forward price-to-earnings ratio hit 15, the highest it’s been in about four years. But that’s still well below the post-pandemic peak. On top of that, the Stoxx 600 is trading at a 35% discount to the S&P 500.

Banks and energy were the earnings anchors this quarter. Net interest income held up well, and banks didn’t have to swallow big losses on loans. Meanwhile, energy names got help from better refining margins, even as oil prices stayed soft.

Philip Richards, senior analyst at BI, said the bank sector had roughly a ten-to-one beat-to-miss ratio. Barclays, NatWest, HSBC, and Standard Chartered all posted stronger-than-expected earnings.

The sector’s current earnings upgrade cycle, which started five years ago, looks like it’s going to keep rolling right through 2026.

The energy side saw Shell, BP, and Eni post better-than-expected bottom lines. BP beat expectations on Q3 profit, giving its turnaround story a bit of a boost.

The automotive sector (the one that’s been dragging for more than a year) finally showed a flicker of life. Profit warnings were the norm for five straight quarters, but this time around, the sector managed a positive surprise.

Analysts gave credit to cost-cutting and restructuring plans, which helped improve margins and led to upgraded profit estimates. But let’s be clear: profits still fell year-on-year and sequentially. The surprise just means things didn’t fall off a cliff.

AI reshapes operations, management stays optimistic

Meanwhile, AI was everywhere in Europe’s Q3 earnings calls, with mentions hitting a record high, as firms across Europe are leaning into automation and efficiency gains.

Laurent Douillet and Kaidi Meng, both strategists at BI, said, “AI is no longer a niche theme, but a key driver of productivity and profitability as 2026 beckons.”

Tech firms, of course, did most of the talking, but banks weren’t silent. Banco Santander’s CEO, Hector Grisi, said they’re using AI to automate and cut down on manual work.

ING Groep in the Netherlands estimated that 950 jobs could be eliminated by the end of 2026 due to the shift to digital lending.

Consumer discretionary and energy companies also mentioned using AI for personalization, automation, and managing risk.

Even the mood among executives has turned around. Management sentiment is now almost back to 2021 levels. Macro worries? Shrinking.

That confidence is feeding back into forecasts, with Maximilian Uleer, who heads equity and cross-asset strategy at Deutsche Bank, predicting even more earnings upgrades.

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