Europe Inc. Sprints Ahead of U.S.

Earnings at Europe’s biggest companies leapt ahead 23% for the first quarter of 2017, analysis shows, versus a comparable 14% rise in the U.S.

European companies are benefiting from something not seen since before the global economic crisis: a willingness among consumers to spend. Shown, shoe shoppers in Central Universal Department Store, known as TsUM, in Kiev, Ukraine, on May 17.

European companies are benefiting from something not seen since before the global economic crisis: a willingness among consumers to spend. Shown, shoe shoppers in Central Universal Department Store, known as TsUM, in Kiev, Ukraine, on May 17. PHOTO: VALENTYN OGIRENKO/REUTERS

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Updated May 19, 2017 12:37 p.m. ET

Big American companies are on an earnings tear. It’s even better in Europe.

The continent’s largest companies are on track to record their strongest quarter of profit growth in almost seven years, benefiting from something Europe Inc. hasn’t seen since before the global economic crisis: a willingness among consumers—and other companies—to spend…

growth in almost seven years, benefiting from something Europe Inc. hasn’t seen since before the global economic crisis: a willingness among consumers—and other companies—to spend again.

Analysts expect earnings growth to moderate in the second quarter, and there is still plenty of caution in boardrooms across Europe. Signs of a sustained upswing have appeared before, only to fade.

Still, the eye-popping first-quarter numbers are raising hopes the continent is poised to finally shake off the legacy of the global economic crisis that began in 2008 and has weighed on Europe much longer than it has on the U.S. or Asia.

“Europe is proving at the moment to be surprisingly resilient,” said Martin Daum, chief executive of Daimler AG’s commercial-vehicles business, one of the world’s biggest truck makers. He said European sales have protected Daimler from weakness in the U.S. and Brazil in recent quarters.

Europe’s biggest companies have on average boosted first-quarter earnings per share 23% over the year-earlier period, J.P. Morgan Cazenove estimates.

Two quarters of broad economic growth in Europe is translating into big earnings gains. Shown, a pedestrian with a shopping bag on Bond Street in London on April 27.

Two quarters of broad economic growth in Europe is translating into big earnings gains. Shown, a pedestrian with a shopping bag on Bond Street in London on April 27. PHOTO: CHRIS RATCLIFFE/BLOOMBERG NEWS

That would handily outpace the 14% rise for S&P 500 firms in the U.S., according to J.P. Morgan calculations.

Earnings per share for Stoxx Europe 600 companies are forecast to grow by just over 16% for the whole year, compared with 10.5% for S&P 500 companies, according to FactSet.

That would mark the best year since 2010, when European firms returned to profitability after the steep earnings declines of the economic crisis. Last year, Stoxx Europe 600 earnings per share fell 1.9%.

Corporate earnings are sailing on Europe’s broader economic tailwinds. Unemployment rates in the eurozone and its biggest members have been gradually falling over the past few years, emboldening consumers who had already been paying down debt and freeing up spending money. On Friday, the European Commission reported its measure of consumer sentiment rose to its highest level since July 2007.

In addition, oil prices have moderated from the lofty levels of a few years ago, and governments have stopped cutting spending. Tourism is providing a boost in places like Spain and Greece. Many visitors have shifted vacation plans to Europe from destinations in North Africa and Egypt following a string of terror attacks.

The growth has surprised executives across the continent. European central bankers failed for years to spur significant borrowing and spending with ultra-low interest rates. A series of terror attacks kept tourists away. This year, firebrand politicians campaigning against the European Union threatened political upheaval.

Now, two quarters of broad economic growth is translating into big earnings gains. The eurozone—the bloc of European countries that use the euro—has beaten the U.S. in terms of economic output for two consecutive quarters.

The strong start to 2017 year isn’t good news only for Europe. The continent has been the sick man of the global economy since the depths of the financial crisis. A real recovery here would lift many boats, including U.S. and Asian companies that sell to Europe.

Massimo Carboniero, chief executive of privately held Italian machine tool maker Omera Srl, began ordering new machines last year after sales picked up, particularly from Italy and Germany, of factory-floor equipment like hydraulic presses. His 100-person company recently hired two electric engineers and plans to hire two machinists in the coming months.

“Our customers are investing, and we have to invest ourselves if we want to keep up with orders,” he said.

Capital investment by the EU’s private sector fell sharply at the depths of the economic crisis in 2009, recovered slightly the next year, then flatlined before picking up more recently. That investment—on things like equipment and buildings—rose 3% in 2016 from the year earlier, and 14% from 2013, according to EU statistics.

Things are more muted in the U.S. Capital expenditures there rose 1.5% in the first three months of the year, according to an analysis by S&P Global Market Intelligence.

Business travelers are back, too. British Airways parent International Consolidated Airlines Group SA said it is raising ticket prices—the first time its fares have gone up in three years—as lucrative corporate bookings improve. Ticket price trends “are definitely better than we would have expected at this point,” IAG Chief Executive Willie Walsh told analysts.

There’s still plenty of skepticism about whether the upturn will last. One big risk: politics.

Far-right parties that campaigned against the EU in the Netherlands and France lost out earlier this year to candidates supportive of Brussels. But consequential elections in the U.K., Germany and Italy are all still to come. France holds parliamentary elections next month.

The U.K. is embarking on the politically and economically fraught process of negotiating its exit from the European Union. For businesses that operate on both sides of the English Channel, “nobody knows what things will look like in two years,” said Marc Bitzer, chief operating officer of Whirlpool Corp. , which runs factories throughout Europe. “Where will the pound be? Will there be tariffs?”

Promising starts to several previous years have petered out, dampening expectations. “I wouldn’t jump to any conclusions,” said Carlsberg A/S Chief Executive Cees ‘t Hart. Europe’s rebounding beer market lifted sales at Carlsberg and rivals Anheuser-Busch InBev NV and Heineken NV. “The time frame is too short to come to any other conclusion than the fact that it was a good quarter,” he said.

For now, though, consumers are doling out for big-ticket items and smaller indulgences. Passenger car sales in the 28 countries that make up the E.U. rose 4.7% through the first four months of the year.

Yet in the U.S., consumer spending slowed in the first quarter. Car sales declined in April for the fourth straight month.

Matevz Vidmar, who manages a restaurant in Ljubljana, Slovenia, said diners are ordering bottles of wine instead of glasses. “It’s clear that people are spending more,” he said.

In January, Global Exchange, a Salamanca, Spain-based currency-exchange firm with services in 57 airports in 20 countries, took out a seven-year €35 million ($39.15 million) syndicated loan from six Spanish banks, and €20 million ($22.38 million) in lines of credit. It plans to use the funds to expand in Europe, Africa, Asia and the Middle East.

Global Exchange was able to borrow during Spain’s banking crisis, but a long-term loan of this size was unthinkable, said Chief Executive Isidoro J. Alanís. “Now in Spain,” Mr. Alanís said, “good projects have financing.”

Giusy Bellomo, who runs a beauty salon in Milan, measures the state of Italy’s economy by the color of the roots of her clients’ hair.

“Before the economic crisis, many clients would come in once a month to get their hair cut and dyed,” she said. After the crisis, that was pushed to once every two months as people cut back on spending.

“That same client is maybe coming in every month and a half now,” she said.

Write to Eric Sylvers at eric.sylvers@wsj.com

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One Response to “Europe Inc. Sprints Ahead of U.S.”

  1. daveyone1 Says:

    Reblogged this on World Peace Forum.

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