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Slew of Earnings Beat Fails to Lift Transport ETFs

Sweta Killa
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The transportation sector is riding high on first-quarter financial results, with total earnings from 97.8% of the sector’s total market capitalization, reported so far, up 20.9% on revenue growth of 8.7%. Both revenue and earnings surprises of 76.9% also seem impressive.

This is because most of the key industry players managed to beat our estimates on earnings or revenues or both, while a few lagged.

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 topped the Zacks Consensus Estimate on both fronts. Earnings of $1.55 surpassed the earnings estimate by a penny while revenues of $17.11 billion edged past the estimated $16.44 billion. For fiscal 2018, the company continued to expect earnings per share in the range of $7.03-$7.37. The Zacks Consensus Estimate at the time of earnings release was pegged at $7.22 (see: all the Industrials ETFs here).

The major railroads – Union Pacific UNP and Norfolk Southern Corp NSC – beat on both the top and the bottom lines while Kansas City Southern KSU missed. UNP and NSC surpassed the earnings estimate by 3 cents and 16 cents, respectively, and revenue estimates by $104 million and $35 million. On the other hand, earnings of $1.30 at KSU lagged the Zacks Consensus Estimate by five cents while revenues of $639 million were also marginally below our estimated $644 million.

Ryder Systems R, the leader in supply chain management and fleet management services, beat the earnings estimate by three cents and revenue estimate by $30 million.

The two largest U.S. airlines Delta Air Lines DAL and United Continental UAL also reported better-than-expected results. Earnings of 74 cents and revenues of $9.97 billion at Delta edged past the Zacks Consensus Estimate of 73 cents and $9.91 billion, respectively. For the second quarter of 2018, the carrier expects earnings per share in the range of $1.80-$2.00 (read: ETFs & Stocks to Fly High on Record Spring Travel).

At United Continental, earnings per share of 50 cents came above the Zacks Consensus Estimate by a penny and revenues of $9.03 billion slightly edged past the estimated $9.01 billion. The company raised the lower end of the earnings per share to $7.00-$8.50 for the year from $6.50-$8.50. The Zacks Consensus Estimate at the time of earnings release was pegged at $7.83.

Last but not the least, earnings for the leading trucking carrier J.B. Hunt JBHT came in couple of cents below the Zacks Consensus Estimate but revenues were $76 million above the estimate.

ETFs in Focus

While the string of solid results from industry players made the case for transport ETFs appealing, a jump in oil price and a rise in dollar led to losses over the past month. As such, iShares Dow Jones Transportation Average Fund IYT, SPDR S&P Transportation ETF XTN and First Trust Nasdaq Transportation ETF (FTXR) shed 0.8%, 2.5% and 1.8%, respectively. All these funds have a Zacks ETF Rank #3 (Hold).

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 14.7%, the in-focus eight firms collectively make up for 47% of the portfolio. From a sector perspective, air freight & logistics takes the top spot with 30.2% of the portfolio while railroads, trucking and airlines round off to the next three spots with double-digit exposure each. The fund has accumulated nearly $804.5 million in AUM while sees solid trading volume of around 248,000 shares a day. It charges 44 bps in annual fees (read: Transport ETFs to Ride High on Huge Earnings Beat by FedEx).

XTN

This fund tracks the S&P Transportation Select Industry Index, holding 42 stocks in its basket. The in-focus firms account for over 2% share each. Further, about 31.2% of the portfolio is dominated by trucking, while airlines, and air freight & logistics take one-fourth share each. Airfreight & logistics, and railroads also make up for a double-digit allocation each. With AUM of $225.6 million, the fund charges 35 bps in fees per year from investors and trades in a lower volume of around 34,000 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 24% share. FTXR has accumulated $3.6 million in its asset base and charges 60 bps in annual fees. Average trading volume is meager at 1,000 shares.