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ETFs in Focus After General Electric & Honeywell Q1 Earnings

Zacks Equity Research

Two major giants in the U.S. industrials sector, General Electric and Honeywell released their first -quarter 2017 earnings on April 21, 2017. Depressed oil prices primarily resulted in the decline in revenues of General Electric’s oil and gas division. On the other hand, higher-than-expected sales in the Aerospace and Energy businesses led to the rise in Honeywell’s revenues.


General Electric


Shares of General Electric Company GE were down 2.38% at market close on Friday, April 21, 2017, despite beating earnings estimates. The company reported a 0.68% decrease in first-quarter 2017 revenues on a year-over –year basis. However, it beat the Zacks Consensus Estimate on both earnings and revenues (read: GE Comfortably Beats on Q1 Earnings, 2017 View Reiterated).


Earnings Discussion


General Electric reported non-GAAP earnings per share (EPS) of $0.21 for the first quarter 2017, flat year over year but ahead of the Zacks Consensus Estimate of $0.17. Moreover, revenues of $27.66 billion came ahead of the consensus mark of $27.36 billion. GE continues to expect its full-year 2017 EPS to be in a range of $1.60-$1.70.


The company reported earnings from continuing operations attributable to GE common shareowners of $858 million, up from $248 million a year ago. First-quarter 2017 orders increased 10% to $25.7 billion, from $23.5 billion a year ago. Moreover, GE’s backlog increased 3% to $324.3 billion from $316.1 billion a year ago.


Revenue Performance


Industrial segment revenues increased to $26.016 billion from $25.869 billion a year ago.


Power revenues rose to $6.089 billion from $5.204 billion in the year-ago period.


Renewable Energy revenues were up to $2.044 billion from $1.669 billion a year ago.


Oil & Gas revenues however dropped to $3.001 billion from $3.314 billion a year ago.


Aviation revenues increased to $6.804 billion from $6.262 billion a year ago.


Healthcare revenue rose to $4.291 billion from $4.183 billion a year ago.


Transportation revenues rose to $1.039 billion from $981 million a year ago.


Energy Connections & Lighting revenues dropped to $2.747 billion from $4.256 billion a year ago.


Baker Hughes Deal


Chairman and CEO of General Electric, Jeff Immelt expects the combination of GE Oil & Gas and Baker Hughes to close by mid 2017.


Honeywell


Shares of Honeywell International HON were up 2.67% at market close on Friday, April 21, 2017, as its results were better than expected. Though the company reported a 0.31% decrease in quarterly revenues year over year, it successfully beat the Zacks Consensus Estimate in the first-quarter of 2017 on both earnings and revenues (read: Honeywell Beats on Q1'17 Earnings and Revenues).  


Earnings Discussion


Honeywell reported non-GAAP earnings per share of $1.66, up 8.5% year over year and beating the Zacks Consensus Estimate of $1.62 for first-quarter 2017. Moreover, revenues of $9.492 billion came ahead of the consensus mark of $9.332 billion. Honeywell raised the low end of its full-year 2017 EPS guidance to a range of $6.90-$7.10.


Revenue Performance


Aerospace revenues fell to $3.546 billion from $3.705 billion a year ago.


Home and Building Technologies revenue rose to $2.533 billion from $2.477 billion a year ago.


Performance Materials and Technologies fell to $2.069 billion from $2.281 billion a year ago.


Safety and Productivity Solutions revenue rose to $1.324 billion from $1.059 billion a year ago.


 In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to General Electric and Honeywell.


Industrial Select Sector SPDR Fund XLI


This fund focuses on providing exposure to the U.S. industrial sector. It has AUM of $10.77 billion and charges a fee of 14 basis points a year. It has an 8.92% allocation to General Electric and a 4.77% allocation to Honeywell (as of April 21, 2017). The fund returned 16.51% in the past one year and 5.13% in the year-to-date time frame (as of April 21, 2017). It closed 0.09% higher on Friday, April 21, 2017. XLI currently has a Zacks ETF Rank of #2 (Buy) with a Medium risk outlook (read: 4 Top Sector ETFs & Stocks to Outperform in Q1 Earnings).


Vanguard Industrials ETF VIS


This ETF is a pure play on the U.S. industrials sector. It has AUM of $3 billion and charges a fee of 10 basis points a year. It has 9.9% allocation to General Electric and a 3.4% allocation to Honeywell (as of March 31, 2017). The fund returned 16.94% in the past one year and 4.20% in the year-to-date time frame (as of April 21, 2017). It closed 0.05% higher on Friday, April 21, 2017. VIS currently 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 $979.87 million and charges a fee of 44 basis points a year. It has 9.11% allocation to General Electric and 3.25% allocation to Honeywell (as of April 20, 2017). The fund returned 16.50% in the past one year and 4.86% in the year-to-date time frame (as of April 21, 2017). It closed flat on Friday, April 21, 2017. IYJ currently has a Zacks ETF Rank of #3 (Hold) with a Medium risk outlook.


Below is a year-to-date performance comparison of the funds, General Electric, and Honeywell International.


 
Source: Yahoo Finance


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