Friday’s ETF To Watch: Food & Beverage ETF (PBJ)

by on November 19, 2010 | ETFs Mentioned:

Stocks have endured a tumultuous week as fears over rate hikes in China and a debt crisis in Ireland sent equities into a frenzy. Markets were able to claw back some of the lost ground in trading yesterday based on news that Ireland may be close to accepting a bailout from the European Union and the IMF.  Still, storm clouds loom over the region and world equity markets will likely take their cues from events in Europe for the next few days. With all of the turmoil occurring overseas, it may be easy to overlook key data releases at home such as earnings reports which can drive the market even in these uncertain times [see also Look Out Below! Muni Bond ETFs In Freefall].    

Today, before market open, H.J. Heinz Company (HNZ) will report their third quarter earnings for 2010, likely putting the entire food industry under the spotlight. Though perhaps best known in Pennsylvania, Heinz is a global company; besides dominating the ketchup space (holding over 50% of the market share), Heinz is also are home to 150 number one or number two brands worldwide including the popular Ore-Ida label, which dominates the frozen potato market and is a common household name. The company makes its products on six continents and in over 200 countries/territories. With just 55% of revenues coming from North America, it is clear that Heinz has a global reach while many of their competitors are still trying to catch-up [see also How Investors CAN Play The BRIC Through A Different Set Of Country ETFs].

Analysts estimate that the firm will haul in EPS of $0.76 per share, with revenues topping the $2.5 billion mark. Heinz has beat Street estimates for the last two fiscal quarters, and hopes to continue that trend later today. But with commodity prices spiking this year, Heinz may have to raise the prices on some of their products to maintain profitability. Yesterday saw J. M. Smucker Company announce that soaring commodity prices are starting to cut into revenues, and may eventually lead to a price increase on a number of popular products. With commodities rising across the board, Heinz may be faced with a similar scenario, so a positive earnings release could be overcast by a bleak outlook [see also Warning: Commodity Surge Could Sink Consumer Staples ETFs].

With this earnings announcement on tap, the PowerShares Dynamic Food & Beverage (PBJ) should be active in Friday trading. This fund tracks the Dynamic Food & Beverage Intellidex Index, which is comprised of stocks of U.S. food and beverage companies. Top holdings in PBJ include Starbucks Corporation (5.2%), Coca-Cola Company (5%), and Heinz (4.8%) [see all of PBJ's holdings here]. This ETF has had a stellar year, posting gains of 25%, while remaining relatively uncorrelated to the overall. Heinz’s report will likely be a big mover of this ETF, as investors focus in on high commodity prices and the effect they have on such a global firm. This trend could carry over into any number of PBJ’s holdings, making it an important fund to watch not only today, but for the foreseeable future.

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Disclosure: Photo courtesy of Cynthia Closkey. No positions at time of writing.