Can Industrial ETFs Gain Post Mixed Q4 Earnings?

The industrial sector has been delivering mixed results so far this reporting season. Of the 69% S&P industrial companies that have reported, 60% beat on the bottom line while 45% surpassed revenue estimates. For these companies, earnings declined 0.6% and revenues deteriorated 1.5% year over year, per the latest Earnings Trends (read:Will Virus Infect Q1 Earnings? Multi-Asset ETFs to Play).

The release reports with impressive data reflect a thriving domestic economy. The ISM Manufacturing PMI in the United States rose to a reading of 50.9 in January, marking the highest level since July, from an upwardly revised 47.8 in December. After three rate cuts in 2019, the Fed has hinted at keeping interest rates unchanged in 2020 unless there is any major change in the economic outlook. The Fed’s dovish stance on interest rates can prove beneficial for the industrial sector, as it will enhance the ability of industries to borrow funds at a lower rate. Moreover, Trump’s signing of various trade deals, including the Sino-US phase one deal, can provide some support to the sector.

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 Q4 Earnings

On Jan. 29, General Electric Company’s GE fourth-quarter 2019 adjusted earnings were 21 cents per share, beating the Zacks Consensus Estimate of 18 cents. Moreover, the bottom line improved 50% from the year-ago figure of 14 cents. Consolidated revenues totaled $26.24 billion, reflecting a year-over-year drop of 1%. Weakness in GE Capital offset the strong performance by the Industrial segment. However, the company’s revenues beat the Zacks Consensus Estimate of $26.16 billion by 0.3%. Shares have gained about 10.4% since earnings release (as on Feb. 6, 2020).

On Jan. 28, 3M Company MMM reported weaker-than-expected results for the fourth quarter of 2019, with earnings and sales missing respective estimates by 7.1% and 0.2%. The company’s adjusted earnings in the reported quarter were $1.95 per share. On a year-over-year basis, bottom-line results declined 15.6% due to weaker organic sales, the Acelity buyout and organizational realignment charges. In the reported quarter, 3M’s net sales totaled $8.11 billion, reflecting an increase of 2.1% from the year-ago period. The stock has lost 7.3% since the earnings release (as on Feb. 6, 2020).

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