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Should You Buy the Dip in Procter & Gamble via ETFs?
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One of the most famous names in the consumer products world – Procter & Gamble (PG - Free Report) – came up with mixed-to-downbeat results for the third quarter of fiscal 2017. Naturally, shares remained muted post earnings. Let’s delve a little deeper into the results and assess what could be done with P&G shares in the coming days.
Procter & Gamble's 3Q17 Earnings in Focus
The consumer staple giant’s 3Q17 adjusted earnings of $0.96 per share beat the Zacks Consensus Estimate of $0.94 by 2.1%. The bottom line also increased 12% from the prior-year quarter. Currency-neutral core EPS improved 15%.
P&G’s reported net sales of $15.61 billion missed the Zacks Consensus Estimate of $15.71 billion by 0.7%. The top line also declined 1% year over year. Foreign exchange had a negative impact of 2% on sales.
Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues grew 1% on the back of a 1% increase in organic volumes. Core gross margin decreased 40 bps to 50.5% as productivity cost was more than offset by headwinds like an unfavorable geographic and product mix.
Management maintained its organic sales growth projection in the range of 2–3% for fiscal 2017. However, the company expects the combined foreign exchange headwind and minor brand divestitures to hurt sales by 2–3%. Hence, P&G expects all-in sales growth to remain down 1% to flat (earlier flat) for fiscal 2017.
The company has beefed up its guidance for adjusted free cash flow productivity from 90% to approximately 95% for the fiscal year.
Consumer ETF Impact
Thanks to mixed results, shares of PG dropped about 2.6% in the last two trading sessions (as of April 27, 2017). The loss also reflected in the ETF world, with consumer staples funds being slightly hurt. Many of the key funds in this segment have a double-digit allocation to the consumer product giant, suggesting that the performance of the fund is highly dependent on P&G’s performance.
Consumer Staples Select Sector SPDR Fund (XLP - Free Report)
The most popular consumer ETF on the market, XLP, follows the S&P Consumer Staples Select Sector Index. The fund invests about $9 billion of assets in 39 holdings. Of these firms, the in-focus P&G takes the first spot, making up roughly 12% of the assets. The fund lost about 0.9% in the last two trading sessions (as of April 27, 2017) (see all consumer staples ETFs here).
This fund manages a $3.65 billion asset base and provides exposure to a basket of 103 consumer stocks. The product charges a low fee of 10 bps per year from investors. Here too, P&G is the top firm with 10.7% allocation. VDC retreated about 0.9% in the last two trading sessions (as of April 27, 2017).
This ETF tracks the Dow Jones U.S. Consumer Goods Index, giving investors exposure to the broad consumer staples space. The fund holds about 115 stocks in its basket with AUM of $721.6 million. Like the other two, the stock under consideration occupies the top position in the basket with 9.93% of assets. The fund shed about 0.9% in the last two trading sessions (as of April 27, 2017)
Bottom Line
Even though PG had a downbeat quarter, its impact on the rest of the consumer staples market wasn’t felt that much. Plus, the Zacks Industry Rank of Procter & Gamble is in the top 5%. This calls for a buy-the-dip strategy for the ETFs having significant exposure to PG.
However, investors should also keep in mind that the wind is not in favor of the broader sector. The Zacks Sector Rank is in the bottom 38%. So, we need to keep a track on earnings of other staples giants before being bullish on the afore-mentioned ETFs. Till then it is better to remain on the sidelines (read: Philip Morris Q1 Results Disappoint: ETFs in Focus).
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Should You Buy the Dip in Procter & Gamble via ETFs?
One of the most famous names in the consumer products world – Procter & Gamble (PG - Free Report) – came up with mixed-to-downbeat results for the third quarter of fiscal 2017. Naturally, shares remained muted post earnings. Let’s delve a little deeper into the results and assess what could be done with P&G shares in the coming days.
Procter & Gamble's 3Q17 Earnings in Focus
The consumer staple giant’s 3Q17 adjusted earnings of $0.96 per share beat the Zacks Consensus Estimate of $0.94 by 2.1%. The bottom line also increased 12% from the prior-year quarter. Currency-neutral core EPS improved 15%.
P&G’s reported net sales of $15.61 billion missed the Zacks Consensus Estimate of $15.71 billion by 0.7%. The top line also declined 1% year over year. Foreign exchange had a negative impact of 2% on sales.
Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues grew 1% on the back of a 1% increase in organic volumes. Core gross margin decreased 40 bps to 50.5% as productivity cost was more than offset by headwinds like an unfavorable geographic and product mix.
Management maintained its organic sales growth projection in the range of 2–3% for fiscal 2017. However, the company expects the combined foreign exchange headwind and minor brand divestitures to hurt sales by 2–3%. Hence, P&G expects all-in sales growth to remain down 1% to flat (earlier flat) for fiscal 2017.
The company has beefed up its guidance for adjusted free cash flow productivity from 90% to approximately 95% for the fiscal year.
Consumer ETF Impact
Thanks to mixed results, shares of PG dropped about 2.6% in the last two trading sessions (as of April 27, 2017). The loss also reflected in the ETF world, with consumer staples funds being slightly hurt. Many of the key funds in this segment have a double-digit allocation to the consumer product giant, suggesting that the performance of the fund is highly dependent on P&G’s performance.
Let’s take a look at the following three ETFs with a solid allocation to Procter & Gamble (read: Consumer Staples ETF Investing 101):
Consumer Staples Select Sector SPDR Fund (XLP - Free Report)
The most popular consumer ETF on the market, XLP, follows the S&P Consumer Staples Select Sector Index. The fund invests about $9 billion of assets in 39 holdings. Of these firms, the in-focus P&G takes the first spot, making up roughly 12% of the assets. The fund lost about 0.9% in the last two trading sessions (as of April 27, 2017) (see all consumer staples ETFs here).
Vanguard Consumer Staples ETF (VDC - Free Report)
This fund manages a $3.65 billion asset base and provides exposure to a basket of 103 consumer stocks. The product charges a low fee of 10 bps per year from investors. Here too, P&G is the top firm with 10.7% allocation. VDC retreated about 0.9% in the last two trading sessions (as of April 27, 2017).
iShares U.S. Consumer Goods ETF (IYK - Free Report)
This ETF tracks the Dow Jones U.S. Consumer Goods Index, giving investors exposure to the broad consumer staples space. The fund holds about 115 stocks in its basket with AUM of $721.6 million. Like the other two, the stock under consideration occupies the top position in the basket with 9.93% of assets. The fund shed about 0.9% in the last two trading sessions (as of April 27, 2017)
Bottom Line
Even though PG had a downbeat quarter, its impact on the rest of the consumer staples market wasn’t felt that much. Plus, the Zacks Industry Rank of Procter & Gamble is in the top 5%. This calls for a buy-the-dip strategy for the ETFs having significant exposure to PG.
However, investors should also keep in mind that the wind is not in favor of the broader sector. The Zacks Sector Rank is in the bottom 38%. So, we need to keep a track on earnings of other staples giants before being bullish on the afore-mentioned ETFs. Till then it is better to remain on the sidelines (read: Philip Morris Q1 Results Disappoint: ETFs in Focus).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>