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In the thick of the Q2 earnings season, the growth numbers for most of the companies out with their results look disappointing. For the S&P 500 index, Q2 could be the fifth in a row to log negative earnings growth. However, the number doesn’t look so bad when compared with lowered estimates.
Despite headwinds, aerospace & defense, a relatively smaller sector within the S&P 500, held up well this past quarter. Aerospace and defense stocks have reported better-than-expected results despite sluggish growth numbers. As per the Earnings Trend report, of the companies reported so far, the earnings beat ratio of the aerospace and defense companies is 85.7% (see all industrials ETFs here).
The U.S. defense sector performed modestly on the back of elevated geopolitical risk, a recovering U.S. economy and strong commercial sales. Escalating geo-political tensions in Eastern Europe, the Middle East and Syria have forced several countries to step up their defense, in turn boosting demand for defense products. Moreover, the aerospace and defense industry has gained from fleet renewals at airlines worldwide. Demand for more fuel-efficient aircraft, a growing international market and increasing application of unmanned aircraft in warfare today have driven up sales in this sector (read: France Bleeds Again: ETFs & Stocks in Focus).
Below we have highlighted in greater detail the earnings of some of the major aerospace and defense companies which really drive this sector’s outlook.
Quarterly Earnings in Focus
Pentagon’s prime contractor, Lockheed Martin Corp. (LMT - Free Report) , reported an encouraging second quarter. It reported better-than-expected earnings and revenues with both beating the Zacks Consensus Estimate by 13.7% and 3.2%, respectively. Lockheed Martin raised its 2016 outlook and now expects earnings of about $12.15–$12.45 per share (earlier projection: $11.50–$11.80) on revenues of approximately $50 billion to $51.5 billion (earlier projection: $49.6 billion to $51.1 billion). The stock jumped after the earnings release on solid outlook and impressive revenue results.
Aerospace giant, The Boeing Company (BA - Free Report) delivered second-quarter 2016 adjusted loss of 44 cents, narrower than the Zacks Consensus Estimate of a loss of 88 cents. The company’s bottom line suffered owning to a 787 cost reclassification, and charges on the 747 and KC-46 Tanker programs. Revenues came in at $24.76 billion for the quarter, exceeding the Zacks Consensus Estimate of $24.45 billion and increasing 1% from the year-ago level. For 2016, the company lowered its adjusted or core earnings per share expectation to the range of $6.10–$6.30 from $8.15−$8.35 expected earlier, while maintaining the revenue guidance in the range of $93−$95 billion. Investors reacted positively to the company’s results.
Northrop Grumman Corp. (NOC - Free Report) reported mixed second-quarter 2016 results with revenues missing but earnings beating the Zacks Consensus Estimate by 1.7% and 4%, respectively. The maker of the current B-2 bomber and Global Hawk unmanned planes expects earnings to be in the range of $10.75 to $11.00 per share (prior projection: $10.40–$10.70) on revenues of $23.5 billion to $24 billion in 2016. The stock fell slightly after the company released its results.
General Dynamics Corp.’s (GD - Free Report) second-quarter earnings of $2.44 per share topped the Zacks Consensus Estimate of $2.30 and the year-ago figure of $2.27. Revenues of $7.7 billion missed the Zacks Consensus Estimate by 3.6% due to lower contributions from the Aerospace, Combat Systems and Marine segments. Investors reacted positively to the earnings beat with the stock gaining after the company released its results.
United Technologies Corporation reported second-quarter adjusted earnings of $1.82 per share, up 9% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.65. Quarterly revenues of $14.9 billion also beat the Zacks Consensus Estimate of $14.6 billion driven by improved performances from all segments, except the Otis segment. The company narrow its 2016 guidance. The company now expects adjusted earnings to be in the range of $6.45 to $6.60 per share (prior guidance: $6.30 to $6.60) on revenues of $57 billion to $58 billion (prior guidance: $56 billion to $58 billion). The stock gained post releasing results.
iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
The fund, tracking the Dow Jones U.S. Select Aerospace & Defense Index, holds 37 securities in its basket with Boeing, United Technologies, Lockheed Martin, General Dynamics and Northrop Grumman being among the top 10 stocks. All of them together account for more than 39% of the fund assets. With an asset base of nearly $837.2 million, the fund trades in moderate volumes of roughly 80,000 shares a day and charges an annual fee of 44 bps per year. The fund returned 1% in the last 10 days (as of June 28, 2016) and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: ETFs to Watch If Hillary Clinton Wins the Presidency).
PPA follows the SPADE Defense Index, with 50 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. Lockheed Martin, Boeing, United Technologies, General Dynamic and Northrop Grumman are among the top 10 holdings and together occupy almost one third of total fund assets. The product has managed to garner nearly $333.5 million in assets so far and trades in an average volume of 44,000 shares per day. It charges 66 bps in annual fees and gained 0.9% in the past 10 days. It currently carries a Zacks ETF Rank #3 with a Medium risk outlook.
XAR tracks the S&P Aerospace and Defense Select Industry index, holding a basket of 36 stocks. United Technologies, Northrop Grumman, Lockheed Martin, General Dynamics and Boeing score among the top 10 holdings. This product has attracted an AUM of nearly $191.7 million and exchanges nearly 13,000 shares in hand per day. It charges 35 bps in fees per year and gained 0.4% in the past 10 days. The fund has a Zacks ETF Rank #3 with a Medium risk outlook (read: Remembering Defense ETFs on Memorial Day).
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Upbeat Aerospace & Defense Earnings Boost ETFs
In the thick of the Q2 earnings season, the growth numbers for most of the companies out with their results look disappointing. For the S&P 500 index, Q2 could be the fifth in a row to log negative earnings growth. However, the number doesn’t look so bad when compared with lowered estimates.
