Swiss Equities - Earnings resilience masks growing divergence

Swiss companies have delivered a resilient earnings season, with more guidance upgrades than downgrades and improving underlying growth. The fading Swiss franc headwind should provide additional support to reported earnings. However, the picture is becoming increasingly differentiated. While healthcare and electrification continue to benefit from structural growth drivers, rising input costs and softer pricing conditions are putting pressure on margins elsewhere. Looking into 2027, the key question is shifting from revenue growth to the ability to translate that growth into earnings.

A resilient earnings season, despite currency headwinds

The 2026 earnings season has been broadly positive for Swiss equities. Among the 20 SMI constituents, seven companies have raised their guidance at least once, compared with only two outright downgrades. More importantly, the improvement has increasingly come from underlying business activity rather than pricing alone.

Currency movements have nevertheless obscured part of this progress. The strength of the Swiss franc weighed heavily on reported sales and earnings during the first half of the year, particularly for internationally exposed companies. This pressure has eased considerably in recent months, with several companies reporting a much smaller currency impact in the third quarter. If exchange rates remain broadly stable, reported earnings growth should increasingly reflect underlying operational performance.

Volumes are recovering, but margins are increasingly in focus

One of the more encouraging developments has been the gradual shift from price-led to volume-led growth. Nestlé's real internal growth accelerated to 2.8% in the third quarter, while Sika, Geberit and Givaudan also reported improving sales momentum.

This is a positive signal for demand, but it introduces a different challenge. As pricing contributions moderate, companies have less flexibility to offset rising operating costs. Higher energy, transportation and raw material expenses are already weighing on margins across parts of the construction sector.

The divergence is particularly visible between Holcim, which continues to demonstrate strong pricing discipline, and companies such as Sika and Amrize, where improving volumes have yet to translate into stronger profitability.

Healthcare and electrification lead the upgrades

Healthcare remains one of the strongest areas of the Swiss market. Galderma continues to deliver growth above 20%, supported by its expanding dermatology portfolio, while Lonza has raised its margin outlook following a strong first half. Novartis has also improved its fullyear guidance as the impact of generic competition begins to moderate, while Roche has maintained its outlook following an acceleration in third-quarter sales.

Industrials are also delivering. ABB has raised its outlook three times this year, supported by strong demand for electrification and data-centre infrastructure. Holcim has also delivered consistent earnings upgrades, benefiting from operational discipline and infrastructure-related demand. Geberit beat expectations but without the margin progression as price benefits fade. Overall, these results reinforce the importance of structural exposure, but they also highlight the need for selectivity. Companies benefiting from the same investment cycle are not necessarily capturing the same level of profitability.

In Financials, for UBS, the evolution of Swiss capital requirements remains central to future shareholder distributions. In insurance, softer reinsurance pricing could gradually limit earnings momentum despite today's strong profitability. Partners Group faces a different challenge, as slower private-market exits weigh on performance fees. The sector remains fundamentally sound, but the sustainability of returns and capital distributions will matter more than the latest earnings figures.

Investment implications - From growth to earnings quality

The Swiss earnings season confirms the resilience of the market, but it also suggests that the next phase will be more selective.

Three considerations stand out for 2027:

• Currency: A diminishing Swiss franc headwind could support reported earnings growth, provided exchange rates remain stable.

• Margins: As growth becomes more volume-driven, pricing power and cost discipline will increasingly determine earnings performance.

• Structural demand: Healthcare innovation, electrification and AI-related infrastructure investment remain important growth drivers, although their contribution to profitability will differ across companies.

The main conclusion is that Swiss equities continue to offer attractive earnings resilience, but this resilience is not uniform. With currency pressures easing, investors should increasingly focus on companies capable of converting underlying growth into sustainable margins and cash flow.

The question for 2027 is therefore less about whether Swiss companies can grow, and more about which companies can protect profitability as the sources of growth change.