By Tom Bergin and Blaise Robinson
LONDON/PARIS (Reuters) - Signs of a long-awaited recovery in Europe are starting to show through in the profits of leading global companies, even if their bosses are still giving most of the credit to strong demand in Asia or the United States.
Reuters has analysed comments from more than 50 of the biggest companies selling in Europe, which in recent weeks have mostly reported improving global earnings. In investor presentations and analyst calls, 71 percent said they enjoyed a swing from contraction to growth in Europe last year, or experienced a pickup in growth.
Only 16 percent said European performance deteriorated in 2014 or that they expected declines in 2015. Thirteen percent said they saw stagnant markets for their goods and services in the region this year.
"European markets recovered beyond our expectations," Carlos Ghosn, CEO of Renault SA (PA:RENA), told investors earlier this month, saying the continent was the main driver of the carmaker's increased sales.
Executives said they expected the positive momentum to be sustained through the year, as lower oil prices feed through into consumer's pockets and the European Central Bank prints new money to buy government bonds.
Analysts say investors haven't fully factored in the extent to which the European Union – whose year-on-year GDP growth of just 1.3 percent in the last quarter of 2014 was around half the U.S. level -- has begun to turn the corner.
"It's something that is still below the radar of global investors who have deserted Europe during the last few years and remain sceptical about the earnings trend in Europe," said Benoit Peloille, equity strategist at French corporate and investment bank Natixis.
"There is improvement in the macro landscape in Europe, and companies are starting to benefit from it," he added.
Northern European countries like Britain and Germany were typically cited as the strongest markets, but many companies said a recovery in southern Europe was tipping the continent into positive territory.
L'Oreal (PA:OREP) Finance Director Christian Mulliez said that in Europe, the cosmetics group had seen "the strongest growth since 2007, thanks mainly to the turnaround in Southern Europe". The company said Spain, Portugal and Greece had displayed good growth, while other firms also cited recovery in Italy.
In their earnings reports for the fourth quarter of 2014, 58 percent of members of the STOXX 600 index of leading European companies said their profits had increased, although that data also reflects their operations outside Europe.
Overall, fourth-quarter earnings are expected to grow by 19.5 percent, which would be Europe's best earnings season in 3-1/2 years. European equities saw their largest ever inflows last week, totalling $5.8 billion.
WEAK CURRENCY HELPS
Stronger demand was the key driver of improved performance in Europe, executives said. This, and the tough cost-cutting introduced in recent years to tackle the soft economy, allowed many companies to boost margins, even against a deflationary backdrop.
"List price increases are difficult to accomplish. But you saw in Europe a terrific margin expansion this year," Ian Cook, chief executive of Colgate-Palmolive Co. (N:CL), told investors last month, citing efficiency programmes the company had pursued.
Europe's weak GDP growth, sluggish inflation and the quantitative easing programme that the ECB has introduced to address them have helped send the euro down to 11-year lows this year and some analysts predict it could hit parity with the dollar.
That has weighed on the dollar value of European corporate profits and made products manufactured in the United States more expensive in euros.
But on the ground in Europe, the impact is often positive. Steelmaker ArcelorMittal (AS:ISPA) said the weaker euro was making it harder for peers outside Europe to compete here.
Illinois-based construction equipment manufacturer Caterpillar (N:CAT) said it expected to face challenges selling diggers into Europe. But it also has a French manufacturing unit and "a euro at parity will just be a great tailwind for that", CEO Doug Oberhelman said.
European manufacturers Daimler (DE:DAIGn), ABB (VX:ABBN) and Alstom (PA:ALSO) said they expected their exports to be boosted by the weaker euro. Their increased competitiveness could also prove lucrative for their overseas suppliers: Minnesota-based 3M (N:MMM), which has a large business selling to European industrial and healthcare companies, predicted gains.
"As exports will increase as we go, I think that will help 3M as we go ahead," CEO Inge Thulin told investors.
STILL CAUTIOUS
Many companies reported weakness in their Russia and Ukraine markets that they didn't expect to improve as lo
By Tom Bergin and Blaise Robinson
LONDON/PARIS (Reuters) - Signs of a long-awaited recovery in Europe are starting to show through in the profits of leading global companies, even if their bosses are still giving most of the credit to strong demand in Asia or the United States.
Reuters has analysed comments from more than 50 of the biggest companies selling in Europe, which in recent weeks have mostly reported improving global earnings. In investor presentations and analyst calls, 71 percent said they enjoyed a swing from contraction to growth in Europe last year, or experienced a pickup in growth.
Only 16 percent said European performance deteriorated in 2014 or that they expected declines in 2015. Thirteen percent said they saw stagnant markets for their goods and services in the region this year.
