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Industrials ETFs in Focus on Q2 Earnings

The earnings season is off to a flying start with almost 75% of the companies beating expectations. However, the performance has been a mixed bag for industrials companies, with some beating market expectations while some failing to do so.


We will now discuss the performance of a few industrials giants such as General Electric GE, 3M Company MMM, Honeywell HON, Caterpillar Inc CAT and Union Pacific UNP.


General Electric


Shares of General Electric Company declined more than 3.1% at market close on July 21, 2017 despite beating the Zacks Consensus Estimate on both earnings and revenues (read: ETFs in Focus Post General Electric Q2 Earnings).


The company’s revenues of $29.558 billion decreased 11.75% in second-quarter 2017 on a year-over–year basis. However, revenues increased 6.86% on a sequential basis. It came ahead of the consensus mark of $29.123 billion.


General Electric reported non-GAAP earnings per share (EPS) of $0.28 for second-quarter 2017, down 45% year over year but up 33.33% on a sequential basis. It beat the Zacks Consensus Estimate of $0.25. Moreover, GE stated that the company is trending toward the bottom end of its full-year 2017 EPS guidance range of $1.60–$1.70.


The company reported earnings from continuing operations attributable to GE common shareowners of $1.338 billion, down from $3.300 billion a year ago. Second-quarter 2017 orders increased 6% to $28.3 billion from $26.6 billion a year ago. Moreover, GE’s backlog increased 2% to $326.8 billion from $319.6 billion a year ago.


3M Company


Shares of 3M Company declined almost 5.1% at market close on July 25, 2017, after it failed to beat the Zacks Consensus Estimate on both earnings and revenues.


The company’s revenues increased 1.93% in second-quarter 2017 on a year-over-year basis. Moreover, revenues increased 1.62% on a sequential basis. However, revenues of $7.810 billion failed to beat the consensus mark of $7.879 billion.


3M Company reported GAAP earnings per share (EPS) of $2.58 for second-quarter 2017, up 24.03% year over year and 19.44% on a sequential basis. It failed to beat the Zacks Consensus Estimate of $2.59. Moreover, 3M Company updated its full-year 2017 EPS guidance range to $8.80–$9.05 from the earlier guided range of $8.70–$9.05. The company expects full-year 2017 free cash flow to be in the range of $5–$5.5 billion.


Honeywell


Shares of Honeywell increased almost 0.9% at market close on July 21, 2017, after it surpassed the Zacks Consensus Estimate on both earnings and revenues.


The company’s revenues increased 0.87% in second-quarter 2017 on a year-over-year basis. Moreover, revenues increased 6.17% on a sequential basis. Revenues of $10.078 billion beat the consensus mark of $9.835 billion.


Honeywell reported non-GAAP earnings per share (EPS) of $1.80 for second-quarter 2017, up 8.43% year over year and the same on a sequential basis. It beat the Zacks Consensus Estimate of $1.78. Moreover, 3M Company updated the full-year 2017 EPS guidance range to $7.00–$7.10 from the earlier guided range of $6.90-$7.10. The company expects full-year 2017 sales to be in the range of $39.3-$40 billion, while it expects free cash flow to be in the range of $4.6 to $4.7 billion.


Caterpillar Inc


Shares of Caterpillar increased 5.85% at market close on July 25, 2017, after it beat the Zacks Consensus Estimate on both earnings and revenues.


The company’s revenues increased 9.56% in second-quarter 2017 on a year-over-year basis. Moreover, revenues increased 15.36% on a sequential basis. Revenues of $11.331 billion beat the consensus mark of $10.986 billion.


Caterpillar reported non-GAAP earnings per share (EPS) of $1.49 for second-quarter 2017, up 36.7% year over year and 16.4% on a sequential basis. It beat the Zacks Consensus Estimate of $1.26. Moreover, Caterpillar updated the full-year 2017 EPS guidance range to $5 from the earlier guided range of $3.75. The company expects full-year 2017 sales to be in the range of $42-$44 billion, while it expects to incur $1.2 billion of restructuring costs.


Union Pacific


Shares of Union Pacific declined almost 1.6% at market close on July 20, 2017, despite beating the Zacks Consensus Estimate on both earnings and revenues.


The company’s revenues increased 10.06% in second-quarter 2017 on a year-over-year basis. Moreover, revenues increased 2.3% on a sequential basis. Revenues of $5.250 billion beat the consensus mark of $5.163 billion.


Union Pacific reported non-GAAP earnings per share (EPS) of $1.45 for second-quarter 2017, up 23.93% year over year and 9.84% on a sequential basis. It beat the Zacks Consensus Estimate of $1.37.

In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to the industrial companies discussed (see all Industrials ETFs here).


Industrial Select Sector SPDR Fund XLI


This fund focuses on providing exposure to the U.S. industrial sector. It has AUM of $10.76 billion and charges a fee of 14 basis points a year. It has a 7.31% allocation to General Electric, 5.44% to 3M, 4.92% to Honeywell, 3.21% to Caterpillar and 4.11% to Union Pacific (as of July 25, 2017). The fund has returned 17.71% in the last one year and 10.16% year to date (as of July 25, 2017. XLI currently has a Zacks ETF Rank of #3 (Hold) with a Medium risk outlook (read: Bet on Sector ETFs with Strong Beat Ratios).


Vanguard Industrials ETF VIS


This ETF is a pure play on the U.S. industrials sector. It has AUM of $3.2 billion and charges a fee of 10 basis points a year. It has an 8.6% allocation to General Electric, 4.5% to 3M, 3.5% to Honeywell, 2.3% to Caterpillar and 3.2% to Union Pacific (as of June 30, 2017). The fund has returned 16.90% in the last one year and 8.44% year to date (as of July 25, 2017). VIS currently has a Zacks ETF Rank of #3 with a Medium risk outlook.


iShares U.S. Industrials ETF IYJ


This ETF is a relatively costly bet on the U.S. industrial sector. It has AUM of $1.05 billion and charges a fee of 44 basis points a year. It has a 7.28% allocation to General Electric, 4.12% to 3M, 3.45% to Honeywell, 2.09% to Caterpillar and 2.75% to Union Pacific (as of July 24, 2017). The fund has returned 17.08% in the last one year and 10.65% year to date (as of July 25, 2017). IYJ currently has a Zacks ETF Rank of #3 with a Medium risk outlook.


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Union Pacific Corporation (UNP): Free Stock Analysis Report
 
3M Company (MMM): Free Stock Analysis Report
 
Honeywell International Inc. (HON): Free Stock Analysis Report
 
General Electric Company (GE): Free Stock Analysis Report
 
VIPERS-INDUS (VIS): ETF Research Reports
 
SPDR-INDU SELS (XLI): ETF Research Reports
 
ISHARS-US INDU (IYJ): ETF Research Reports
 
Caterpillar, Inc. (CAT): Free Stock Analysis Report
 
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