Can Industrial ETFs Gain Despite Mixed Q1 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. Moreover, increasing optimism about the space, the United States is now witnessing a decline in daily new coronavirus infection cases.

Moving on, the Fed’s continued dovish stance is increasing chances of faster U.S. economic growth recovery from the coronavirus pandemic-led slowdown. The central bank has decided to maintain rates near zero until 2023, at least. Moreover, the central bank raised its economic growth outlook considering the vaccine and stimulus optimism and it also expects higher inflation this year. Thus, all these factors are creating a favorable environment for players in the space.

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 April 27, General Electric Company’s GE first-quarter 2021 adjusted earnings were 3 cents per share, outpacing the Zacks Consensus Estimate of 2 cents. Moreover, the bottom line rose 50% from the prior-year quarter’s 2 cents per share as lower costs and expenses provided support to offset the decline in revenues. Consolidated revenues totaled $17.12 billion, reflecting a year-over-year drop of 12.2%. Poor sales performance in Industrial affected the quarterly results, partially offset by improvements in GE Capital. Also, the company’s top line missed the Zacks Consensus Estimate of $17.58 billion.

On April 27, 3M Company’s MMM first-quarter 2021 earnings and sales outpaced the consensus estimate by 23.1% and 5.9%, respectively. The company’s adjusted earnings in the reported quarter were $2.77 per share. On a year-over-year basis, the bottom line rose 26.5%. In the reported quarter, 3M’s net sales totaled $8.85 billion, reflecting an increase of 9.6% from the year-ago quarter.

On April 23, Honeywell International Inc. HON reported better-than-expected results for first-quarter 2021, wherein earnings and revenues beat estimates. Adjusted earnings were $1.92 per share, beating the Zacks Consensus Estimate of $1.80. However, the bottom line slid 13.1% year over year. Honeywell’s first-quarter revenues came in at $8.45 billion, outpacing the consensus estimate of $8.13 billion. Notably, the top line decreased 0.1% year over year on a reported basis and 2% on an organic basis. Notably, persistent sluggishness across commercial aftermarket and commercial original equipment businesses and lower demand for licensing and catalysts in UOP business affected the metric.

On April 22, Union Pacific Corporation’s UNP first-quarter 2021 earnings of $2.00 per share lagged the Zacks Consensus Estimate of $2.06. The bottom line was down 7% on a year-over-year basis. Operating revenues came in at $5.00 billion, which lagged the Zacks Consensus Estimate of $5.04 billion. The figure slid 4.4% year over year, primarily due to a decline 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

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 17.3% of the fund. Its AUM is $21.26 billion and expense ratio is 0.12%. The fund has gained about 0.4% since Apr 21 (as of May 12) (read: Bet on These 5 Top-Ranked ETFs to Boost Portfolio Returns).

Vanguard Industrials ETF VIS                   

This fund offers exposure to the industrial sector and follows the MSCI US Investable Market Industrials 25/50 Index. It holds about 358 securities in its basket, with the concerned companies having around 13.3% weight in the fund. The fund has lost around 0.5% since Apr 21 (as of May 12). Its AUM is $5.55 billion and expense ratio is 0.10% (read: ETF Strategies to Trade the "Sell in May and Go Away" Adage).

Fidelity MSCI Industrials Index ETF FIDU

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 0.4% since Apr 21 (as of May 12). It comprises 340 holdings and puts about 13.3% weight in the companies discussed above. Its AUM is $868.5 million and expense ratio, 0.08% (read: ETFs to Shine Bright as US Industrial Output Rises in March).

iShares U.S. Industrials ETF IYJ

The iShares U.S. Industrials ETF seeks to track the investment results of the Dow Jones U.S. Industrials Index. It holds about 192 securities in its basket and puts about 8.5% weight in the companies in focus. The fund has lost almost 1.4% since Apr 21 (as of May 12). Its AUM is $1.76 billion and expense ratio is 0.42%.

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