Despite headwinds, aerospace & defense, a relatively smaller sector within the S&P 500, held up well this past quarter. Aerospace and defense stocks have reported better-than-expected results despite sluggish growth numbers. As per the Earnings Trend report, of the companies reported so far, the earnings beat ratio of the aerospace and defense companies is 85.7% (see all industrials ETFs here).
The U.S. defense sector performed modestly on the back of elevated geopolitical risk, a recovering U.S. economy and strong commercial sales. Escalating geo-political tensions in Eastern Europe, the Middle East and Syria have forced several countries to step up their defense, in turn boosting demand for defense products. Moreover, the aerospace and defense industry has gained from fleet renewals at airlines worldwide. Demand for more fuel-efficient aircraft, a growing international market and increasing application of unmanned aircraft in warfare today have driven up sales in this sector (read: France Bleeds Again: ETFs & Stocks in Focus).
Below we have highlighted in greater detail the earnings of some of the major aerospace and defense companies which really drive this sector’s outlook.
Quarterly Earnings in Focus
Pentagon’s prime contractor, Lockheed Martin Corp. (LMT - Free Report) , reported an encouraging second quarter. It reported better-than-expected earnings and revenues with both beating the Zacks Consensus Estimate by 13.7% and 3.2%, respectively. Lockheed Martin raised its 2016 outlook and now expects earnings of about $12.15–$12.45 per share (earlier projection: $11.50–$11.80) on revenues of approximately $50 billion to $51.5 billion (earlier projection: $49.6 billion to $51.1 billion). The stock jumped after the earnings release on solid outlook and impressive revenue results.
Aerospace giant, The Boeing Company (BA - Free Report) delivered second-quarter 2016 adjusted loss of 44 cents, narrower than the Zacks Consensus Estimate of a loss of 88 cents. The company’s bottom line suffered owning to a 787 cost reclassification, and charges on the 747 and KC-46 Tanker programs. Revenues came in at $24.76 billion for the quarter, exceeding the Zacks Consensus Estimate of $24.45 billion and increasing 1% from the year-ago level. For 2016, the company lowered its adjusted or core earnings per share expectation to the range of $6.10–$6.30 from $8.15−$8.35 expected earlier, while maintaining the revenue guidance in the range of $93−$95 billion. Investors reacted positively to the company’s results.
Northrop Grumman Corp. (NOC - Free Report) reported mixed second-quarter 2016 results with revenues missing but earnings beating the Zacks Consensus Estimate by 1.7% and 4%, respectively. The maker of the current B-2 bomber and Global Hawk unmanned planes expects earnings to be in the range of $10.75 to $11.00 per share (prior projection: $10.40–$10.70) on revenues of $23.5 billion to $24 billion in 2016. The stock fell slightly after the company released its results.
General Dynamics Corp.’s (GD - Free Report) second-quarter earnings of $2.44 per share topped the Zacks Consensus Estimate of $2.30 and the year-ago figure of $2.27. Revenues of $7.7 billion missed the Zacks Consensus Estimate by 3.6% due to lower contributions from the Aerospace, Combat Systems and Marine segments. Investors reacted positively to the earnings beat with the stock gaining after the company released its results.
United Technologies Corporation reported second-quarter adjusted earnings of $1.82 per share, up 9% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.65. Quarterly revenues of $14.9 billion also beat the Zacks Consensus Estimate of $14.6 billion driven by improved performances from all segments, except the Otis segment. The company narrow its 2016 guidance. The company now expects adjusted earnings to be in the range of $6.45 to $6.60 per share (prior guidance: $6.30 to $6.60) on revenues of $57 billion to $58 billion (prior guidance: $56 billion to $58 billion). The stock gained post releasing results.
ETFs to Play
The gains in aerospace and defense companies have put the spotlight on their ETFs. Below, we have these ETFs in detail: (read: The Complete Guide to Aerospace & Defense ETFs).
iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
The fund, tracking the Dow Jones U.S. Select Aerospace & Defense Index, holds 37 securities in its basket with Boeing, United Technologies, Lockheed Martin, General Dynamics and Northrop Grumman being among the top 10 stocks. All of them together account for more than 39% of the fund assets. With an asset base of nearly $837.2 million, the fund trades in moderate volumes of roughly 80,000 shares a day and charges an annual fee of 44 bps per year. The fund returned 1% in the last 10 days (as of June 28, 2016) and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: ETFs to Watch If Hillary Clinton Wins the Presidency).
PowerShares Aerospace & Defense Portfolio (PPA - Free Report)
PPA follows the SPADE Defense Index, with 50 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. Lockheed Martin, Boeing, United Technologies, General Dynamic and Northrop Grumman are among the top 10 holdings and together occupy almost one third of total fund assets. The product has managed to garner nearly $333.5 million in assets so far and trades in an average volume of 44,000 shares per day. It charges 66 bps in annual fees and gained 0.9% in the past 10 days. It currently carries a Zacks ETF Rank #3 with a Medium risk outlook.
SPDR S&P Aerospace & Defense ETF (XAR - Free Report)
XAR tracks the S&P Aerospace and Defense Select Industry index, holding a basket of 36 stocks. United Technologies, Northrop Grumman, Lockheed Martin, General Dynamics and Boeing score among the top 10 holdings. This product has attracted an AUM of nearly $191.7 million and exchanges nearly 13,000 shares in hand per day. It charges 35 bps in fees per year and gained 0.4% in the past 10 days. The fund has a Zacks ETF Rank #3 with a Medium risk outlook (read: Remembering Defense ETFs on Memorial Day).
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