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Material ETFs Up On Dow Chemical, DuPont Earnings Beat

We are in the middle of the earnings season, and the materials sector is seemingly tempering the overall Q3 growth picture after energy. This is especially true as total earnings from 60.9% of the sector’s total market capitalization reported so far are down 26.8% on 21% revenue decline. Despite the earnings weakness, the sector is showing impressive performance, having gained an average 1.76% (average price difference between a day before and after the earnings announcement of a stock), per the Zacks Earnings Trend . In particular, Dow Chemical (NYSE: DOW ) and DuPont (NYSE: DD ) led the rally in the sector as both companies beat on their earnings. However, revenues remained weak and missed our estimates. DOW Earnings in Focus The largest U.S. chemical maker continued its streak of earnings beat for the eight consecutive quarter. Earnings per share came in at 82 cents, easily trumping the Zacks Consensus Estimate of 68 cents and improving from 72 cents earned a year ago. Healthy earnings were credited to the incredible performance by the Performance Plastics segment due to lower cost of raw materials like oil and natural gas. Revenues dropped 16% year over year to $12.04 billion and missed our estimate of $12.25 billion. EBITDA margin expanded 370 bps to 20%, representing the best third-quarter margin since 2005 even as a strong dollar took a toll on revenues. The company remained committed to cost reduction and efficiency programs that are likely to boost margins and shareholders returns in the coming quarters. It is selectively spinning off or selling its underperforming assets and gradually shifting to high-growth markets such as construction, packaging and automotive. Dow Chemical raised its quarterly dividend by 10% to 46 cents, taking the annualized dividend to $1.84 per share, which is the highest in the company’s history. This new dividend is payable on January 29 to shareholders of record on December 31. Driven by a solid earnings beat, shares of Dow Chemical has risen 8.2% to date post its earnings announcement on October 22. DD Earnings in Focus While DuPont crushed our earnings estimate due to cost-reduction initiatives, revenues and profits tumbled on a strong dollar, a soft agriculture business and weakness in emerging markets. The world’s second-largest seed maker reported earnings per share of 13 cents, which beat the Zacks Consensus Estimate by 3 cents but deteriorated from 39 cents from the year-ago quarter. Total revenue slipped 17% year over year to $4.9 billion and fell short of our $5.2 billion estimate. Cost reductions from operational redesign contributed 10 cents to third-quarter earnings and are expected to add 40 cents per share to the full-year bottom line. The action will further save $1.3 billion in annual costs by 2016, a year ahead of the earlier expectation, and an additional $1.6 billion by 2017 end. With its cost-cutting initiatives, the chemicals and seed producer maintained its 2015 earnings per share guidance of roughly $2.75, which was below the Zacks Consensus Estimate of $2.93 at the time of earnings release. It expects currency headwinds to dilute full-year earnings by 72 cents per share. Following the earnings announcement on October 27, DD shares climbed nearly 5% over the past two days. ETFs in Focus Solid price performance of these two chemical titans has led to a rally in material ETFs that are heavily invested in these two stocks. Though these funds have an unfavorable Zacks ETF Rank of 4 or ‘Sell’ rating, they have gained over 3.5% in the past five days and are on investors’ radar for the weeks ahead: Materials Select Sector SPDR (NYSEARCA: XLB ) The most popular material ETF follows the Materials Select Sector Index. This fund manages about $2.1 billion in its asset base and trades in heavy volume of around 6.1 million. The ETF charges 14 bps in fees per year from investors. In total, the fund holds about 30 securities in its basket with DOW and DD taking the top two spots, with nearly 11% allocation each. In terms of industrial exposure, chemicals dominates the portfolio with three-fourth share while metals & mining and containers & packaging round off the top three positions. iShares U.S. Basic Materials ETF (NYSEARCA: IYM ) This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 54 stocks in its basket. The fund has AUM of $361 million and charges 43 bps in fees and expenses. Volume is good as it exchanges around 106,000 shares in hand a day. DOW and DD occupy the top two positions in the basket, with over 10% of assets each. The product is heavily skewed toward the chemical segment, as it makes up for more than three-fourths of the portfolio while steel, forestry & paper, metals & mining receive minor allocations. Vanguard Materials ETF (NYSEARCA: VAW ) This fund has amassed about $1 billion in its asset base and offers exposure to 121 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.12% in expense ratio while volume is moderate at 75,000 shares. Here, DOW and DD are the top two firms accounting for nearly 6% share each. Chemicals make up for nearly 70% of assets while container & packaging and steel also make a nice mix in the portfolio. Fidelity MSCI Materials Index ETF (NYSEARCA: FMAT ) This fund provides exposure to 122 materials stocks with AUM of $51.1 million. This is done by tracking the MSCI USA IMI Materials Index. Here too, DOW and DD are the top two firms with nearly 8% allocation. Chemicals accounts for 69.7% share while container & packaging, and metals & mining round off the top three spots with double-digit exposure each. The ETF has 0.12% in expense ratio while volume is moderate at 80,000 shares a day. Original Post

