* Crimped outlook but sector specific - StarMine
* Margins squeezed by higher input costs
* Top line growth to drive next stage in cycle
By Simon Jessop
LONDON, May 4 (Reuters) - The stockmarket's outlook for earnings at European companies has turned negative for the first time since late 2009, with consumer-focused stocks set to feel the pinch most.
Detail is key, however, as companies' currency costs, geographic sales exposure and their proximity to battered end-user wallets and purses drives some marked sector differentiation.
More cuts than upgrades have been made in analysts' earnings forecasts in the last three months with Thomson Reuters StarMine data showing consumer stocks are among the main negative for forecast revisions as a broadly positive first-quarter earnings season picks up pace.
Oil, metals and other commodities, as well as the euro, have surged over the last six months in response to macroeconomic shocks and the United States' ultra-loose monetary policy, and not every firm is able to pass those costs on to the consumer.
European heavyweights to post forecast-lagging earnings on the back of higher costs include UK soap-to-ice cream maker Unilever and German retailer Metro, but others, such as Finnish metals firm Outokumpu and Dutch chemicals company DSM, have outperformed.
"We will see a period of downgrades coming through, and while it doesn't sound the death knell for the markets overall, it does mean certain sectors are at risk," Peter Sullivan, head of European and U.S. equity strategy at HSBC, said.
"The sectors most at risk are the consumer sectors, where they're caught between the rock of high commodity prices and the hard place of tight fiscal policy -- that's where the squeeze is most likley to be evident in the next couple of quarters."
Of the 278 STOXX Europe 600 firms due to report first-quarter earnings, 40 percent have done so at a beat/meet-to-miss ratio of 53:47 and with an average negative surprise of 2.0 percent, Thomson Reuters StarMine data showed.
That figure masks a broad spread of numbers, however, with household durables firms Electrolux and Husqvarna posting chunky double-digit misses, while steel firm SSAB filed triple-digit outperformance. More importantly, as a heavy week for European earnings kicks off on May 9, those still to report are set to miss by an average 1.3 percent.
A weakening in the dollar/euro exchange rate has also weighed on some corporate profits, while a tightening in European interest rates on top of the region's sovereign debt crisis and government spending cuts has further hit consumers.
"The closer you are to the consumer, the less pricing power you have," Philip Isherwood, head of equity strategy at Evolution Securities said. "That's because of austerity, that's because of fiscal hit, that's because of inflation."
GEOGRAPHIES
Kevin Arenson, chief investment officer at fund-of-hedge fund investment firm Stenham Advisors, said cost-cuts earlier in the economic cycle had helped margins but the next 12-18 months would be "challenging".
"It depends where the company is focused," said Arenson, citing the strong emerging market sales of BMW and Volkswagen. "Performance will be much more stock and sector specific, rather than the overall return of the market."
Share prices have largely held up, thanks to their historically low valuations and relative value against other asset classes, and HSBC's Sullivan remained bullish on equities.
"Even if we are looking at a period of earnings downgrades, historically that hasn't meant the market has to fall. It has more implications for sector rotation than the overall level of the market," he said.
Margin contraction was also normal at this point in the economic cycle, Evolution Securities' Isherwood said. "There comes a point in the cycle where margins have to hand over the baton to top-line growth." (Graphic by Scott Barber; Editing by Greg Mahlich)