The fourth-quarter 2019 earnings season is mid-way for the widely diversified Zacks
Transportation sector, which houses airlines, railroads, shipping and trucking companies to name a few. The latest Earnings Outlook suggests that earnings for the S&P 500 members of the transportation sector are anticipated to decline 5% year over year in the December quarter while revenues are estimated to inch up 1.7%. This compares with 7.9% and 2.4% rise in earnings and revenues respectively, witnessed in the third quarter. Earnings Picture So Far for Transports Major railroad player Union Pacific Corporation UNP put up a weak performance with lower than-expected earnings and a year-over-year decline in the bottom line due to lower volumes induced by the freight sluggishness. Nevertheless, the company surpassed on the top-line front. Meanwhile, Kansas City Southern’s KSU earnings trumped estimates along with substantial bottom-line growth on the back of better operational performance. However, the company’s revenue miss partly reflects the contraction in carload volumes caused by weakness in the Automotive and Intermodal segments. Trucking company J.B. Hunt Transport Services fell short on both counts due to waning truck revenues. However, impressive performance of the Dedicated Contract Services and Integrated Capacity Solutions segments drove year over year growth in the top line. Factors Likely at Play for Yet-to-Report Transports The railroads are likely to have benefited from cost-cutting measures. Consistent cost-reduction efforts might reflect on the operating ratio (operating expenses as a percentage of revenues) and the bottom line. Notably, lower the value of the operating ratio, the better. However, weak freight demand is anticipated to have weighed on volumes and in turn, dented the top line. Per the Cass Freight Shipments Index report, North American freight shipments declined in October, November and December last year. Dwindling freight demand is also a major headwind to the trucking stocks, especially in the face of excess truck capacity. The adversity is likely to have hurt revenues and in turn, affected margins. To offset this negativity, the trucking companies are engaging in significant cost-controlling initiatives. The lower operating expenses should get reflected in the bottom line number. Given this backdrop, investors interested in the transportation sector will keenly await fourth-quarter reports from leading players, namely Norfolk Southern Corporation NSC, Canadian Pacific Railway Limited CP, Knight-Swift Transportation Holdings Inc. KNX, Landstar System, Inc. LSTR and Schneider National, Inc. ( SNDR Quick Quote SNDR - Free Report) on Jan 29. Our quantitative model suggests that a company needs the right combination of the following two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of a positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. Norfolk Southern is a major freight railroad primarily engaged in the rail transportation of raw material, intermediate products and finished goods, primarily in Southeast, East and Midwest United States. The company is likely to beat on earnings in the fourth quarter as it has an Earnings ESP of +0.36% and a Zacks Rank of 3. You can see . (Read more: the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Norfolk Southern to Post Q4 Earnings: A Beat in Store?) Canadian Pacific operates a transcontinental railway network in Canada and the United States, focusing on providing logistics and supply chain expertise services. With an Earnings ESP of +0.40% and a Zacks Rank #3, this company too is likely to beat on earnings in the fourth quarter.
Knight-Swift is a truckload carrier based in Phoenix, AZ. It serves customers throughout North America, providing them with numerous efficient and low-cost truckload transportation, intermodal and logistics services. This company’s earnings are unlikely to surpass estimates this time around as it has an Earnings ESP of 0.00% and a Zacks Rank #5 (Strong Sell). Landstar is an asset-light provider of integrated transportation management solutions, based in Jacksonville, FL. This company is also not likely to beat on earnings this reporting cycle as it has an Earnings ESP of -1.24% and a Zacks Rank #4 (Sell). Schneider is a Brown County, WI-based leading transportation and logistics services company. Its Earnings ESP of -0.85% and a Zacks Rank of 5 makes surprise prediction difficult this earnings season. 5 Stocks Set to Double Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth. Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor. Today, See These 5 Potential Home Runs >>