3 ETFs In Focus On Mixed Q1 Industrial Results

The industrial sector witnessed a flurry of mixed results for the first quarter of 2015. Though some of the major components in the space reported better-than-expected first-quarter earnings, most of them reported a year-over-year decline in revenue.

Among others, a stronger USD had a negative impact on the earnings results of industrial behemoths due to their significant international exposure. Meanwhile, as the industrial sector is one of the pillars of an economy, mixed first-quarter results indicate economic slowdown in the quarter.

Industrial Earnings in Detail

General Electric Company (NYSE:GE)
Diversified conglomerate, General Electric reported first-quarter operating earnings of $3.1 billion or 31 cents a share, beating the Zacks Consensus Estimate by a cent. However, earnings were below the year-ago quarter’s reported figure of $3.3 billion or 33 cents per share. Meanwhile, total revenue for the reported quarter (excluding GE Capital exit) decreased 3% year over year to $33,104 million and fell short of the Zacks Consensus Estimate of $34,424 million.

A reshuffling in the operating portfolio to reduce the volatility in earnings associated with the financial business of GE Capital and negative trend in oil prices dragged down revenues from the year-ago quarter.

3M Company (NYSE:MMM)

3M reported first-quarter net income of $1,199 million or $1.85 per share, missing the Zacks Consensus Estimate of $1.92. However, earnings per share increased nearly 3.4% year over year. Also, the company’s net sales declined 3.2% year over year to $7,578 million, and missed the Zacks Consensus Estimate of $7,820 million.

The company blamed an unfavorable foreign currency impact of 6.5% as one of the main reasons behind the decline in the revenue figure. Meanwhile, the company expects earnings between $7.80 and $8.10 per share from the prior range of $8.00 to $8.30 per share in 2015.

Union Pacific Corporation (NYSE:UNP)

The rail transportation operator, Union Pacific failed to meet our estimates on both fronts. First-quarter earnings per share rose 9% year on year, but fell short of the Zacks Consensus Estimate of $1.37. Moreover, a 0.4% year-over-year decline in revenues to $5.61 billion was also noted. Revenues missed the Zacks Consensus Estimate of $5.69 billion too. The company said that weakness in the coal, intermodal and chemicals units hurt results.

Caterpillar Inc (NYSE:CAT)

Increased focus on operational improvement helped Caterpillar to register strong earnings per share growth in the first quarter. Adjusted earnings per share of $1.86 increased 16% from the year-ago quarter and surpassed the Zacks Consensus Estimate of $1.35 per share. However, revenues declined 4% year over year to $12.7 billion in the quarter. Revenues were in line with the Zacks Consensus Estimate. Unfavorable currency impact from weakening of the euro and Japanese yen, and lower volumes were the mainly behind the decline.

Meanwhile, the company forecast fiscal 2015 earnings per share of $5.00 compared with its previous projection of $4.75. However, Caterpillar warned that sales and profit in the remaining three quarters of 2015 will be lower than the first quarter. Sales for oil applications are expected to decline in the second quarter.

ETFs in Focus

After reporting first-quarter earnings results on Apr 23, shares of 3M and Union Pacific declined 4% and 3%, respectively. However, shares of Caterpillar rose a meager 0.5% during this period. Separately, shares of General Electric dropped 1.5% after reporting first-quarter results on Apr 17.

Hence, we see that the mixed first quarter had a negative impact on the industrial sector. In this backdrop, investors will cautiously watch the performance of industrials ETFs.

Here we highlight three industrial ETFs with significant exposure to the above-mentioned stocks that may be impacted by their share price movement in the upcoming days.

Industrial Select Sector SPDR ETF (ARCA:XLI)

XLI is the most popular fund in the space with an asset base of $7.7 billion and an average daily trading volume of 9.3 million shares. The fund provides exposure to a basket of 67 stocks charging 15 basis points as fees.

General Electric occupies the top spot with around 10% allocation, while 3M, Union Pacific and Caterpillar have a combined exposure of roughly 13% in the fund. XLI has lost 0.5% in the year-to-date frame. The fund currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Vanguard Industrials (NYSE:VIS)

VIS is also a popular fund in the space with an asset base of more than $2.1 billion and trading with a moderate average daily trading volume of 114,498 shares. VIS tracks the MSCI US Investable Market Industrials 25/50 Index to provide exposure to 349 industrial stocks. The fund is the cheapest choice in its category with an expense ratio of 0.12%.

The four highlighted stocks have a combined exposure of roughly 20%. VIS has returned 1.2% in the year-to-date frame. The fund currently has a Zacks ETF Rank #3 with a Medium risk outlook.

iShares US Industrials (NYSE:IYJ)

IYJ tracks the Dow Jones U.S. Industrials Index to provide exposure to the U.S. companies that produce goods used in construction and manufacturing. General Electric (NYSE:GE), Union Pacific (NYSE:UNP), 3M Company (NYSE:MMM) and Caterpillar (NYSE:CAT) are among the top 10 holdings with a combined exposure of roughly 19.1%.

The fund manages an asset base of $ 943.8 million and is slightly expensive with 43 basis points as fees. IYJ has returned 1.7% in the year-to-date frame. The fund currently has a Zacks ETF Rank #3 with a Medium risk outlook.

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