LONDON – The collapse in oil prices is casting a long shadow both now and into the future for European energy companies, but it could provide a timely boost for other sectors as the fourth-quarter earnings season approaches.
Overall earnings on the continent-spanning Stoxx Europe 600 Index SXXP, +0.49% are expected to have risen during the most recent quarter, led by banks, auto companies and makers of consumer durables. But profits at energy and utilities firms are forecast to decline sharply, the first meaningful evidence of the damage plunging oil prices is wreaking on major corporations.
Fourth-quarter earnings at big integrated oil companies, such as BP PLC BP., -1.00% , BP, -0.27% Royal Dutch Shell PLC RDSA, -1.06% and Total SA FP, -1.10% are expected to fall an average of 24% in U.S. dollar terms, according to Barclays. In the UK, where there are a higher proportion of energy-sector earnings than the rest of Europe, the slump in oil prices could take an average of 4% off fourth-quarter earnings across FTSE 100 companies, UBS UBSN, +2.54% said.
Executives and analysts say that might be only the start of a long period of bad news.
“Lower-for-longer oil pricing adds another layer of pain with near-term earnings,” said Nomura analysts in a recent note.
The pain is likely to be even sharper for smaller oil companies. Explorers with fewer assets are more exposed to falling oil prices than majors like BP and Shell, because they can’t rely on making money from other parts of their business when times are tough.
While energy companies are the clear losers, the fall in oil prices is proving a boon for some sectors. Analysts say auto makers, packaged-food companies and airlines — all of which count oil as a high proportion of input costs — are first in line to benefit.
For many companies, the benefits of a long-term decline in oil prices might be just beginning. Most are hedged on oil prices for between three and six months, and some for more than a year, meaning the reduction in costs would show through only toward the middle of 2015.