Burst Of Earnings Surprises Fails To Drive Transport ETFs

By | May 3, 2016

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The transportation sector is shaping up well this earnings season with total earnings from 97.8% of the sector’s total market capitalization that has reported so far climbing 3.1% and 92.3% beating estimates. However, revenues slipped 0.7% with a revenue beat ratio of 38.5%. While the earnings growth rate and revenue beat ratio are worse than Q4 for the same period, earnings surprises and revenue growth rate are encouraging given the most conservative earnings estimates. Additionally, the slump in oil prices and a depreciating dollar helped transporters to improve their year-over-year revenue growth picture (read: Sector ETFs to Buy if Crude Slump Persists ). 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 (NYSE: UPS ) – beat our earnings estimate by a nickel but revenues of $14.42 billion fell shy of our estimated $14.58 billion. For the current fiscal 2016, the company expects earnings per share in the range of $5.70-$5.90, representing 5-9% growth year over year. The Zacks Consensus Estimate at the time of earnings release was pegged at $5.76. Union Pacific (NYSE: UNP ) , the largest U.S. railroad, reported earnings of $1.16 per share beating the Zacks Consensus Estimate by 7 cents but revenues of $4.83 billion fell short of our estimate of $4.9 billion. The major railroads like Norfolk Southern Corp (NYSE: NSC ) and Kansas City Southern (NYSE: KSU ) also topped our earnings estimates by 32 cents and 6 cents, respectively. While revenues at Norfolk Southern outpaced the Zacks Consensus Estimate by $23 million, Kansas City Southern lagged revenues by just $2 million. Ryder Systems (NYSE: R ) , the leader in supply chain management and fleet management services, surpassed both our top- and bottom-lines estimates. Earnings per share of $1.12 came above the Zacks Consensus Estimate of $1.05 while revenues of $1.63 billion were slightly ahead of our estimate of $1.60 billion. The two largest U.S. airlines – Delta Air Lines (NYSE: DAL ) and United Continental (NYSE: UAL ) – beat on earnings while missed on revenues. Delta and United Continental outpaced our earnings estimate by 3 cents and 6 cents, respectively. At DAL, revenues lagged the Zacks Consensus Estimate by $34 million while at UAL revenues missed by $44 million. Last but not the least, earnings for the leading trucking carrier – J.B. Hunt (NASDAQ: JBHT ) – came in above the Zacks Consensus Estimate by 3 cents and revenues were $21 million below our estimate. ETFs in Focus Given the slew of earnings beat, stocks in the transportation sector have been performing well, gaining an average 2.4% (average price difference between a day before and after the earnings announcement of a stock), per the Zacks Earnings Trend . However, the remarkable performance failed to gather momentum in the iShares Dow Jones Transportation Average Fund (NYSEARCA: IYT ) and the SPDR S&P Transportation ETF (NYSEARCA: XTN ) . Both IYT and XTN are down 0.9% and 2%, respectively, over the past 10 days and have a Zacks ETF Rank of 4 or Sell rating with a High risk outlook. IYT The fund tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 20 securities. The fund has a certain tilt toward large cap stocks at 51% while mid and small caps account for 29% and 20% share, respectively, in the basket. Though the product is heavily concentrated on the top firm – FedEx (NYSE: FDX ) – at 13%, the in-focus eight firms collectively make up for 48% of the portfolio. From a sector perspective, air freight & logistics takes the top spot with 29.7% of the portfolio while railroads, airlines and trucking round off to the next three spots with double-digit exposure each. The fund has accumulated nearly $571.7 million in AUM while sees solid trading volume of nearly 350,000 shares a day. It charges 45 bps in annual fees. XTN This fund tracks the S&P Transportation Select Industry Index, holding 46 stocks in its basket. It is skewed toward small caps at 55% while the rest is evenly split between mid and large caps. As a result, the in-focus firms account for at least 2% share each. Further, about 30% of the portfolio is dominated by trucking, while airlines takes another one-fourth share. Airfreight & logistics, and railroads also make up for a double-digit allocation each. With AUM of $203.9 million, the fund charges 35 bps in fees per year from investors and trades in a moderate volume of more than 64,000 shares a day. Link to the original post on Zacks.com Scalper1 News

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