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Strong Q4 Earnings Lift Transport ETFs Higher

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The transportation sector has been on a smooth ride this earnings season with stock prices rising 3.1% (aggregate one-day stock market reaction to earnings releases) in response to earnings announcements. Total earnings of 97.7% of the sector’s total market capitalization that has been reported so far is up 29.5% on revenue growth of 7%. Earnings growth is much better than 24.3% reported in Q3 while revenue growth is lower than Q3’s 9.6%.

Earnings and revenue beat ratios of 76.9% and 69.2%, respectively, are encouraging as most of the industry players managed to beat the Zacks Consensus Estimate for earnings or revenues or both (see: all the Industrials ETFs here).

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) beat the Zacks Consensus Estimate for earnings while lagged on revenues. Earnings of $1.94 were 3 cents ahead of the estimate while revenues of $19.85 billion fell short of the estimated $19.92 billion. For 2019, the company expects earnings per share in the range of $7.45-$7.75. The Zacks Consensus Estimate at the time of earnings release was pegged at $7.76.

Major railroads Norfolk Southern Corp (NSC - Free Report) and Union Pacific (UNP - Free Report) topped both the estimates. Norfolk Southern outpaced earnings estimates by 27 cents, while earnings at Union Pacific beat the estimate by 6 cents. Revenues trumped the Zacks Consensus Estimate by $51 million and $26 million, respectively. Meanwhile, earnings of $1.56 at Kansas City Southern met the Zacks Consensus Estimate and revenues of $694 million marginally beat the consensus estimate by $2 million.

U.S. airlines Delta Air Lines (DAL - Free Report) and United Continental (UAL - Free Report) beat earnings estimates while the former lagged on revenues. Earnings at Delta edged past the Zacks Consensus Estimate by 3 cents while revenues came $87 million below the estimate. At United Continental, earnings of $2.14 and revenues of $10.49 billion edged past the Zacks Consensus Estimate of $1.86 and $10.37 billion, respectively. For 2019, Delta expects earnings per share of $6-$7. The Zacks Consensus Estimate was pegged at $6.53 per share at the time of earnings release. United Continental expects 2019 earnings per share of $10-$12. The Zacks Consensus Estimate at the time of earnings release was at $10.65 per share (read: Airlines ETF Riding High on Q4 Earnings).

Last but not the least, earnings of leading trucking carrier J.B. Hunt (JBHT - Free Report) surpassed the Zacks Consensus Estimate by 29 cents. Revenues of $2.32 billion beat the consensus estimate by $20 million.

ETFs in Focus

Strong results have pushed transportation ETFs higher with 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) gaining 9.8%, 11.1% and 8%, respectively.

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) at 10.8%, the in-focus seven firms collectively make up for 45.3% of the portfolio. From a sector perspective, railroads, and air freight & logistics take the largest share with 28.8% and 26.6% share, respectively, while airlines and trucking round off the next two spots with double-digit exposure each. The fund has accumulated nearly $655.6 million in AUM and sees solid trading volume of around 232,000 shares a day. It charges 43 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 4 Sector ETF & Stock Picks to Bet on Ahead of Q4 Earnings).

XTN

This fund tracks the S&P Transportation Select Industry Index, holding 42 stocks in its basket. The in-focus firms account for more than 2% share each. Further, about 33.2% of the portfolio is dominated by trucking, while airlines, and air freight & logistics take around one-fourth share each. With AUM of $157.1 million, the fund charges 35 bps in fees per year from investors and trades in a lower volume of around 32,000 shares a day. It has a Zacks ETF Rank #3 with a High risk outlook.

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 seven firms account for a combined 32.9% share. Airlines takes the top spot at 36.3% while ground freight & logistics, auto, truck & motorcycle parts, and air freight & courier services round off the next three. FTXR has accumulated $2.4 million in its asset base and charges 60 bps in annual fees. Average trading volume is a meager 1,000 shares. FTXR has a Zacks ETF Rank #4 (Sell).

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