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How Are Industrial ETFs Reacting to Q2 Earnings?

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The industrial sector, which faced disruption in global supply chains and factory closedowns, is expected to rebound on recovery from the coronavirus-led slump. The introduction of a coronavirus vaccine and addition of stimulus are expected to drive demand and economic activities in the sector.

The latest update on U.S. industrial output also looks decent despite the increasing new COVID-19 cases from the highly-contagious delta variant. Per the Fed’s recently-released data, total industrial production rose 0.9% in July versus an increase of 0.2% in June. There was a 1.4% rise in manufacturing output despite the constrained supply of semiconductors, followed by a 1.2% increase in mining production.

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

Inside Q2 Earnings

On Jul 27, General Electric Company’s (GE - Free Report) second-quarter 2021 adjusted earnings were 5 cents per share, beating the Zacks Consensus Estimate of 4 cents. Moreover, the bottom line compares favorably with the prior-year quarter’s loss of 14 cents per share. Consolidated revenues totaled $18.28 billion, reflecting year-over-year growth of 8.8%. Impressive sales performance in Industrial drove the quarterly results, partially offset by a decline in GE Capital. Also, the company’s top line beat the Zacks Consensus Estimate of $18.27 billion.

On Jul 27, 3M Company’s (MMM - Free Report) second-quarter 2021 earnings and sales outpaced the consensus estimate by 15.1% and 4.8%, respectively. The company’s adjusted earnings in the reported quarter were $2.59 per share. On a year-over-year basis, the bottom line rose 45.5%. In the reported quarter, 3M’s net sales totaled $8.95 billion, reflecting an increase of 24.7% from the year-ago quarter.

On Jul 23, Honeywell International Inc. (HON - Free Report) reported better-than-expected results for second-quarter 2021, wherein earnings and revenues beat estimates. Adjusted earnings were $2.02 per share, beating the Zacks Consensus Estimate of $1.94. The bottom line increased 60.3% year over year. Revenues came in at $8.81 billion, surpassing the consensus estimate of $8.61 billion. The top line surged 17.8% year over year on a reported basis and 15% on an organic basis. Notably, the upside was driven by strength in personal protective equipment and productivity solutions and services businesses along with solid demand for building products and process solutions products. The company also witnessed strong recovery in business and general aviation aftermarket demand during the reported quarter.

On Jul 22, Union Pacific Corporation’s (UNP - Free Report) second-quarter 2021 earnings of $2.72 per share beat the Zacks Consensus Estimate of $2.55. The bottom line rose 62.9% on a year-over-year basis. Operating revenues came in at $5.50 billion, which surpassed the Zacks Consensus Estimate of $5.38 billion. The figure rose 29.7% year over year, primarily due to an increase in freight revenues.

Industrial ETFs in Focus

In the current scenario, we believe it is prudent to discuss ETFs that have relatively high exposure to the industrial companies discussed:

The Industrial Select Sector SPDR Fund (XLI - Free Report)

The fund seeks to provide investment results that, before expenses, match the performance of the Industrial Select Sector Index. It comprises 74 holdings, with the above-mentioned companies taking about 17.1% of the fund. Its AUM is $19.33 billion and expense ratio is 0.12%. The fund has lost about 0.9% since Jul 21 (as of Aug 19) (read: Time to Tap Cyclical Sector ETFs?).

Vanguard Industrials ETF (VIS - Free Report)                   

This fund offers exposure to the industrial sector and follows the MSCI US Investable Market Industrials 25/50 Index. It holds about 355 securities in its basket, with the concerned companies having around 12.8% weight in the fund. The fund is down around 1.5% since Jul 21 (as of Aug 19). Its AUM is $5.44 billion and expense ratio is 0.10% (read: ETFs to Gain as US Industrial Output Rises in July).

Fidelity MSCI Industrials Index ETF (FIDU - Free Report)

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. The fund has lost about 1.3% since Jul 21 (as of Aug 19). It comprises 346 holdings and puts about 13.1% weight in the companies discussed above. Its AUM is $865.4 million and expense ratio, 0.08% (read: What Does US Economic Recovery Mean for Industrial ETFs' 2H21?).

iShares U.S. Industrials ETF (IYJ - Free Report)

The iShares U.S. Industrials ETF seeks to track the investment results of the Dow Jones U.S. Industrials Index. It holds about 189 securities in its basket and puts about 10.6% weight in the companies in focus. The fund has lost almost 0.9% since Jul 21 (as of Aug 19). Its AUM is $1.76 billion and expense ratio is 0.42%.