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The transportation sector has been lagging this earnings season with total earnings from 95.6% of its total market capitalization that has reported so far down 18.9% while revenues are up 5.2%. Revenue and earnings surprises of 69.2% and 38.5%, respectively, are also not impressive.
This is because most of the transporters either failed to beat our estimates on earnings or revenue or both. This has taken the sheen away from the sector at a time when Q4 earnings growth is on track for the highest level in two years (read: What Does Dow's 20,000 Mean for These ETFs?).
For a better understanding, let’s dig into the earnings results of some well-known industry players:
Transportation Earnings in Focus
The world's largest package delivery company – United Parcel Service (UPS - Free Report) – lagged our estimates on both fronts. Earnings of $1.63 missed our earnings estimate by a nickel while revenues of $16.93 billion fell shy of our estimated $16.96 billion. For the current fiscal 2016, the company expects earnings per share in the range of $5.80–$6.10. The Zacks Consensus Estimate at the time of earnings release was pegged at $6.14.
The major railroads - Union Pacific (UNP - Free Report) , Norfolk Southern Corp (NSC - Free Report) and Kansas City Southern – came up with varied results. Earnings per share of $1.39 and revenues of $5.17 billion at UNP beat the Zacks Consensus Estimate by a nickel and $0.11 billion, respectively. While both NSC and KSU lagged our revenue estimates by $0.011 billion and $10 million, respectively, earnings per share outpaced the Zacks Consensus Estimate by four cents at Norfolk Southern and missed by a nickel at Kansas City Southern (see: all the Industrials ETFs here).
Ryder Systems (R - Free Report) , the leader in supply chain management and fleet management services, missed our earnings estimate by 33 cents while revenue of $1.73 billion exceeded our estimates by $1.72 billion.
The two largest U.S. airlines – Delta Air Lines (DAL - Free Report) and United Continental (UAL - Free Report) – also reported mixed numbers. Earnings of 82 cents at Delta met the Zacks Consensus Estimate while revenues of $9.46 billion beat our estimate of $9.42 billion. At United Continental, earnings per share of $1.78 came above the Zacks Consensus Estimate of $1.65 while revenues of $9.05 billion were slightly below of our estimate of $9.06 billion.
Last but not the least, earnings for the leading trucking carrier – J.B. Hunt (JBHT - Free Report) – came in below the Zacks Consensus Estimate by 3 cents and revenues were $9 million below our estimate.
ETFs in Focus
Given the disappointing results, stocks in the transportation sector have been underperforming, shedding an average of 1.9% (average price difference between a day before and after the earnings announcement of a stock), per the latest Earnings Preview. Given this, both transport ETFs - iShares Dow Jones Transportation Average Fund (IYT - Free Report) and SPDR S&P Transportation ETF (XTN - Free Report) – saw rocky trading over the past one-month. IYT added 1.3% while XTN is down 0.2%. Both the funds have a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.
IYT
The fund tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 20 securities. The fund has a certain tilt toward large cap stocks at 53% while mid and small caps account for 27% and 20% share, respectively, in the basket. Though the product is heavily concentrated on the top firm – FedEx (FDX - Free Report) – at 12.3%, the in-focus eight firms collectively make up for 45.7% of the portfolio. From a sector perspective, air freight & logistics takes the top spot with 27.8% of the portfolio while railroads, airlines and trucking round off to the next three spots with double-digit exposure each. The fund has accumulated nearly $1.1 billion in AUM while sees solid trading volume of nearly 318,000 shares a day. It charges 44 bps in annual fees (read: Welcome Trump Era with These ETFs).
XTN
This fund tracks the S&P Transportation Select Industry Index, holding 44 stocks in its basket. It is skewed toward small caps at 44% while the rest is split between mid and large caps. As a result, the in-focus firms account for at least 2% share each. Further, about 32% of the portfolio is dominated by trucking, while airlines takes one-fourth share. Airfreight & logistics, and railroads also make up for a double-digit allocation each. With AUM of $288.7 million, the fund charges 35 bps in fees per year from investors and trades in a moderate volume of around 63,000 shares a day.
