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ETFs in Focus Post General Electric's Q1 Earnings Report

Sweta Jaiswal, FRM

General Electric Company GE released first-quarter 2019 results, before markets opened on Apr 30. Earnings and revenues surpassed estimates in the quarter (read: Beat Q1 Earnings Woes With These Sector ETFs & Stocks).

Earnings in Focus

General Electric’s adjusted earnings in the reported quarter were 14 cents per share, surpassing the Zacks Consensus Estimate of 9 cents. However, the bottom line reflected a 7% decline from the year-ago figure of 15 cents due to disappointing revenue performance and decline in margins.

Consolidated revenues totaled $27,286 million, reflecting a year-over-year decline of 1.8%. Weakness in Industrial revenues might have been responsible for the sluggishness. However, the top line surpassed the Zacks Consensus Estimate for revenues of $26,921 million.

Also, the company’s Industrial revenues declined 2.4% year over year to $25,409 million. The segment’s organic revenues grew 5% year over year to $26,170 million. Industrial orders rose 9% organically while backlog (at the end of the quarter) of $374.2 billion reflects 6% growth.

Financial Update

Exiting the first quarter of 2019, General Electric had cash and cash equivalents of $73.2 billion, up from $68.7 billion at the end of the last reported quarter.

Adjusted free cash outflow from GE Industrial totaled $1,216 million versus cash outflow of $1,756 million in the year-ago quarter.

Outlook

General Electric expects 2019 to be reshaping year for the company. It  believes that the company will gain from the launch of the digital business, focus on broadening  commercially in emerging markets, efforts to reduce leverage and reduced exposure to the GE Capital business in the upcoming quarters. The company maintained projections for 2019.

GE Capital’s total debts are predicted at $62-$64 billion, down from $66 billion in 2018 while liquidity is anticipated to improve to roughly $20 billion versus $15 billion recorded in 2018.The company’s adjusted earnings are projected at 50-60 cents per share for 2019.

Market Impact

Post the earnings release, General Electric’s shares rose about 3.8% to close at $10.10 on May 1. The company currently has a Zacks Rank #3 (Hold) and a VGM Score of B. Moreover, General Electric belongs to a top-ranked Zacks industry (top 38%).

ETFs in Focus

Let’s take a look at the reaction of the ETFs, with considerable exposure to General Electric, to the earnings release (see all Industrial ETFs here):

SPDR Kensho Clean Power ETF XKCP

The underlying Kensho Clean Power Index comprises U.S. listed equity securities of companies domiciled across developed and emerging markets worldwide which are included in the Clean Power sector. The fund comprises 43 holdings with General Electric occupying the top spot with 4.66% weight. Its AUM is $4.4 million and expense ratio is 0.45%. Following the earnings release, the fund has lost about 0.23% to close at $35.20 on May 1. The fund carries a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Forget Trump Budget, 5 Green ETFs Crushing the Market).

Industrial Select Sector SPDR Fund XLI

The fund seeks to provide investment results that, before expenses, match the performance of the Industrial Select Sector Index. It comprises 70 holdings with General Electric occupying the sixth highest spot with 3.8% weight. Its AUM is $10.85 billion and expense ratio is 0.13%. Following the earnings release, the fund has lost about 0.26% to close at $77.5 on May 1. The fund carries a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 10 ETF Areas to Gain as Trump Delays Additional Tariffs).

Fidelity MSCI Industrials Index ETF FIDU

The Fidelity MSCI Industrials Index ETF seeks to provide investment returns that match, before fees and expenses, the performance of the MSCI USA IMI Industrials Index. It comprises 339 holdings with General Electric occupying the sixth highest spot with 3% weight. Its AUM is $461 million and expense ratio is 0.08%. Following the earnings release, the fund has lost about 0.40% to close at $39.62 on May 1. The fund carries a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Vanguard Industrial ETF VIS

This fund offers exposure to the industrial sector and follows the MSCI US IMI Industrials 25/50 Index. It holds about 347 securities in its basket with General Electric occupying the sixth highest spot with 2.9% weight. Its AUM is $3.54 billion and expense ratio is 0.10%. Following the earnings release, the fund has lost about 0.45% to close at $145.15 on May 1. The fund carries a Zacks ETF Rank #1 with a Medium risk outlook (read: U.S. Stocks Near Record High: Top-Ranked ETFs to Buy).