European industrial stocks have started FY25 on a weak note, dragged down by flat demand, rising costs, and an increasingly difficult earnings environment.
According to analysts at Barclays, conditions in the first quarter of 2025 were little changed from late 2024, and the guidance expected for the second quarter could point to further deceleration. The risk of tariff-related disruption only adds to the uncertainty.
Barclays expects just 30% of companies in its coverage to beat on both revenues and earnings in the first quarter, with most end-markets showing sluggish or flat performance.
Any early-year strength in US capital and durable goods orders appears to have been partly driven by tariff pull-forwards, rather than genuine demand momentum.
By March, activity was already softening again, as reflected in leading indicators such as the ISM new orders index.
Across Europe, conditions remain subdued. While PMIs have edged slightly higher, they continue to sit below the 50 mark, signaling contraction.
Germany, in particular, remains a weak spot. Meanwhile, China shows few signs of improvement. Industrial activity continues to muddle along, and both the consumer discretionary and construction sectors are weighed down by persistent high interest rates.
Residential and non-residential construction markets remain soft across all three regions—Europe, the US, and China—with any potential recovery still some distance away.
Amid this weak backdrop, Barclays says the outlook for margins in FY25 is particularly challenging. Organic growth is forecast to average just 3% across the sector—well below the 5–6% historical norm. With around 65% of sector end-markets in downturn, and limited pricing tailwinds, most companies are entering the year with little room for operating leverage. Rising labor costs further compound the pressure.
Even before accounting for tariffs, Barclays forecasts median operating margin expansion of just 25 basis points for FY25. Some companies are expected to see significant year-over-year contraction.
Wartsila, for instance, faces a forecast margin drop of 160 basis points, largely due to a sales mix shift toward lower-margin original equipment in its Energy Storage segment. KION is expected to see a 90-basis-point margin contraction amid soft industry demand and intensifying competition.
Metso’s margins are forecast to fall by 85 basis points, as the company struggles with lower capacity utilization and elevated inventory levels. AutoStore also faces a 70-basis-point decline as it continues to invest heavily in its operations.
There are a few expected margin gainers, though these are the exception rather than the rule. Ariston is projected to see a 470-basis-point improvement, rebounding from prior lows and benefiting from cost-out initiatives.
Siemens (ETR:SIEGn) Energy is forecast to post a 360-basis-point expansion, supported by strength in its Gas & Power division and favorable pricing trends.
Melrose (LON:MRON) is expected to gain 310 basis points thanks to a favorable mix shift in its Engines segment and a recovery at its Structures business.
Electrolux (ST:ELUXa), despite broader structural headwinds, may see a 235-basis-point margin lift driven by improved cost recovery in North America, particularly at its new Springfield plant.
Share prices have already begun to reflect these trends. At 04:48 ET (08:48 GMT), Sulzer AG (SIX:SUN) has fallen 7.1%, Accelleron Industries is down 5.9%, Bucher Industries has dropped 16.4%, and Rheinmetall (ETR:RHMG) AG has declined 10.3%.
Barclays continues to prefer names with more resilient fundamentals and clearer paths to growth.
Barclays’ overweight-rated stocks include Legrand (EPA:LEGD), Schneider Electric (EPA:SCHN), Prysmian (BIT:PRY), Sandvik, and Trelleborg.
These companies are viewed as better positioned within the sector, offering a combination of valuation support, defensive earnings or self-help strategies, and consistent organic and inorganic growth drivers.
On the other hand, Barclays rates Vestas Wind (CSE:VWS) Systems, Wärtsilä, KONE, Alstom (EPA:ALSO), ABB (ST:ABB), NIBE Industrier, Signify, and Electrolux as “underweight.” These companies face a mix of structural challenges, soft or deteriorating end-markets, and downside risks to growth, margins, and free cash flow.
