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Industrials ETFs in Focus on Q3 Earnings

The earnings season is off to a flying start with equity markets scaling record highs, owing to a slew of upbeat economic data, strong corporate performance and President Donald Trump's tax reform proposal. However, the performance has been a mixed bag for industrials companies, with some beating market expectations, while a few failing to do so (read: U.S. Fiscal Deficit at 3.5% of GDP: ETFs in Focus).


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 (read: 5 Biggest ETF Winners of Trump Trade Resurgence).


General Electric


Shares of General Electric Company declined more than 6.3% on Oct 23, 2017, as it failed to beat the Zacks Consensus Estimate on earnings. Moreover, the market is bearish on the company as the outlook was revised down.


The company’s revenues of $33.472 billion increased 14.4% in third-quarter 2017 on a year-over–year basis. Moreover, revenues increased 13.2% on a sequential basis and came in above the Zacks Consensus Estimate of $31.921 billion.


General Electric reported non-GAAP earnings per share (EPS) of $0.29 for third-quarter 2017, decreasing 9.3% year over year but increasing 3.6% on a sequential basis. Also, it failed to beat the Zacks Consensus Estimate of $0.49. Moreover, GE lowered its full-year 2017 EPS guidance range to $1.05-$1.10 from $1.6-$1.7 previously.


The company reported earnings from continuing operations attributable to GE common shareowners of $1.9 billion, decreasing from $2.1 billion a year ago. Third-quarter 2017 orders increased 11% to $29.8 billion from $26.9 billion in the year-ago quarter. Moreover, GE’s backlog increased 3% to $328.0 billion from $319.2 billion in the year-ago quarter.


3M Company


Shares of 3M Company increased almost 5.7% at market close on Oct 24, 2017, after it beat the Zacks Consensus Estimate on both earnings and revenues.


The company’s revenues increased 16% in third-quarter 2017 on a year-over-year basis. Also, revenues increased 4.6% on a sequential basis. Moreover, revenues of $8.172 billion beat the consensus mark of $7.908 billion.


3M Company reported GAAP earnings per share (EPS) of $2.33 for third-quarter 2017, increasing 8.4% year over year but decreasing 9.7% on a sequential basis. Also, it beat the Zacks Consensus Estimate of $2.21. Moreover, 3M Company updated its full-year 2017 EPS guidance range to $9.00-$9.10 from the previous guided range of $8.80-$9.05. The company now expects organic local currency sales growth of 4-5%, up from 3-5% previously.  


Honeywell


Shares of Honeywell increased almost 1.2% at market close on Oct 20, 2017, after it surpassed the Zacks Consensus Estimate on revenues. However, earnings came in line with the Zacks Consensus Estimate.


The company’s revenues increased 3.2% in third-quarter 2017 on a year-over-year basis. Also, revenues increased 0.4% on a sequential basis. Moreover, revenues of $10.121 billion beat the consensus mark of $9.965 billion.


Honeywell reported non-GAAP earnings per share (EPS) of $1.75 in third-quarter 2017, increasing 4.8% year over year but decreasing 2.8% on a sequential basis. It met the Zacks Consensus Estimate of $1.75. Moreover, 3M Company updated the full-year 2017 EPS guidance range to $7.05-$7.10 from the previous guided range of $7.00-$7.10.


Caterpillar Inc


Shares of Caterpillar increased 4.8% at market close on Oct 24, 2017, after it beat the Zacks Consensus Estimate on both earnings and revenues.


The company’s revenues increased 24.6% in third-quarter 2017 on a year-over-year basis. Moreover, revenues increased 0.7% on a sequential basis. Revenues of $11.413 billion beat the consensus mark of $10.609 billion.


Caterpillar reported non-GAAP earnings per share (EPS) of $1.95 for third -quarter 2017, increasing 130% year over year and 30.9% on a sequential basis. Also, it beat the Zacks Consensus Estimate of $1.22. Moreover, Caterpillar updated the full-year 2017 EPS guidance range to $6.25 from the previous guided range of $5.00. The company expects full-year 2017 sales to be around $44 billion from the range of $42-$44 billion guided previously, while it expects to incur $1.3 billion of restructuring costs.


Union Pacific


Shares of Union Pacific increased almost 4.3% at market close on Oct 26, 2017, after it beat the Zacks Consensus Estimate on both earnings and revenues.


The company’s revenues increased 4.5% in third-quarter 2017 on a year-over-year basis. Also, revenues increased 3% on a sequential basis. Revenues of $5.408 billion beat the consensus mark of $5.306 billion.


Union Pacific reported non-GAAP earnings per share (EPS) of $1.50 for third-quarter 2017, up 10.3% year over year and 3.4% on a sequential basis. It beat the Zacks Consensus Estimate of $1.49.

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 Industrial ETFs here).


Industrial Select Sector SPDR Fund XLI


This fund focuses on providing exposure to the U.S. industrial sector. It has AUM of $13.1 billion and charges a fee of 14 basis points a year. It has a 5.8% allocation to General Electric, 6.0% to 3M, 5.0% to Honeywell, 3.7% to Caterpillar and 4.3% to Union Pacific (as of Oct 26, 2017). The fund has returned 26.9% in a year and 16.2% year to date (as of Oct 26, 2017). XLI has a Zacks ETF Rank of #2 (Buy) with a Medium risk outlook.


Vanguard Industrials ETF VIS


This ETF is a pure play on the U.S. industrials sector. It has AUM of $3.4 billion and charges a fee of 10 basis points a year. It has a 7.3% allocation to General Electric, 4.4% to 3M, 3.6% to Honeywell, 2.6% to Caterpillar and 3.2% to Union Pacific (as of Sep 30, 2017). The fund has returned 26.2% in a year and 14.4% year to date (as of Oct 26, 2017). VIS has a Zacks ETF Rank of #2 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 $1.2 billion and charges a fee of 44 basis points a year. It has a 5.7% allocation to General Electric, 4.3% to 3M, 3.4% to Honeywell, 2.5% to Caterpillar and 2.7% to Union Pacific (as of Oct 25, 2017). The fund has returned 27.7% in a year and 18.1% year to date (as of Oct 26, 2017). IYJ has a Zacks ETF Rank of #3 (Hold) 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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