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Industrial ETFs Stay Strong Despite Mixed Earnings

Sanghamitra Saha

The earnings season is in full swing now, taking our focus to the earnings performance of some industrial behemoths. The sector has come up with mixed earnings. Of the 87.5% S&P industrial companies that have reported earnings, 76.2% beat on the bottom line while 61.9% surpassed the revenue estimates. There have been earnings improvement of 7.3% and revenue growth of 1.1% year over year, per the Earnings Trends.

Still, the industrial funds performed decently in the past 10 days. Signs of improvement in trade relations between the United States and China and the Fed’s dovish stance toward future rate policy probably have helped the sector.

Against this backdrop, we take a look at some big industrial earnings releases and see if these can leave an impact on ETFs exposed to the space.

Inside Q4 Earnings

On Jan 28, Caterpillar Inc. CAT, the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives, reported fourth-quarter 2018 results, wherein adjusted earnings of $2.55 lagged the Zacks Consensus Estimate of $2.98. Revenues improved 11% year over year to $14.3 billion in the quarter under review, missing the Zacks Consensus Estimate of $14.4 billion. Shares lost about 3.1% since reporting earnings (as of Feb 12, 2019).

On Jan 31, General Electric Company GE reported fourth-quarter 2018 adjusted earnings of 17 cents per share, below the Zacks Consensus Estimate of 18 cents. Also, the bottom line reflected 60% decline from the year-ago tally of 43 cents due to weak margins in the quarter under review. In the quarter under review, General Electric’s consolidated revenues totaled $33.278 billion, reflecting year-over-year growth of 5.3%. Also, the top line surpassed the Zacks Consensus Estimate of $32.23 billion. Shares lost about 9.7% since reporting earnings (as of Feb 12, 2019).

On Jan 29, 3M Company MMM reported better-than-expected results for the fourth quarter of 2018, pulling off a positive earnings surprise of 1.76%. The company’s adjusted earnings in the reported quarter were $2.31 per share, surpassing the Zacks Consensus Estimate of $2.27. 3M’s net sales were $7.945 billion, reflecting a decline of 0.6% from the year-ago quarter. The top line surpassed the Zacks Consensus Estimate of $7.94 billion. However, for 2019, 3M revised down adjusted earnings guidance from $10.60-$11.05 to $10.45-$10.90 per share. The stock is still up 4.9% since reporting earnings (as of Feb 12, 2019).

On Feb 1, Honeywell International Inc. HON reported better-than-expected fourth-quarter 2018 results. Adjusted earnings for the quarter were $1.91 per share, outpacing the Zacks Consensus Estimate of $1.88. The bottom line also improved 3.2% year over year. Revenues of $9.729 billion for the fourth quarter surpassed the consensus estimate of $9.691 billion. Notably, the top line declined 10.3% year over year. The stock has added about 4.7% since earnings (as of Feb 12, 2019).

On Jan 24, Union Pacific Corporation UNP delivered impressive fourth-quarter 2018 results, with earnings and revenues beating the Zacks Consensus Estimate. The transportation company’s earnings of $2.12 per share surpassed the Zacks Consensus Estimate by 6 cents. The bottom line also surged 39% on a year-over-year basis. Operating revenues came in at $5.757 billion, which outpaced the Zacks Consensus Estimate of $5.719 billion. The figure also increased 6% year over year. Shares were up 8.2% since earnings.

Industrial ETFs in Focus

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

ETFs in Focus

Industrial Select Sector SPDR Fund XLI

This $10.1-billion fund focuses on providing exposure to the U.S. industrial sector. The above-mentioned companies take about 25% of the fund.

Vanguard Industrials ETF VIS

This $3.15-billion ETF is a pure play on the U.S. industrials sector. The concerned companies take about 20% of the basket.

iShares U.S. Industrials ETF IYJ

This $884-million ETF puts about 14% weight in the in-focus companies.