Earnings season has been pretty mixed overall, with most
companies reporting estimates that were in line with
expectations. In fact, in the earnings season to date,
total profits are up 2.9%
while revenues have increased 3.2%, suggesting a pretty mediocre
result so far.
From a sector perspective though, events have been a little
clearer with some segments falling by the wayside despite strong
investor demand before the earnings season. In particular, the
consumer staples segment was a popular choice for investors,
thanks to an uncertain market and the traditional low volatility
in the sector (read
the Comprehensive Guide to Consumer Staples
Consumer Earnings in Focus
And in this increasingly in-focus space, one of the
bellwethers is easily the Ohio-based giant
Procter & Gamble (
. The company is well-known for its wide variety of
consumer products and is well-sought after by investors due to
its stability, solid yield, and extremely low beta.
However, the company has apparently run into a significant
rough patch, as evidenced by its latest earnings release. In the
report, the company revealed that it beat earnings slightly
(3.1%), posting EPS of 99 cents a share, while revenues barely
missed expectations, coming in $220 million light of the $20.72
In addition to this miss on the top line, analysts and
investors zeroed in on the underwhelming guidance for the firm.
The company said that it
expects Q4 net income between 69 and 77
cents a share, well below current estimates of 82 cents a share
Top Ranked Consumer Staples ETF in Focus
This news also combined with reports that it was cost savings,
and not any meaningful growth, that led to the earnings beat,
which led many analysts and investors to become more bearish on
the stock. This was reflected to a large degree in Wednesday
trading of PG, as the stock lost about 5.9% of its value on
volume that was about 2.5x normal.
Consumer ETF impact
The pain also carried over into the ETF world, with consumer
being the hardest hit. Many of the key funds in this segment have
a double-digit allocation to the consumer product giant so they
faced the brunt of the downturn in the day's session.
And, since many smaller companies in the sector were also
impacted by PG's weakness, they too had rough days, leading to
sluggish trading overall for the segment. In particular though,
poor trading was seen in the following three ETFs, as they have
the biggest allocations to Procter & Gamble:
iShares Dow Jones US Consumer Goods Sector ETF (
This ETF was down about 1.3% in Wednesday trading on volume
that was a little lower than normal. Still, the ETF has a big
holding in PG, allocating 12.3% to the giant (read
Lower Wal-Mart Exposure with These Consumer
It is also worth pointing out that the ETF has seen a pretty
solid run up to this point, adding more than 13.7% YTD. This
represents a solid level of outperformance when compared to broad
market indexes, although one has to wonder if this will continue
if big staples names like PG continue to show weakness.
Vanguard Consumer Staples ETF (
Vanguard's entrant in the consumer staples market was down a
bit more in Wednesday trading, losing about 1.5% in the session.
However, the fund allocates only a slight bit more to PG, putting
about 12.5% in the stock.
Much like IYK, this ETF has had a solid runup in 2013, adding
about 16% in the time frame. This fund also represents a cheaper
choice in the segment, charging investors just 14 basis points a
year, and adding to the total return outperformance for this
Select Sector SPDR- Consumer Staples ETF (
XLP is easily the most popular consumer staples ETF in the
market, as it has over $7 billion in assets and usually sees
about 6.5 million shares in volume a day. Wednesday was a bit
different though, as the fund saw volume cross the 30 million
share mark as PG weakness (14% of the ETF) dragged the fund down
Obviously this higher holding level in XLP was a large factor
in XLP leading the way on the downside for Wednesday trading.
However, the ETF is still doing quite well from a YTD look,
adding about 15.7% in these terms, putting it in the middle of
its two aforementioned competitors (see
3 Consumer Staples ETFs for the Shaky Market
Even though PG had a horrendous day, its impact on the rest of
the consumer staples market wasn't as severe as some might have
anticipated. Yes, all of the major consumer staples ETFs were
down more than the overall market, but their losses were not too
Still, the trend isn't too encouraging as many were thinking
that the consumer staples market was overbid anyway. The space
was seeing PE ratios around the high teens, a pretty incredible
level given the low growth prospects for the sector.
So this could just be the market readjusting and giving other
sectors a chance to play a leadership role for the time being.
Consumer staples have had a pretty good run so far this year, but
if PG's outlook is any guide, their status as market leaders may
be coming to an end pretty soon.
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ISHARS-DJ CN NC (IYK): ETF Research Reports
PROCTER & GAMBL (PG): Free Stock Analysis
VIPERS-CONS STA (VDC): ETF Research Reports
SPDR-CONS STPL (XLP): ETF Research Reports
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