The earnings season is off to a flying start with equity markets scaling record highs, owing to a slew of upbeat economic data, strong corporate performance and President Donald Trump’s tax reform signed into law. However, the performance has been a mixed bag for industrials companies, with some beating market expectations, while a few failing to do so.
We will now discuss the performance of a few industrials giants such as General Electric GE, 3M Company MMM, Honeywell HON, Caterpillar Inc CAT and Union Pacific UNP.
General Electric
Shares of General Electric Company declined around 2.4% on Jan 24, 2018, as it failed to beat the Zacks Consensus Estimate on both earnings and revenues.
The company’s revenues of $31.402 billion decreased 5.1% in fourth-quarter 2017 on a year-over-year basis. Moreover, revenues decreased 6.2% on a sequential basis and came in below the Zacks Consensus Estimate of $32.693 billion. For full-year 2017, the company reported a loss of $1.13 per share against a profit of $0.40 per share in the prior period. It reported revenues of $31.402 billion in 2017 compared with $33.088 billion in the prior year.
General Electric reported non-GAAP earnings per share (EPS) of $0.27 for fourth-quarter 2017, decreasing 41.3% year over year and 6.9% on a sequential basis. Also, it failed to beat the Zacks Consensus Estimate of $0.28. However, GE offered upbeat guidance for 2018, as it expects adjusted EPS in the range of $1.00-$1.07 in 2018.
3M Company
Shares of 3M Company increased more than 2.0% at market close on Jan 25, 2018, after it beat the Zacks Consensus Estimate on both earnings and revenues.
The company’s revenues increased 9.0% in fourth-quarter 2017 on a year-over-year basis. However, revenues decreased 2.2% on a sequential basis. Moreover, revenues of $7.990 billion beat the consensus mark of $7.878 billion. Revenues for full-year 2017 were $31.657 billion compared with $30.109 billion in the prior year. Non-GAAP earnings per share increased 12.4% year over year in 2017 to $9.17.
3M Company reported non-GAAP earnings per share (EPS) of $2.10 for fourth-quarter 2017, increasing 11.7% year over year but decreasing 9.9% on a sequential basis. Also, it beat the Zacks Consensus Estimate of $2.03. The company now expects earnings for 2018 in the range of $10.20 to $10.70 per share, up from earlier projections of $9.60–$10.00.
Honeywell
Shares of Honeywell increased almost 1.9% at market close on Jan 26, 2018, after it surpassed the Zacks Consensus Estimate on both earnings and revenues.
The company’s revenues increased 8.6% in fourth-quarter 2017 on a year-over-year basis. Also, revenues increased 7.1% on a sequential basis. Moreover, revenues of $10.843 billion beat the consensus mark of $10.689 billion. Revenues for full-year 2017 were $40.534 billion compared with $39.302 billion in the prior year. Non-GAAP earnings per share increased to $7.11 in 2017 from $6.46 in 2016.
Honeywell reported non-GAAP earnings per share (EPS) of $1.85 in fourth-quarter 2017, increasing 6.3% year over year and 5.7% on a sequential basis. It surpassed the Zacks Consensus Estimate of $1.84. Moreover, Honeywell updated full-year 2018 EPS guidance range to $7.75-$8.00 per share, up from earlier expectations of $7.55−$7.80.
Caterpillar Inc
Shares of Caterpillar increased 0.3% at market close on Jan 25, 2018. Although fears of a trade war weighed on the stock’s performance, it bounced back after the company surpassed the Zacks Consensus Estimate on both earnings and revenues. President Donald Trump imposed a 30% tariff on solar power imports recently, sparking fears among analysts that steel and aluminum imports may be next.
The company’s revenues increased 34.7% in fourth-quarter 2017 on a year-over-year basis. Moreover, revenues increased 13.0% on a sequential basis. Revenues of $12.896 billion beat the consensus mark of $12.012 billion. Revenues for full-year 2017 were $2.689 billion compared with $2.595 billion in the prior year. Adjusted earnings per share increased to $6.88 in fiscal 2017 from $3.42 in the prior period.
Caterpillar reported non-GAAP earnings per share (EPS) of $2.16 for fourth-quarter 2017, increasing 160% year over year and 10.8% on a sequential basis. Also, it beat the Zacks Consensus Estimate of $1.77. Moreover, Caterpillar initiated adjusted earnings per share guidance to the range of $8.25-$9.25 for 2018.
Union Pacific
Shares of Union Pacific decreased almost 5.4% at market close on Jan 26, 2018, after surpassing the Zacks Consensus Estimate on revenues but failing to beat the earnings consensus.
The company’s revenues increased 5.5% in fourth-quarter 2017 on a year-over-year basis. Also, revenues increased 0.8% on a sequential basis. Revenues of $5.450 billion beat the consensus mark of $5.409 billion. Revenues for full-year 2017 were $21.2 billion compared with $19.9 billion in the prior year. Adjusted earnings per share increased to $5.79 in fiscal 2017, up 14% from the prior period.
Union Pacific reported non-GAAP earnings per share (EPS) of $1.53 for fourth-quarter 2017, up 10.1% year over year and 2.0% on a sequential basis. It missed the Zacks Consensus Estimate of $1.54.
In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to the industrial companies discussed (see all Industrial ETFs here).
Industrial Select Sector SPDR Fund XLI
This fund focuses on providing exposure to the U.S. industrial sector. It has AUM of $15.6 billion and charges a fee of 14 basis points a year. It has a 6.0% allocation to 3M Co, 5.0% to Honeywell, 4.3% to Union Pacific, 4.0% to Caterpillar and 3.9% to General Electric (as of Jan 26, 2018). The fund has returned 27.4% in a year and 6.6% year to date. XLI has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Vanguard Industrials ETF VIS
This ETF is a pure play on the U.S. industrials sector. It has AUM of $3.9 billion and charges a fee of 10 basis points a year. It has a 5.0% allocation to General Electric, 4.6% to 3M, 3.6% to Honeywell, 3.5% to Union Pacific and 3.1% to Caterpillar (as of Dec 31, 2017). The fund has returned 24.5% in a year and 5.9% year to date. VIS has a Zacks ETF Rank of 3 with a Medium risk outlook.
iShares U.S. Industrials ETF IYJ
This ETF is a relatively costly bet on the U.S. industrial sector. It has AUM of $1.3 billion and charges a fee of 44 basis points a year. It has a 4.2% allocation to 3M Co, 3.8% to General Electric, 3.4% to Honeywell, 2.9% to Union Pacific and 2.7% to Caterpillar (as of Jan 26, 2018). The fund has returned 28.7% in a year and 7.3% year to date. IYJ has a Zacks ETF Rank of 3 with a Medium risk outlook.
