Barclays Sees Softer 2027 European Profit Growth Ahead

Key Moments

Blended earnings-per-share growth for the STOXX 600 reached 29% in the third quarter, compared with 33% in the U.S., narrowing the regional gap.
For 2027, consensus points to European earnings growth slowing to 9%, which Barclays attributes largely to a drag from the energy sector.
Excluding energy, expected European earnings growth in 2027 eases only slightly, from 16% to 13%, with revisions still positive and macro data seen as supportive.

Third-Quarter Earnings: Europe Narrows Gap With U.S.

European corporate earnings growth is expected to cool next year, according to Barclays strategists, although they contend that headline figures “overstate the slowdown” because of pressure from the energy sector. Their assessment follows third-quarter results that surpassed already elevated expectations.

Strategists led by Magesh Kumar Chandrasekaran reported that blended earnings-per-share (EPS) growth for the STOXX 600 reached 29% in the third quarter, against 33% in the U.S., indicating that Europe is closing the performance gap. When energy is excluded, EPS growth was 15% in Europe and 28% in the U.S.

Beat rates remained above their historical averages, and profit margins stayed firm, although both metrics retreated slightly from their second-quarter peaks.

Region / Metric	Headline EPS Growth (Q3)	EPS Growth ex-Energy (Q3)
STOXX 600 (Europe)	29%	15%
U.S.	33%	28%

Sector Performance: Defensives Lead, Tech Shines Among Cyclicals

Energy and defensive sectors generated a large share of the upside surprises, the strategists said. Defensive stocks outpaced cyclicals, with particular strength in consumer staples and health care.

Within cyclical sectors, technology emerged as the key outperformer. Financials, by contrast, delivered a more mixed showing than in prior quarters.

Corporate Tone: Confidence Amid Cost and Rate Headwinds

Companies maintained a generally confident tone despite ongoing cost pressures. In the U.S., earnings guidance upgrades increased compared with the second quarter. In Europe, upgrades softened slightly, but the pace of downgrades also diminished.

Analysis of STOXX 600 earnings call transcripts indicated steady demand and solid capital expenditure plans. Input costs and higher interest rates were cited as the primary headwinds, while currency movements have shifted to become a tailwind.

More management teams also emphasized AI-enabled efficiencies, including cost reductions and headcount cuts. Barclays strategists noted that this theme is becoming more visible, especially among financial companies.

2027 Outlook: Energy Weighs on Headline Growth

Looking ahead to 2027, consensus expectations show European earnings growth nearly halving to 9%. Barclays said this deceleration is driven largely by the energy sector.

When energy is stripped out, the expected slowdown is more moderate, with earnings growth easing from 16% to 13%. Revisions in this ex-energy context remain positive, and macroeconomic indicators are described as supportive.

Metric	Current Consensus
European earnings growth (headline, 2027)	9%
European earnings growth ex-energy (current period to 2027)	From 16% to 13%

Revisions are still being led by energy, semiconductors, and technology, according to the strategists. Other sectors tied to capital spending are also experiencing incremental upgrades, while the broader consumer-related complex continues to face net downgrades.

Market Reaction: Earnings Momentum Outpaces Price Action

Share price reactions improved as the reporting season advanced, turning modestly positive in both Europe and the U.S. However, in Europe, price momentum continues to trail earnings momentum, especially for cyclical stocks.

The strategists noted that “the disconnect is looking extreme for Tech/Semis,” indicating that stock performance in these areas has not fully reflected underlying earnings trends. In contrast, the recent strength in consumer staples and pharmaceutical names appears to be running ahead of earnings momentum.