The SPDR Dividend ETF Is A Very Interesting And Strange Choice

Summary SDY offers a dividend yield of 2.44% which is high for most ETFs but not so impressive for a dividend ETF. The individual holdings offer some dividend champions, but there are some allocations I could do without. The sector allocations aren’t bad, but there are a few changes I’d like to see in that area. The SPDR Dividend ETF (NYSEARCA: SDY ) is an interesting dividend ETF. I’ve been looking at dividend ETFs lately to decide which ones are designed the best. Expense Ratio The expense ratio is .35%. In my opinion, that is not very good. I’m very frugal on expense ratios and would love to see this under .20%. Holdings Investors should always look to the holdings as part of the process in making the decisions. The allocations here are fairly interesting. I see holdings that I love and holdings that I don’t. Realty Income Corporation (NYSE: O ) has an incredible track record that should put it on the radar for any income investor. To be fair, perhaps it should be on the radar for all investors since the total returns have been so solid. When I covered Realty Income Corporation before, I opted to explain how the high valuation of the company was creating an inherent advantage in being able to fund acquisitions through issuing new equity. It is a complex situation, but Realty Income Corporation has a competitive advantage through raising the dividend 81 times. That isn’t a typo; this monthly dividend champion has an incredible track record. On the other hand, this is also an equity REIT, so it could create some tax complications for investors that want to hold their dividend ETFs in taxable accounts and just live off the dividend yield. The same problem with the REIT status is present for National Retail Properties (NYSE: NNN ). If you don’t mind having the equity REITs in your dividend ETF, this isn’t a problem. The REITs offer some great diversification to the traditional corporate allocations and they carry nice dividend yields. Just do your own research on how the tax situation will impact you as an investor. On the other hand, I’m not so bullish on seeing a heavy weight for AT&T (NYSE: T ) because I’m concerned by the level of competition in the sector. I expect that the problems will be resolved eventually, but there could be some substantial damage to earnings over the next couple of years. Sector Allocations The next chart breaks down the sector allocations across the entire ETF: I’m not huge on seeing an enormous weight given to financials. At 25%, this is getting to be a pretty huge allocation and it will have a significant impact on the performance of the portfolio. I’d rather see this be a little lower so the other allocations could be higher. The real challenge for me in assessing their allocation to the sector is looking at which companies are producing the allocation. Equity REITs are classified as financials and I’m not complaining about those allocations. The problem for me is that as we get outside the top 10, several of the financial allocations are to banks or insurance companies. I don’t mind having some money allocated there, but I’m not so sure I would want 25% of the portfolio to go there. Consumer Staples and Utilities On the other hand, we have consumer staples as the second allocation and it comes in with nearly 15% of the portfolio which is nice for maintaining dividends when the economy is staggering. The utilities are running almost 12%, which is better than average for what I find in ETFs, but I’d still like to see the allocation be even higher. The combined weighting of 27% is pretty good, but I’d still like to see it being higher. Energy I wouldn’t mind seeing the energy allocations being a bit higher. Oil has been punished pretty hard, but I still like the huge dividend champions like Exxon Mobil (NYSE: XOM ). XOM is representing 1.55% of the portfolio with another 1.9% in Chevron (NYSE: CVX ). Those are two of the companies I would want for the energy allocation, but I’d like to see that part of the portfolio running closer to a range of 7% to 12% rather than 3.45%. Conclusion This is an interesting dividend ETF. It has some great positive features but there are also some significant weaknesses in my opinion. The allocation to those equity REITs is great as long as there are no tax concerns for the investor. If that isn’t a problem, then the allocations for the ETF are pretty solid. I’d still like to see lower weights towards banks with higher weights towards energy and the combined allocation to utilities and consumer staples.