"European markets recovered beyond our expectations," Carlos Ghosn, CEO of Renault SA (PARIS:RENA), told investors earlier this month, saying the continent was the main driver of the carmaker's increased sales.
Executives said they expected the positive momentum to be sustained through the year, as lower oil prices feed through into consumer's pockets and the European Central Bank prints new money to buy government bonds.
Analysts say investors haven't fully factored in the extent to which the European Union – whose year-on-year GDP growth of just 1.3 percent in the last quarter of 2014 was around half the U.S. level -- has begun to turn the corner.
"It's something that is still below the radar of global investors who have deserted Europe during the last few years and remain sceptical about the earnings trend in Europe," said Benoit Peloille, equity strategist at French corporate and investment bank Natixis.
"There is improvement in the macro landscape in Europe, and companies are starting to benefit from it," he added.
Northern European countries like Britain and Germany were typically cited as the strongest markets, but many companies said a recovery in southern Europe was tipping the continent into positive territory.
L'Oreal (PA:OREP) Finance Director Christian Mulliez said that in Europe, the cosmetics group had seen "the strongest growth since 2007, thanks mainly to the turnaround in Southern Europe". The company said Spain, Portugal and Greece had displayed good growth, while other firms also cited recovery in Italy.
In their earnings reports for the fourth quarter of 2014, 58 percent of members of the STOXX 600 index of leading European companies said their profits had increased, although that data also reflects their operations outside Europe.
Overall, fourth-quarter earnings are expected to grow by 19.5 percent, which would be Europe's best earnings season in 3-1/2 years. European equities saw their largest ever inflows last week, totalling $5.8 billion.
WEAK CURRENCY HELPS
Stronger demand was the key driver of improved performance in Europe, executives said. This, and the tough cost-cutting introduced in recent years to tackle the soft economy, allowed many companies to boost margins, even against a deflationary backdrop.
"List price increases are difficult to accomplish. But you saw in Europe a terrific margin expansion this year," Ian Cook, chief executive of Colgate-Palmolive Co. (N:CL), told investors last month, citing efficiency programmes the company had pursued.
Europe's weak GDP growth, sluggish inflation and the quantitative easing programme that the ECB has introduced to address them have helped send the euro down to 11-year lows this year and some analysts predict it could hit parity with the dollar.
That has weighed on the dollar value of European corporate profits and made products manufactured in the United States more expensive in euros.
But on the ground in Europe, the impact is often positive. Steelmaker ArcelorMittal (AS:ISPA) said the weaker euro was making it harder for peers outside Europe to compete here.
Illinois-based construction equipment manufacturer Caterpillar (N:CAT) said it expected to face challenges selling diggers into Europe. But it also has a French manufacturing unit and "a euro at parity will just be a great tailwind for that", CEO Doug Oberhelman said.
European manufacturers Daimler (DE:DAIGn), ABB (VX:ABBN) and Alstom (PARIS:ALSO) said they expected their exports to be boosted by the weaker euro. Their increased competitiveness could also prove lucrative for their overseas suppliers: Minnesota-based 3M (N:MMM), which has a large business selling to European industrial and healthcare companies, predicted gains.
"As exports will increase as we go, I think that will help 3M as we go ahead," CEO Inge Thulin told investors.
STILL CAUTIOUS
Many companies reported weakness in their Russia and Ukraine markets that they didn't expect to improve as long as hostilities in Ukraine continue and sanctions against Russia persist. The health of France's economy was also a recurring worry.
Yet only three companies expressed any concerns that Greece, which has been locked in tense negotiations with lenders about extending its bailout programme, could cause economic contagion across Europe.
Some analysts say Greece, which was presenting economic reform plans on Monday to seal a euro zone financial lifeline, could yet be forced out of the single currency.
Nonetheless, even among the companies which highlighted Greek risk, U.S. industrial group United Technologies Corporation (N:UTX) said it thought any negative impact from Greece would be outweighed by the effects of QE and lower oil prices.
Despite the overwhelming optimism around Europe, it was frequently guarded. And in a sign that the recovery is still far from robust, some companies said the growth they experienced was driven by the value end of the market.
Among hotel groups, Hilton (N:HLT) and Marriott (O:MAR) said positive European performances were helped by expansion of limited-service brands like the former's DoubleTree and the latter's Courtyard and Residence Inn.
Mark Hoplamazian, CEO of Hyatt Hotels Corporation (N:H), which offers almost exclusively full-service hotels in Europe, said "continental Europe continues to struggle".
Paul Polman, CEO of consumer goods group Unilever PLC (L:ULVR), which experienced a contracting market in Europe as consumers opted for discounted and unbranded goods, said the European consumer had fundamentally changed.
"After several years of austerity measures, a mindset of economizing and making-do has become ingrained," he said.