* 2016 poised to see European earnings contract again
* Europe Inc's earnings down in 4 of the past 5 years
* Financials, Brexit worries weigh on profits
* Oil, autos, EM-related companies relative bright spots
* European EPS through the years: http://reut.rs/2553txN
By Kit Rees
LONDON, Oct 14 (Reuters) - Europe Inc's unimpressiveperformance on earnings over the last five years is expected tocontinue at least until the end of 2016 as worries over banksand the impact of the Brexit vote weigh on corporate profits.
But there may be bright spots - oil producers, car makersand companies exposed to emerging markets could all deliverrelatively upbeat third-quarter results over the coming month,according to analysts and investors.
Persistent disappointment on corporate earnings growth hasdented the appetite for stocks among investors around the world,who have pulled money from European equity funds for a record 36straight weeks.
Meanwhile earnings in aggregate have contracted for four ofthe last five years in Europe and are expected to contract 2percent this year and this compares with expectations of a 0.4percent contraction for S&P 500 companies, according toThomson Reuters I/B/E/S Estimates.
For 2017 European earnings are expected to increase by 13percent, reflecting a tendency for analysts to take anoptimistic view which diminishes as the year proceeds.
Financials, along with commodities-related sectors, areexpected to be the biggest setback for earnings overall. Europe's worst-performing sector, banks have pulledthe STOXX 600 Europe index down 6.7 percent so far thisyear.
"The banking sector is probably going to take the most focusand that's going to be driven by things like litigation costs,mostly," Olly Russ, manager of the Liontrust European Incomefund, said.
European banks, whose profitability has been battered byrelentlessly low interest rates, have been in focus in recentweeks with Deutsche Bank shares hitting record lowsand continued worries about Italian lenders' bad debts alsospooking investors.
Meanwhile, concerns about how British firms will fare as thecountry negotiates its way out of the European Union havedampened earnings expectations at the more domestically-exposedUK firms.
A spate of profit warnings from the likes of Capita,Mitie, easyJet and Sports Direct havealready started to show some of the concerns over the impact ofBrexit.
The struggling pound, however, has improved the outlook forlarge, globally focused but UK-listed oil producers,pharmaceutical firms and food and beverage companies which earnsignificant revenues abroad and the 11 percent rise in the FTSE100 index since the Brexit vote on June 23 has taken itto record highs.
Firming commodities prices, on the back of stabilisinggrowth in China and emerging markets, have also lifted the moodfor mining and metals companies while upbeat German ZEW and Ifosurveys have shown an improvement in both business and economicsentiment in Europe's biggest economy.
The modestly improving global backdrop coupled withcommodity prices on the cusp of turning positive year-on-yearcould see third-quarter earnings beat estimates, MorganStanley's European equity strategists said in a note.
Analysts are particularly hopeful for some robust resultsfrom Europe's automotive sector after September's stronger salesin China, the world's largest car market.
Likewise oil majors could benefit from a lift in oil prices,which have risen to above $50 a barrel since OPEC said it had made a deal to cut output in September.
"After five years of earnings declines, we think that we arefinally approaching the end of Europe's earnings bear-market,"analysts at Morgan Stanley said, though warning that stocks aremore vulnerable to disappointments following the recent rally.
Morgan Stanley estimates aggregate third-quarter earnings inEurope should contract 4 percent, though with commodity andfinancial firms stripped out, profits would rise 13.6 percent.
OPTIMISTIC
Looking to next year, analysts currently expect Europeanearnings to grow more than 13 percent, an optimistic projectionaccording to some investors.
"That just isn't achievable. It would be a struggle toachieve it in a good economic environment, let alone thisenvironment," said Veronika Pechlaner, European equity fundmanager at Ashburton, adding that third-quarter results couldhelp take the market down to more healthy levels and resetexpectations.
"As people consider the outlook for next year, it could behelpful if the market starts to shave off some of theseoptimistic numbers for next year," said Pechlaner. (Additional reporting by Alistair Smout; Editing by NigelStephenson, Greg Mahlich)
