The industrial sector has been delivering mixed results so far this reporting season. Of the 79.3% S&P industrial companies that have reported, 78.3% beat on the bottom line while 56.5% surpassed revenue estimates. For these companies, earnings declined 16.8% and revenues deteriorated 7.6% year over year, per the latest Earnings Trends.
The coronavirus outbreak has caused an unprecedented collapse in economic activities as governments have shut down commerce and implemented social distancing measures in an effort to contain the spread of the virus. The pandemic is sparking fears of a global economic recession among investors as the outbreak is disrupting global supply chains owing to the shutdown of economic activities. The U.S. jobs report for the month of April was the worst since the Depression era due to the coronavirus-led business shutdowns, per The Washington Post article.
However, the U.S. economy has started to reopen in phases and there is massive Fed and government stimulus to combat the crisis which can help the sector rebound.
Against this backdrop, we take a look at some big industrial earnings releases and see if these can leave an impact on ETFs exposed to the space.
Inside Q1 Earnings
On Apr 29, General Electric Company’s (GE - Free Report) first-quarter 2020 adjusted earnings were 5 cents per share, missing the Zacks Consensus Estimate of 6 cents. Moreover, the bottom line slid 61.5% from the year-ago figure of 13 cents. Consolidated revenues totaled $20.52 billion, reflecting a year-over-year drop of 7.6%. Sluggish Industrial and GE Capital’s performance hurt the quarterly results. Moreover, revenues missed the Zacks Consensus Estimate of $20.60 billion. Shares of the company have decline 7.5% since the earnings release (as of May 8).
On Apr 28, 3M Company (MMM - Free Report) reported better-than-expected results for the first quarter of 2020, with earnings and sales beating estimates by 6.9% and 1%, respectively. The company’s adjusted earnings in the reported quarter were $2.16 per share. On a year-over-year basis, bottom-line results declined 2.7% due to adverse impact of higher taxes, forex woes (8 cents per share) and acquisitions/divestitures, partially offset by gains from organic volume and lower share count. In the reported quarter, 3M’s net sales totaled $8.08 billion, reflecting an increase of 2.7% from the year-ago quarter. The stock has lost 3.3% since the earnings release (as of May 8).
On May 1, Honeywell International Inc. (HON - Free Report) reported mixed results for first-quarter 2020, with earnings surpassing estimates but revenues lagging the same. Adjusted earnings were $2.21 per share, beating the Zacks Consensus Estimate of $1.98. The bottom line also rose 15% year over year on higher operating profit. Honeywell’s first-quarter revenues came in at $8.46 billion, lagging the consensus estimate of $8.68 billion. Notably, the top line declined 5% year over year primarily due to a 4% decline in organic revenues on account of weakness in its commercial aerospace, and oil and gas end markets due to the coronavirus outbreak. The stock has lost about 3.5% since earnings (as of May 8).
On Apr 23, Union Pacific Corporation’s (UNP - Free Report) first-quarter 2020 earnings of $2.15 per share beat the Zacks Consensus Estimate of $1.86. The bottom line also gained 11.4% on a year-over-year basis, primarily on low costs. Operating revenues came in at $5.23 billion, which surpassed the Zacks Consensus Estimate of $5.11 billion. The figure declined 3% year over year due to sluggish freight revenues (down 3%). The stock has rallied 7.6% since earnings (as of May 8).
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 (see all Industrial ETFs here).
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 72 holdings, with the above-mentioned companies taking about 18.5% of the fund. Its AUM is $7.42 billion and expense ratio is 0.13%. The fund carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: Optimism Back in Wall Street? ETFs Areas to Win the Most).
Vanguard Industrials ETF (VIS - Free Report)
This fund offers exposure to the industrial sector and follows the MSCI US IMI Industrials 25/50 Index. It holds about 352 securities in its basket, with the concerned companies having 15.1% weight in the fund. Its AUM is $2.57 billion and expense ratio is 0.10%. The fund carries a Zacks ETF Rank #2, with a Medium-risk outlook.
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. It comprises 337 holdings and puts about 14.4% weight in the companies discussed above. Its AUM is $289.1 million and expense ratio, 0.08%. The fund carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook.
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 206 securities in its basket and puts about 9.3% weight in the companies in focus. Its AUM is $686.1 million and expense ratio is 0.42%. The fund carries a Zacks ETF Rank #3, with a Medium-risk outlook.
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 >>