Cleco’s (CNL) CEO Bruce Williamson on Q3 2015 Results – Earnings Call Transcript

Cleco Corporation (NYSE: CNL ) Q3 2015 Earnings Conference Call October 29, 2015 8:30 AM ET Executives Sybil Montegut – Senior Investor Relations Analyst Bruce Williamson – Chairman, President and Chief Executive Officer Tom Miller – Senior Vice President and Chief Financial Officer Darren Olagues – President-Cleco Power Analysts Paul Ridzon – Keybanc Tom Shuwet – RBC Operator Welcome to the Cleco Corporation 2015 Third-Quarter Earnings Call. My name is Sylvia, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Sybil Montegut, Senior Investor Relations Analyst. Sybil, you may begin. Sybil Montegut Good morning, and welcome to Cleco Corporation’s 2015 third quarter earnings call. You can access this call and slide presentation live via the Internet from Cleco’s website at www Telephone and Internet replays can be accessed through our website. The dial-in number for the telephone replay is 888-843-7419 if in the U.S., or 630-652-3042 if outside the U.S. The conference ID is 38458260. With me on the call today is Bruce Williamson, Chairman, President, and Chief Executive Officer of Cleco Corporation; and Tom Miller, Senior Vice President, Chief Financial Officer, and Treasurer; along with other members of Cleco management. Before we begin, please keep in mind that during this conference call we will make some forward-looking statements. These statements are subject to many risks and uncertainties. Actual results may differ materially from those contemplated in our forward-looking statements. Please refer to our cautionary note regarding forward-looking statements and risk factors in various reports filed with the U.S. Securities and Exchange Commission, or SEC, including our 2014 annual report on Form 10-K; our 2015 quarterly reports, Form 10-Q current reports on Form 8-K; and other reports filed with the SEC. In addition, please note that the date of this conference call is October 29, 2015, and any forward-looking statements that we make today are based on assumptions as of this date. With that, I will turn the call over to Bruce. Bruce Williamson Thanks, Sybil. Good morning and thank you for joining us. Let’s start with the agenda for today’s call, which is on slide 3 of the presentation, for those of you following along via the webcast. This morning, we’ll begin the call with a summary of third quarter earnings, followed by an update on the merger transaction. Tom will then provide an overview of third quarter and year-to-date financial results, and we’ll move to Q&A. Please turn with me to slide 4. Even though we had somewhat warmer summer weather for the quarter, our year-over-year results were negatively affected by the loss of a wholesale customer late last year and the third-quarter 2014 favorable multiyear tax settlement. With that said, we are maintaining the 2015consolidated operational earnings guidance range of $2.28 to $2.38 per diluted share. As a reminder, this earnings guidance is based on normal weather over the remainder of 2015, reflects a full year of operations under the formula rate plan extension, assumes an effective tax rate of approximately 36%, and excludes adjustments related to life insurance policies and merger-transaction costs. Regarding the merger, we continue to work with our state’s regulatory process to gain approval for our strategic transaction, led by Macquarie Infrastructure and Real Assets and British Columbia Investment Management Corporation. Earlier this month, we distributed a press release that announced the filing of our response addressing the Louisiana Public Service Commission, or LPSC, staff advisors testimony. LPSC staff advisors filed testimony in July in response to the original commitments that the new owners made late last year, when we announced the transaction. This filing was our first opportunity to understand the thought process of the staff advisors regarding the commitments. In our recently filed testimony, we believe that together with the new owner group, we’ve addressed all 77 commitments stated in the staff advisors testimony. Specifically, the enhanced commitments now offer substantial rate credits to retail customers; ensure continued service and power-quality delivery; provide financial stability; and significantly extend protections for employees, retirees, and communities. The transaction is a good deal that is now even stronger for these stakeholder groups because of the regulatory process. The next step in the regulatory process is a hearing with the Administrative Law Judge, or ALJ, that is scheduled to begin on November 9. As previously stated, we expect the transaction to close in the first quarter of 2016. And with that, I will turn call over to Tom to discuss third quarter and year-to-date financial results Tom Miller Thank you, Bruce, and good morning, everyone. Please turn to slide 5 for a review of our third-quarter financial results. GAAP earnings for the quarter were $0.90 per diluted share, $0.27 lower than the third quarter of last year. Third quarter operational earnings were $0.92 per share or $0.25 lower than the third quarter of 2014, 2015 operational guidance in our operational earnings for the quarter exclude $0.02 per share of losses on life insurance policy, $0.02 per share of merger transaction costs, and $0.02 per share of tax-levelization benefit. Looking from left to right on the chart, Power’s non-fuel revenue was up $0.05 per share from this period last year. Higher revenues from warmer summer weather increased earnings by $0.09 per share. The annual adjustment to the formula rate plan increased earnings by $0.06 per share and lower sights specific refunds increased earnings by $0.01. These increases were partially offset by lower sales to wholesale customer, including the expiration of a wholesale contract – decreased earnings by $0.11 per share. Other revenue increased earnings by $0.01 per share, primarily related to higher transmission and distribution revenue. Other expenses decreased earnings by $0.10 per share, primarily due to $0.06 per share of higher