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Transport ETFs Lag in Q4 Earnings
The transportation sector has been lagging this earnings season with total earnings from 95.6% of its total market capitalization that has reported so far down 18.9% while revenues are up 5.2%. Revenue and earnings surprises of 69.2% and 38.5%, respectively, are also not impressive.
This is because most of the transporters either failed to beat our estimates on earnings or revenue or both. This has taken the sheen away from the sector at a time when Q4 earnings growth is on track for the highest level in two years (read: What Does Dow's 20,000 Mean for These ETFs?).
For a better understanding, let’s dig into the earnings results of some well-known industry players:
Transportation Earnings in Focus
The world's largest package delivery company – United Parcel Service (UPS - Free Report) – lagged our estimates on both fronts. Earnings of $1.63 missed our earnings estimate by a nickel while revenues of $16.93 billion fell shy of our estimated $16.96 billion. For the current fiscal 2016, the company expects earnings per share in the range of $5.80–$6.10. The Zacks Consensus Estimate at the time of earnings release was pegged at $6.14.
The major railroads - Union Pacific (UNP - Free Report) , Norfolk Southern Corp (NSC - Free Report) and Kansas City Southern – came up with varied results. Earnings per share of $1.39 and revenues of $5.17 billion at UNP beat the Zacks Consensus Estimate by a nickel and $0.11 billion, respectively. While both NSC and KSU lagged our revenue estimates by $0.011 billion and $10 million, respectively, earnings per share outpaced the Zacks Consensus Estimate by four cents at Norfolk Southern and missed by a nickel at Kansas City Southern (see: all the Industrials ETFs here).
Ryder Systems (R - Free Report) , the leader in supply chain management and fleet management services, missed our earnings estimate by 33 cents while revenue of $1.73 billion exceeded our estimates by $1.72 billion.
The two largest U.S. airlines – Delta Air Lines (DAL - Free Report) and United Continental (UAL - Free Report) – also reported mixed numbers. Earnings of 82 cents at Delta met the Zacks Consensus Estimate while revenues of $9.46 billion beat our estimate of $9.42 billion. At United Continental, earnings per share of $1.78 came above the Zacks Consensus Estimate of $1.65 while revenues of $9.05 billion were slightly below of our estimate of $9.06 billion.
Last but not the least, earnings for the leading trucking carrier – J.B. Hunt (JBHT - Free Report) – came in below the Zacks Consensus Estimate by 3 cents and revenues were $9 million below our estimate.
ETFs in Focus
Given the disappointing results, stocks in the transportation sector have been underperforming, shedding an average of 1.9% (average price difference between a day before and after the earnings announcement of a stock), per the latest Earnings Preview. Given this, both transport ETFs - iShares Dow Jones Transportation Average Fund (IYT - Free Report) and SPDR S&P Transportation ETF (XTN - Free Report) – saw rocky trading over the past one-month. IYT added 1.3% while XTN is down 0.2%. Both the funds have a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.
IYT
The fund tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 20 securities. The fund has a certain tilt toward large cap stocks at 53% while mid and small caps account for 27% and 20% share, respectively, in the basket. Though the product is heavily concentrated on the top firm – FedEx (FDX - Free Report) – at 12.3%, the in-focus eight firms collectively make up for 45.7% of the portfolio. From a sector perspective, air freight & logistics takes the top spot with 27.8% of the portfolio while railroads, airlines and trucking round off to the next three spots with double-digit exposure each. The fund has accumulated nearly $1.1 billion in AUM while sees solid trading volume of nearly 318,000 shares a day. It charges 44 bps in annual fees (read: Welcome Trump Era with These ETFs).
XTN
This fund tracks the S&P Transportation Select Industry Index, holding 44 stocks in its basket. It is skewed toward small caps at 44% while the rest is split between mid and large caps. As a result, the in-focus firms account for at least 2% share each. Further, about 32% of the portfolio is dominated by trucking, while airlines takes one-fourth share. Airfreight & logistics, and railroads also make up for a double-digit allocation each. With AUM of $288.7 million, the fund charges 35 bps in fees per year from investors and trades in a moderate volume of around 63,000 shares a day.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>