Europe is having its worst earnings season since the onset of Covid — with little hope of a quick turnaround

LONDON — Around a half of European companies missed earnings expectations in the latest reporting season despite already low expectations, analysts told CNBC, who predicted that the region will continue to struggle amid high interest rates.

As of Feb. 29 with 313 companies having reported, 50.2% posted a beat, according to a CNBC analysis of FactSet data. This was the smallest percentage of beats — thus the worst earnings season — since the first quarter of 2020 when the pandemic first hit European firms.

The sector breakdown showed that materials, consumer discretionary and health care were among the worst performing sectors for the last three months of 2023. On the other hand, tech and utilities were the sectors with the highest proportion of beats versus expectations, according to the FactSet data.

Edward Stanford, head of European equity strategy at HSBC, told CNBC Monday that "we have not seen such a low level of beats for a long time." He added that the disappointment has been "pretty broad based."

Philippe Ferreira, deputy head for economy and cross asset strategy at Kepler Cheuvreux, said there are a couple of reasons behind these disappointments.

"A weaker macro environment in Europe, with GDP [gross domestic product] growth close to 0% in third and fourth quarters, a significant exposure to China for some companies, which has been a hurdle for L'Oreal for instance," he said. China is currently experiencing deflation and lackluster consumer demand.

Data from Europe's statistics office showed that the European economy contracted by 0.1% in the third quarter. In the fourth quarter, the region's GDP rose by 0.1%, thus avoiding a technical recession — defined as two consecutive quarters of economic contraction.

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