Tariff impact minimal? European companies are leveraging the U.S. market to surge ahead, with profits expected to achieve double-digit growth next year

European companies are demonstrating remarkable adaptability, proving that the tariff barriers in the U.S. may not be insurmountable obstacles.

A portfolio compiled by Goldman Sachs, which includes the European stocks most affected by tariffs, significantly outperformed the market in October. As the earnings season unfolds, the portfolio rose about 6%, double the increase of the Stoxx Europe 600 Index. From Hermès and Unilever to Galderma Group AG, many European giants attributed their better-than-expected performance and upgraded guidance to strong demand in the U.S. market.

This positive momentum is changing market sentiment, prompting investors to cover short positions and re-enter the exporter sector. According to Bloomberg's analysis, the frequency of the term "tariff" mentioned during corporate earnings calls has been steadily declining, indicating that corporate management's concerns about the issue are waning.

Market consensus expectations show that the earnings per share of companies in the Stoxx 600 Index are expected to grow by 12% next year. A report from Barclays Bank last Friday also pointed out that EU companies are optimistic about their prospects and confident in the efficiency gains brought by artificial intelligence.

Strong Performance, U.S. Market as Growth Engine

In the recently concluded third-quarter earnings period, the U.S. market has become a key driving force for many European companies' counter-cyclical growth. Several companies not only withstood the pressure but also achieved remarkable results.

Luxury goods giant Hermès saw sales soar by as much as 14.1% in its regional markets, including the U.S. Consumer goods company Unilever also attributed its better-than-expected sales to strong demand in North America. The company, which owns Hellmann's mayonnaise and Dove soap, avoided passing on cost pressures to consumers by cutting costs, thus preventing consumers from switching to cheaper brands. CEO Fernando Fernandez stated, “We continue to achieve significant sales growth in the U.S.” Swiss skincare giant Galderma directly raised its full-year performance guidance, citing strong sales in the U.S.

The growth story spans various industries. British company Haleon Plc unexpectedly saw sales growth in the North American market, with strong demand for products like Sensodyne toothpaste and Tums antacid. Automaker Stellantis reported a 13% increase in net income in the third quarter, benefiting from the recovery of its North American business. Even in the previously weak luxury goods sector, LVMH and Kering, the parent company of Gucci, reported growth in North America, suggesting that the decline in demand for high-end goods may be nearing its end.

In the face of tariff barriers, Bloomberg Industry Research equity strategist Gillian Wolff stated, “Tariffs are testing the profit resilience of companies globally—so far, companies are managing to adapt,” adding, “European exporters have offset the impact of rising energy prices and tariffs by cutting costs.” In addition to cost control, adjusting production layouts and increasing investments in the U.S. have also become key strategies.

Moreover, in the pharmaceutical industry, companies like Novartis, GlaxoSmithKline, and Roche have been negotiating with the U.S. government to lower drug prices and have committed to investing billions of dollars in exchange for exemptions from future industry tariffs. Their British counterpart AstraZeneca reached an agreement in October

Market View: Optimism and Caution Coexist

Despite the overall optimistic performance, the impact of tariffs is not evenly distributed, and not all companies can escape unscathed. Some companies that heavily rely on specific production areas or face unique market conditions are still struggling in adversity.

French spirits manufacturers Rémy Cointreau and Pernod Ricard have issued warnings that the recovery of their core product, Cognac, in the U.S. market is weaker than expected, as this product must be produced in specific regions of France. Tire manufacturer Michelin also warned that its difficulties in the North American market are expected to persist until next year. Additionally, French cosmetics giant L'Oréal reported weak performance in the U.S. market.

As more companies announce strong performances, the notion that "tariffs are manageable" has begun to gain traction in the market. Nicolas Domont, a fund manager at Paris-based Optigestion, stated:

“In fact, with a few exceptions, the impact of tariffs on European companies has been negligible so far.”

However, some market observers remain cautious. Gilles Guibout, head of European equities at AXA Investment Managers, believes it is too early to draw conclusions. "There is a narrative forming that tariffs are manageable and won't cause much harm, but I think it's still too early to conclude," he said:

“These policies take time to implement and have an impact. My view is? To be continued! Let's not forget that the impact of exchange rates on profits will also gradually seep in.”