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Staples ETFs to Gain from Upbeat PG Earnings & Dividend Hike

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Consumer-products behemoth Procter & Gamble (PG - Free Report) reported a mixed third-quarter fiscal 2020 results on Apr 17 before market opened. Core earnings of $1.17 per share rose 10% year over year and outpaced the Zacks Consensus Estimate of $1.12. Meanwhile, currency-neutral core earnings per share (EPS) increased 15%.

The company reported net sales of $17.21 billion, up 5% year over year and in line with the Zacks Consensus Estimate. Currency fluctuations also hurt the top line by two percentage point. All of the company’s business segments except Grooming reported growth in organic sales. Organic sales jumped in Fabric & Home Care (up 10%), Health Care (up 9%) and Baby, Feminine & Family Care (up 7%) as consumers stocked up amid coronavirus-led lockdown.

U.S. sales surged 10%, which marked its biggest U.S. sales increase in decades due to consumers’ panic buying of essentials. Greater China’s sales decline of 8% also came in lesser than expected by management.

In the reported quarter, core gross margin increased 120 basis points (bps) year over year to 50.4%, including 10 bps of adverse impact of foreign currency. On a currency-neutral basis, core gross margin expanded 130 bps owing to benefits from gross productivity savings, higher pricing and commodity cost declines.

Due to stronger headwind from foreign exchange rates, Procter & Gamble now projects all-in fiscal 2020 sales to grow 3-4% compared with 4-5% mentioned earlier. The company reaffirmed its organic sales guidance of a 4-5% growth in the fiscal. Moreover, the company reiterated core EPS growth of 8-11% year over year for fiscal 2020.

Procter & Gamble Company also declared lately a 6% increase in quarterly dividend of $0.7907 per share on the common stock. Overall, the company expects to pay over $7.5 billion in dividends and repurchase $7 billion to $8 billion of common shares in fiscal 2020. This is a positive in an environment where dividend cut and halt in buyback are rampant (read: Are Buyback ETFs in Troubled Waters?).

Consumer ETF Impact

Thanks to an upbeat earnings release, shares of PG notched up about 2.6% in the key trading session of Apr 17, 2020 on elevated volumes. The gain also reflected in the ETF world, with consumer staples funds being benefited. 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.

Consumer Staples Select Sector SPDR Fund (XLP - Free Report)

The in-focus P&G takes the first spot, making up roughly 16% of the assets. The fund has returned about 1.5% on Apr 17 (see all consumer staples ETFs here).

Vanguard Consumer Staples ETF (VDC - Free Report)

Here too, P&G is the top firm with 15.6% allocation. VDC advanced about 1.5% on Apr 17.

iShares U.S. Consumer Goods ETF (IYK - Free Report)

Like the other two, the stock under consideration occupies the top position in the basket with 14.4% of assets. The fund gained 2.3% on Apr 17.

Bottom Line

Consumer staples had a good run in recent months due to higher demand amid lockdowns. This safe sector has every reason to outperform amid recessionary fears too. But if PG’s results is any guide, the sector has something more to offer (read: Any Bright Spot in Q1 Earnings? Sector ETFs & Stocks to Buy).

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