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Can Industrial ETFs Gain on Mixed Q1 Earnings?

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The industrial production sector has come up with mostly decent results so far this earnings season. Of the 77.8% S&P companies in the sector that have reported, 90.5% beat the bottom line and 85.7% surpassed the top-line estimates. For these companies, earnings rose 5.2% while revenues increased 10.6% year over year, per the Earnings Trends issued on May 4.

The industrial sector is expected to face challenges stemming from rising interest rates, growing inflation levels and ongoing supply-chain disturbances this year. However, improving labor market conditions, growing consumer confidence, accelerated coronavirus vaccine rollout, gradual reopening of U.S. and global economies, and the passage of the much-awaited $1.2-trillion infrastructure bill might provide support to the sector.

Against this backdrop, we take a look at ETFs exposed to the sector and the impact of some big industrial earnings releases on them:

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 below:

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

The Industrial Select Sector SPDR Fund seeks to provide investment results that, before expenses, match the performance of the Industrial Select Sector Index.

The Industrial Select Sector SPDR Fund comprises 72 holdings, with the below-mentioned companies taking about 16.6% of the fund. XLI has AUM of $14.31 billion and its expense ratio is 0.10% (read: Manufacturing Slows Again in April: Sector ETFs at Better Spots).

Vanguard Industrials ETF (VIS - Free Report)                   

Vanguard Industrials ETF offers exposure to the industrial sector and follows the MSCI US Investable Market Industrials 25/50 Index.

Vanguard Industrials ETF holds about 353 securities in its basket, with the concerned companies having around 12.2% weight in the fund. Vanguard Industrials ETF’s AUM is $4.05 billion and its expense ratio is 0.10% (read: 5 ETF Strategies to Follow in May).

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 Fidelity MSCI Industrials Index ETF comprises 365 holdings and puts about 12.3% weight in the companies discussed below. The Fidelity MSCI Industrials Index ETF’s AUM is $783.8 million and the expense ratio is 0.08%.

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

The iShares U.S. Industrials ETF seeks to track the investment results of the Russell 1000 Industrials 40 Act 15/22.5 Daily Capped Index.

iShares U.S. Industrials ETF holds about 182 securities in its basket and puts about 9.4% weight on the companies in focus. The fund’s AUM is $1.29 billion and its expense ratio is 0.41%.

Inside Q1 Earnings

On Apr 26, General Electric Company (GE - Free Report) reported first-quarter 2022 adjusted earnings of 24 cents per share, surpassing the Zacks Consensus Estimate of 20 cents. The bottom line was flat with the prior-year quarter’s level. Consolidated revenues totaled $17.04 billion, declining 0.2% year over year. Disappointing sales performance by the Power and Renewable Energy segments impacted revenues, partially offset by gains in Healthcare and Aviation. Also, the company’s top line missed the Zacks Consensus Estimate of $17.46 billion.

On Apr 26, 3M Company’s (MMM - Free Report) first-quarter 2022 earnings and sales outpaced the consensus estimate by 13.7% and 1%, respectively. The company’s adjusted earnings in the reported quarter were $2.65 per share. On a year-over-year basis, the bottom line declined 4.3%. In the reported quarter, 3M’s net sales totaled $8.83 billion, reflecting a decrease of 0.3% from the year-ago quarter.

On Apr 29, Honeywell International Inc. (HON - Free Report) reported better-than-expected results for first-quarter 2022, wherein earnings and revenues beat estimates. Adjusted earnings were $1.91 per share, beating the Zacks Consensus Estimate of $1.86. However, the bottom line declined 0.5% year over year. Revenues came in at $8.38 billion, surpassing the consensus estimate of $8.35 billion. Notably, the top line decreased 1% year over year on a reported basis but rose 1% on an organic basis. Notably, the downside was largely due to supply-chain constraints and a decline in COVID-19 mask sales.

On Apr 21, Union Pacific Corporation’s (UNP - Free Report) first-quarter 2022 earnings of $2.57 per share beat the Zacks Consensus Estimate of $2.55. The bottom line rose 28.5% on a year-over-year basis. Operating revenues came in at $5.86 billion, which surpassed the Zacks Consensus Estimate of $5.81 billion. The figure rose 17.2% year over year, primarily due to increased freight revenues.