The Q2 earnings season is well past the half-way mark with 265 companies in the S&P 500 space, representing 66.2% in terms of market capitalization, unveiling their quarterly numbers as of Jul 27. Per the latest Earnings Preview, the picture that has emanated so far is an extremely healthy one as the companies’ top and bottom line grew a respective 10.1% and 23.6% on a year-over-year basis.
While 80.8% companies outpaced the Zacks Consensus Estimate with respect to earnings, 72.1% surpassed expectations on the revenue front. We will get a clearer picture by the end of the current week, which will see 960 companies reporting their quarterly results, including 139 players in the S&P 500 space.
According to the above report, the bottom and top lines (in the S&P 500 Index) are likely to improve 23.6% and 8.8%, respectively, at the end of the current reporting cycle. In fact, of the 16 Zacks sectors, 12 are anticipated to end Q2 with double-digit earnings growth. One of them is the widely-diversified Zacks Transportation Sector.
On a year-over-year basis, the top and bottom lines for this sector are anticipated to increase 8.6% and 16%, respectively. These projections compare unfavorably with the readings in Q1 when revenues increased 9% and earnings improved 21.3%.
The reasons behind such unfavorable comparisons are the multiple challenges that the Transportation sector has been facing in the April-June time frame (Q2 reporting period). Let’s delve into the details to unearth these headwinds.
Rising fuel costs have hurt Transportation stocks big time. Oil prices have increased roughly 14% in the April-June period. Apart from geopolitical tensions in the Middle East, the economic crisis in Venezuela — a major oil exporter — and OPEC’s plans of a lower-than-expected output raise have backed the rally in oil prices. Since expenses on fuel represent a major input cost for any transportation player, an increase in oil prices is unfavorable for the space.
Despite increasing costs, key sector players like Ryder System (R - Free Report) , Union Pacific Corporation (UNP - Free Report) and United Continental Holdings, Inc. (UAL - Free Report) have not only outperformed in Q2 but also registered earnings and revenue growth on a year-over-year basis.
Given this backdrop, investors interested in the Transportation space will keenly await Q2 reports from sector participants like XPO Logistics, Inc. (XPO - Free Report) , Saia, Inc. (SAIA - Free Report) , Hub Group, Inc. (HUBG - Free Report) and Seaspan Corporation (SSW - Free Report) , scheduled for Aug 1.
According to our quantitative model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
XPO Logistics is a third-party logistics provider offering expedient, single-source solutions for time-critical and service-sensitive shipments through its non-asset based transportation network. The company’s Zacks Rank #3 and an Earnings ESP of +2.67% (the Most Accurate Estimate exceeds the Zacks Consensus Estimate of 97 cents by 2 cents), makes us reasonably confident of an earnings beat.
Saia offers customers less-than-truckload, non-asset truckload, expedited and logistics services. The chances of the company beating the Zacks Consensus Estimate for earnings are less, even though it has a Zacks Rank #2 (Buy). This is because it has an Earnings ESP of 0.00% (the Most Accurate Estimate is in line with the Zacks Consensus Estimate of $1.11). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hub Group is a transportation management company that provides multi-modal solutions throughout North America, including intermodal, truck brokerage, dedicated and logistics services. The company’s Zacks Rank #2 and an Earnings ESP of +1.96% (the Most Accurate Estimate exceeds the Zacks Consensus Estimate of 48 cents by a penny), makes us reasonably confident of an earnings beat.
Seaspan is a leading independent charter owner and operator of containerships. Our proven model does not conclusively show that Seaspan is likely to beat earnings estimates this quarter, despite its Earnings ESP of +1.08% (the Most Accurate Estimate exceeds the Zacks Consensus Estimate of 23 cents by a penny). This is because the company has a Zacks Rank #5 (Strong Sell), which acts as a spoiler.
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