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Strong Q4 Earnings Lift Transport ETFs Higher

Sweta Killa
U.S. stocks were mostly lower on Thursday as investors cautiously waited for first quarter earnings to gather steam from Friday.

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 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 and Union Pacific UNP 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 KSU 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 and United Continental UAL 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 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, SPDR S&P Transportation ETF XTN and First Trust Nasdaq Transportation ETF FTXR 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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