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Transport ETFs Riding High on Solid Q2 Earnings

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The transportation sector has been riding high this earnings season with stock prices rising 4.2% (aggregate one-day stock market reaction to earnings releases) in response to earnings announcements. Total earnings of 97.6% of the sector’s total market capitalization that has reported so far is up 16.1% on revenue growth of 8.5%.

Earnings and revenue beat ratios of 100% and 69.2%, respectively, are also encouraging as most of the industry players dominating the sector managed to beat the Zacks Consensus Estimate on earnings or revenues or both (read: 5 Best-Performing Sector ETFs of July).

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) topped the Zacks Consensus Estimate on both fronts. Earnings of $1.94 surpassed the estimate by a couple of cents while revenues of $17.46 billion edged past the estimated $17.3 billion. For 2018, the company guided earnings per share in the range of $7.03-$7.37. The Zacks Consensus Estimate at the time of earnings release was pegged at $7.24.

The major railroads Norfolk Southern Corp (NSC - Free Report) , Union Pacific (UNP - Free Report) , and Kansas City Southern also beat on the bottom line. NSC outpaced earnings estimates by a wide margin of 19 cents while earnings at UNP and KSU came ahead by 4 and 2 cents, respectively. Revenues of the first two railroads trumped the Zacks Consensus Estimate by $44 million and $68 million, respectively, while KSU lagged the same by $6 million.

Ryder Systems (R - Free Report) , the leader in supply chain management and fleet management services, beat earnings estimates by 13 cents and revenue estimates by $106 million (see: all the Industrials ETFs here).

The two largest U.S. airlines Delta Air Lines (DAL - Free Report) and United Continental (UAL - Free Report) reported better-than-expected results. Earnings of $1.77 and revenues of $11.77 billion at Delta edged past the Zacks Consensus Estimate of $1.72 and $11.69 billion, respectively. At United Continental, earnings per share of $3.23 came above the Zacks Consensus Estimate of $3.07 and revenues of $10.78 billion edged past the estimated $10.70 billion.

Last but not the least, earnings of the leading trucking carrier J.B. Hunt (JBHT - Free Report) also came in above the Zacks Consensus Estimate by 9 cents. Revenues of $2.1 billion also beat the consensus estimate by $85 million.

ETFs in Focus

The earnings boost has pushed transport ETFs higher over the past month. As such, iShares Dow Jones Transportation Average Fund (IYT - Free Report) , SPDR S&P Transportation ETF (XTN - Free Report) and First Trust Nasdaq Transportation ETF (FTXR - Free Report) have gained 6.6%, 4.1% and 3.5%, respectively. However, all these funds have an unfavorable Zacks ETF Rank #4 (Sell) (read: Should You Steer Clear of These Sector ETFs for Now?).

IYT

The fund tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 20 securities. Though the product is heavily concentrated on the top firm FedEx (FDX - Free Report) at 13.3%, the in-focus eight firms collectively make up for 48.6% of the portfolio. From a sector perspective, air freight & logistics takes the top spot with 29.6% share while railroads, trucking and airlines round off the next three spots with double-digit exposure each. The fund has accumulated nearly $810.3 million in AUM and sees solid trading volume of around 230,000 shares a day. It charges 44 bps in annual fees (read: 5 ETFs to Make the Most of July Fourth Celebrations).

XTN

This fund tracks the S&P Transportation Select Industry Index, holding 43 stocks in its basket. The in-focus firms account for over 2% share each. Further, about 31.9% of the portfolio is dominated by trucking, while airlines, and air freight & logistics take one-fourth share each. With AUM of $233.9 million, the fund charges 35 bps in fees per year from investors and trades in lower volume of around 26,000 shares a day.

FTXR

This fund offers exposure to the 30 most-liquid U.S. transportation securities based on volatility, value and growth by tracking the Nasdaq US Smart Transportation Index. The in-focus eight firms account for a combined 35.5% share. Railroads takes the top spot at 23.9% while automobiles, delivery services, auto parts and airlines round off the next spots with double-digit exposure each. FTXR has accumulated $3.8 million in its asset base and charges 60 bps in annual fees. Average trading volume is a meager 1,000 shares.

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