Tariff impact negligible? European companies instead make great strides in the US market, with profits possibly achieving double-digit growth next year.

European companies are demonstrating an astonishing ability to adapt, proving that U.S. tariff barriers may not be insurmountable obstacles.

An investment portfolio compiled by Goldman Sachs that includes European stocks most affected by tariffs far outperformed the broader market in October. As earnings season unfolded, the portfolio rose by about 6%, twice the increase of the Stoxx Europe 600 Index. From Hermès and Unilever to Galderma Group AG, numerous European giants attribute their better-than-expected results and upward-guided forecasts to strong demand from the U.S. market.

This positive momentum is changing market sentiment, prompting investors to cover short positions and rush back into the exporters sector. According to Bloomberg’s analysis, the frequency of the word "tariff" being mentioned in corporate earnings calls continues to decline, indicating that management’s concerns about the issue are waning.

Market consensus forecasts show that earnings per share of Stoxx 600 Index companies are expected to grow by 12% next year. Barclays also noted in a report last Friday that EU companies hold an optimistic outlook and are confident in the efficiency gains brought by artificial intelligence.

Strong Performance: U.S. Market Becomes Growth Engine

During the recent Q3 earnings period, the U.S. market has become the key driver for many European companies to achieve growth against the trend. Several firms not only held up under pressure, but also delivered remarkable results.

Luxury giant Hermès achieved a 14.1% leap in sales in its regional markets including the U.S. Consumer goods company Unilever also credited its better-than-expected sales to robust North American demand. The company, which owns brands like Hellmann’s mayonnaise and Dove soap, cut costs to avoid passing pressure on to consumers, thus preventing them from turning to cheaper alternatives. CEO Fernando Fernandez stated, "We continue to achieve significant volume growth in the U.S." Swiss skincare giant Galderma directly raised its full-year guidance due to strong U.S. sales.

The growth story spreads across sectors. UK’s Haleon Plc saw unexpected growth in North American sales, with strong demand for products such as Sensodyne toothpaste and Tums antacid. Automaker Stellantis reported a 13% jump in Q3 net revenue thanks to the recovery of its North American business. Even in the previously sluggish luxury segment, LVMH and Gucci’s parent Kering also reported growth in North America, suggesting that the downturn in demand for premium goods may be nearing its end.

Faced with tariff barriers, Bloomberg industry research equity strategist Gillian Wolff said, “Tariffs are testing corporate profit resilience worldwide—and so far, firms are finding ways to adapt,” adding that “European exporters have already offset the impact of rising energy prices and tariffs by reducing expenses.” Beyond cost control, adjusting production layouts and increasing investment in the U.S. have also become key strategies.

Additionally, in the pharmaceutical sector, companies such as Novartis, GSK, and Roche have been negotiating with the U.S. government on lowering drug prices, and have pledged to invest billions to secure exemptions on future industry tariffs. British peer AstraZeneca reached such an agreement in October.

Market Views: Optimism and Caution Coexist

Despite overall optimism, the impact of tariffs is not evenly distributed, nor do all companies escape unscathed. Some companies that heavily depend on specific origins or face unique market environments are still struggling.

French spirits makers Rémy Cointreau and Pernod Ricard have warned that recovery of their core Cognac product in the U.S. market is weaker than expected, as this product must be produced in specific regions in France. Tire maker Michelin also cautioned that its difficulties in North America are likely to persist into next year. Meanwhile, French cosmetics giant L’Oréal reported weak U.S. performance.

As more companies report strong results, talk of “tariffs being controllable” is gaining popularity in the market. Nicolas Domont, fund manager at Optigestion in Paris, stated:

“In fact, with a few exceptions, the impact of tariffs on European companies so far can be described as negligible.”

However, some market watchers remain cautious. Gilles Guibout, head of European equities at AXA Investment Managers, believes it is too early to conclude. “There is a narrative building that tariffs are controllable and won’t cause much harm, but I think it’s premature to conclude now,” he said:

“These policies need time to implement and to have an impact. My view? To be continued! Let’s not forget that currency effects will also gradually seep into earnings.”

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