taxes other than income, related to the absence of the 2014 favorable tax settlements; $0.03 per share of higher pension expense due to lower discount rates and the adoption of a new mortality table; and $0.01, related to higher depreciation and amortization expense. Higher interest expense decreased earnings by $0.06 per share related to the absence of favorable tax settlements. And finally, higher income taxes decreased earnings by $0.15 per share, primarily due to $0.10 per share related to the absence of our 2014 favorable tax settlements, $0.02 per share related to lower tax credits, $0.02 per share of tax returns filed, and $0.01 related to other miscellaneous items. Now please turn to slide 6 for a review of the year-to-date results. GAAP earnings were $1.84 per diluted share for the first 9 months of 2015, a decrease of $0.36 per share compared to the same period last year. Operational earnings were $1.92 per diluted share for the first 9 months of 2015, a decrease of $0.26 per share. Year-to-date operational earnings exclude $0.06 of merger-transaction costs, $0.02 of losses of life insurance policies. Looking from left to right on the earnings waterfall chart, Cleco Power’s non-fuel base revenue was up $0.01 from this time last year. This increase was the result of the absence of the 2014 formula rate plan customer refund that increased earnings by $0.22 per share. Higher revenues from warmer summer weather and higher usage increased earnings by $0.10 per share and lower specific refunds increased earnings by $0.02 per share. These increases were partially offset by lower net sales to wholesale customers, including the expiration of a wholesale contract, which decreased earnings by $0.25 per share. The FRP annual adjustment decreased revenue by $0.04 per share and provisions for customer credits related to the energy efficiency program and the FERC review of transmission return on equity decreased earnings by $0.04 per share. Other revenue increased earnings by $0.05 per share primarily related to higher transmission and distribution revenue. Higher expenses decreased earnings by $0.01 per share, primarily due to $0.09 per share of higher pension expenses due to lower discount rates and the adoption of a new mortality table, $0.06 per share of higher taxes other than income, related to the absence of the 2014 favorable tax settlements, $0.05 per share related to higher non-recoverable fuel expense, related to MISO transmission expenses. As a result, of a new wholesale customer and higher administrative fees, $0.04 per share from the absence of the recovery of capacity expense, related to the Coughlin tolling agreement and $0.01 per share of higher miscellaneous expenses. These decreases were partially offset by $0.20 per share related to fewer planned outages at our generation facilities and $0.04 per share related to lower depreciation and amortization. Higher interest expenses decreased earnings by $0.04 per share, primarily due to $0.07 per share related to the absence of 2014 favorable tax settlements. This decrease was partially offset by $0.02 per share related to the absence of a customer surcredit and $0.01 per share related to retirement of long-term debt. AFUDC decreased earnings by $0.04, primarily due to completion of our MATS projects. And finally, higher income tax decreased earnings by $0.23 per share, primarily due to $0.16 per share, related to the absence of 2014 favorable tax settlements, $0.02 per share related to lower tax credits, $0.02 per share of tax returns filed, $0.02 per share of lower permanent items; and $0.01 per share, related to miscellaneous tax items. Operator, at this time, we’ll open the call for questions. Question-and-Answer Session Operator [Operator Instructions] And our first question comes from Paul Ridzon from Keybanc. Paul Ridzon Good mornings guys, how are you? Bruce Williamson Good morning, Paul. Paul Ridzon Just a quick question, I don’t see much in the press, but any commentary on the tone locally regarding the transaction? Anybody making any noise? Bruce Williamson Darren is on the call on a speaker line. I’ll let Darren comment, if he’d like to. Paul Ridzon Yes. Darren Olagues Paul, we have – ever since we announced – provided our rebuttal testimony, where we essentially agreed to the recommendations of the roadmap that was put in the staff testimony, we have been out in the communities, meeting with politicians, community leaders, our employees, making sure they understand the breadth and depth of commitments that have been made as part of the transaction. And the support has been great. And that support is funneling its way back to the commissioners to make sure that it’s clear that we have widespread support from the community and our employees for the transaction. Paul Ridzon Sounds good, thank you very much. Darren Olagues Okay. Operator Questions comes from Tom Shuwet from RBC Tom Shuwet Hi, good mornings guys. Darren Olagues Good morning. Bruce Williamson Good morning. Tom Shuwet Just speaking of the rebuttal that you folks filed – and it does seem – as you mentioned earlier, you met probably all the requests of the staff, and I’m curious as to why, or if there’s any reason why there wasn’t a stipulation agreement with staff. Because it seems like you folks are both on the same page at this point. Bruce Williamson Well, there are other interveners, and I think there are other interveners, and I think we’ve mentioned this before, that the Commission – look, this is a big deal, and the Commission wants to make sure that there’s – the full process has gone through, including an ALJ hearing. But that doesn’t mean that our goal isn’t to be as aligned as we can with the Public Service Commission staff as we walk into the hearing. Tom Shuwet Okay, thanks. Operator We have no further question at this time. A – Paul Ridzon Okay, then this concludes the question-and-answer portion of the call, and I’d just like to close by thanking you for your continued interest in Cleco. Operator Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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