European Companies Show Resilience Against US Tariffs: Positive Outlook for Profit Growth in 2024

European Companies Thrive Amid US Tariffs: A Positive Outlook for 2024

November 3, 2023 — European firms are proving more resilient than expected in the face of US tariffs, setting a promising stage for next year’s anticipated double-digit profit growth. A recent analysis by Goldman Sachs highlights that a basket of European stocks most affected by these tariffs has outperformed the broader market, rallying approximately 6% in October—twice the gains of the Stoxx Europe 600 index.

Leading this charge are notable companies such as Legrand SA, BMW AG, and Adidas AG, which have successfully navigated the turbulent waters of international trade. “In truth, the impact of tariffs has so far been somewhat negligible for European companies, except for some rare exceptions,” remarked Nicolas Domont, a fund manager at Optigestion in Paris.

Despite the challenges posed by tariffs, many European companies have reported robust sales growth, particularly in the US market. Luxury brand Hermes International SCA recorded a staggering 14.1% increase in sales in the Americas, while Unilever plc attributed its better-than-expected performance to strong North American demand. Swiss skincare giant Galderma Group AG also raised its outlook for the year, citing impressive sales figures from the US.

Bloomberg Intelligence equity strategist Gillian Wolff noted, “Tariffs are testing profit resilience worldwide—and so far, companies are managing to adapt.” European exporters have strategically trimmed expenses to counterbalance rising energy costs and tariff impacts.

Unilever serves as a prime example of this adaptability. The company has focused on maintaining growth in North America by emphasizing personal care products and premium offerings, all while implementing cost-cutting measures to avoid passing price increases onto consumers.

US tariffs, imposed by the Trump administration, include a 15% levy on goods from the European Union and sector-specific tariffs affecting industries like steel. In response, European pharmaceutical giants such as Novartis AG and GSK plc have engaged in discussions with the US government to negotiate drug prices and secure investment commitments in exchange for tariff relief.

Investor sentiment is shifting as companies demonstrate their ability to mitigate tariff impacts. Earnings calls are increasingly devoid of tariff-related concerns, with many firms expressing optimism about future growth and efficiency gains driven by artificial intelligence, according to a recent Barclays report.

Ariane Hayate, a fund manager at Edmond de Rothschild Asset Management, noted, “We passed peak uncertainty in April when Trump announced tariffs that exceeded expectations. What’s reassuring is the speed at which companies have adapted, including shifts in production to other countries or the US.”

Galderma has raised its full-year growth target, fueled by optimism about the US market, where it plans to invest over $650 million in manufacturing by 2030. Similarly, car manufacturer Stellantis reported a 13% increase in net revenue in the third quarter, bolstered by a recovery in North America and a commitment to invest $13 billion in the US over the next four years.

Luxury brands like LVMH Moët Hennessy Louis Vuitton SE and Kering SA have also reported growth in North America, signaling a potential rebound in high-end goods demand. However, not all sectors are thriving; spirits makers like Remy Cointreau SA and Pernod Ricard SA have indicated challenges in the US market, while tire manufacturer Michelin anticipates ongoing struggles.

Gilles Guibout, head of European equities at AXA IM, cautioned against premature optimism, stating, “There’s a narrative growing that the tariffs are manageable, but it’s too soon to tell. The dust hasn’t settled yet, and the effects of currency fluctuations on earnings will gradually emerge.”

As European companies continue to adapt and innovate, the outlook for 2024 remains cautiously optimistic, with expectations for a 12% growth in earnings per share for Stoxx 600 companies, according to Bloomberg Intelligence. The resilience demonstrated in the face of tariffs may well pave the way for a robust economic recovery in the coming year.