Shares of Dow component Procter & Gamble (NYSE:PG), the world's largest consumer products company, are plunging by more than 4.5 percent Wednesday after the company forecast fiscal fourth-quarter earnings of 69 to 77 cents a share, below the 82 cents analysts are expecting.
Emerging markets weakness is one reason for the disappointing outlook and while P&G's third-quarter results beat Wall Street estimates, revenue was light at $20.598 billion. Analysts expected $20.73 billion and the EPS beat appears attributable to cost savings more than other factors.
P&G's Wednesday woes have trickled over to rivals such as Colgate-Palmolive (NYSE:CL), Kimberly-Clark (NYSE:KMB) and Clorox (NYSE:CLX). Shares of Colgate-Palmolive are lower by more than two percent while Kimberly-Clark is off 1.2 percent. Clorox is down nearly 1.7 percent.
Predictably, those glum performances are weighing on consumer staples ETFs a group of funds that have been market leaders for not just this year, but three years.
The Consumer Staples Select SPDR (NYSE:XLP) is down nearly 1.1 percent Wednesday, not surprising given that the ETF allocates 13.9 percent of its weight to P&G. Colgate-Palmolive is also a top-10 XLP holding with a weight of 3.4 percent. Kimberly-Clark and Clorox combine for about 3.6 percent of XLP's weight.
The Vanguard Consumer Staples ETF (NYSE:VDC) is off by about one percent. VDC, XLP's chief rival, allocates 12.1 percent to P&G and 3.4 percent to Colgate-Palmolive. Kimberly-Clark is that ETF's eleventh-largest holding.
The iShares Dow Jones U.S. Consumer Goods Sector Index Fund (NYSE:IYK) is down 0.83 percent. That ETF devotes about 12.3 percent to P&G and 2.9 percent to Colgate-Palmolive. IYK, which has more of a discretionary feel to it than XLP or VDC by virtue of allocations to stocks such as Ford (NYSE:F) and Nike (NYSE:NKE), allocates a combined 2.9 percent of its weight to Kimberly-Clark and Clorox.
While today's performances for XLP and friends do not qualify as deep pullbacks, it is worth noting these funds remain pricy on a valuation basis. XLP has a P/E ratio of 17.78 and a price-to-book ratio of 3.88, according to State Street data. IYK trades at almost 21 times earnings with a price-to-book ratio of 6.47, according to iShares data.
By comparison, the SPDR S&P 500 sports a P/E of just over 14 and a price-to-book ratio of 2.25.
Indeed, staples ETFs do look pricey compared to the broader market and higher growth sectors such as technology. The Technology Select Sector SPDR (NYSE:XLK) has a P/E of just over 13, but there a case can be made that Wednesday's declines in staples ETFs are just a blip before the funds and their constituents continue to grind higher.
Investors have shown a willingness to pay up to play defense over the past few years. That has translated to an overt love affair with low volatility/low beta sectors and ETFs. Additionally, slumping commodities prices could be another positive catalyst for staples stocks and ETFs. Bottom line: P&G and friends may be down Wednesday, but they certainly are not out.
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