Crédit Mutuel AM: Navigating Q4 2024 earnings season
- The Q4 2024 earnings season from global companies demonstrate ongoing growth despite challenges in both Europe and the U.S.
- Financials and tech companies, that continue to thrive with major investments in AI, are strong, while luxury and automotive sectors face challenges due to market and competitive pressures.
In an unprecedented geopolitical context, the fourth-quarter 2024 earnings reports from global companies show that growth continues amid challenges. Indeed, during March, nearly all companies in the S&P 500 have reported their results for the fourth quarter of 2024, with positive earnings-per-share (EPS) surprises for 75% of them, supported by a resilient economic environment and significant investment spending, particularly since Donald Trump’s election. Within the EuroStoxx index, which includes around 300 companies, 54% of them have reported positive EPS surprises.
The financial sector stands out particularly at the start of this year. In the United States, investment banks, such as Goldman Sachs, have surprised positively with trading revenues. In Europe, undervalued financial players are attracting investors, such as Société Générale, which seems on track to meet its targets for improving its cost-to-income ratio and return on equity. Insurers should continue to be a strong defensive investment, with companies like Allianz and Munich Re maintaining solvency ratios above 200%.
The discretionary consumption sector is less predictable. Hermès continues to lead in the high-end luxury market, reporting double-digit growth across all regions, which is not the case for LVMH, which is struggling to generate positive growth. Ferrari, on the other hand, reports a full order book until 2026 and strong demand for its “supercar.” The environment is tougher for other automakers like Stellantis, which faces competition from China and the risk of higher import tariffs.
In the consumer staples sector, volumes appear to be recovering, particularly for Danone, thanks to its exposure to North America and specialized nutrition products, as well as for beverage companies like AB InBev and Coca-Cola. However, fast food chains remain cautious about future traffic, as indicated by Chipotle.
In the technology sector, all eyes have been on hyperscalers making substantial investments in the artificial intelligence (AI) wave. Despite continued impressive growth, Amazon Web Services, Microsoft Azure, and Google Cloud Platform have seen slight deceleration due to capacity constraints. The combined spending of Amazon, Microsoft, Google, and Meta is expected to surpass $300 billion in 2025, 30% above initial estimates.
Leading companies are already monetizing AI-integrated products, such as SAP’s JOULE assistant, which contributed to a 32% growth in the order book. Further up the supply chain, ASML has indicated it could exceed its annual targets if certain clients, such as TSMC, expand their AI capabilities. For Nvidia, demand for the new generation of Blackwell products still exceeds supply, allowing the company to maintain its leadership position.
The communication services sector encompasses companies with diverse activities, but leisure activities are still performing well, with rising bookings across all regions for Booking. The leading streaming platform, Netflix, has managed to attract 19 million new subscribers thanks to its original content and the broadcasting of sporting events. Finally, Deutsche Telekom and its U.S. subsidiary T-Mobile continue to impress with strong cash flow generation, enabling generous returns to shareholders.
The defense sector has outperformed aerospace at the start of the year, driven by potential budget increases from European countries. Recent statements by the Trump administration confirm the United States' desire to treat Europe as a mere trading partner. However, civil aerospace activities remain robust, as evidenced by GE Aerospace, Rolls-Royce, and Safran. The recovery in air traffic has led to more frequent engine part replacements, helping offset lower-than-expected new LEAP engine orders due to issues at Boeing.
Other industrials have reassured cautious investors, reaffirming that demand remains well above supply for products and solutions related to data centers, as seen with companies like Schneider Electric, Eaton, and Legrand.
Finally, the healthcare sector remains positive, but the market is cautious about pharmaceutical companies heavily exposed to the U.S., such as Merck, in a year of potential political shifts. Attention has shifted toward medical equipment companies like Intuitive Surgical and EssilorLuxottica, which offer greater visibility. Access to obesity medications continues to improve, and Eli Lilly seems better positioned than Novo Nordisk, based on recent studies of the potential of CagriSema.
