Transport ETFs Modestly Up On Q3 Earnings

By | November 3, 2015

Scalper1 News

Unlike the second quarter, the transportation sector is headed for a solid Q3 earnings season, lagging only auto. This is especially true as total earnings from 97.8% of the sector’s total market capitalization reported are up 22.5% while revenues declined 1.2%. This is much better than Q2 earnings growth of 9.4% and revenue decline of 1.9% for the same period. Further, earnings surprises were predominantly solid with 84.6% of the companies beating earnings estimates and 30.8% beating on revenues compared with earnings and revenue beat ratios of 58.3% and 8.3%, respectively for Q2. For a better understanding, let’s dig into 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 couple of cents but revenues of $14.2 billion fell shy of our estimate of $14.35 billion. The company now expects earnings per share on the high end of the previous guidance of $5.05-$5.30 for fiscal 2015, which represents 6-12% growth on an annual basis. The Zacks Consensus Estimate at the time of earnings release was pegged at $5.27. Union Pacific (NYSE: UNP ) , the U.S. largest railroad, reported earnings of $1.50 per share outpacing the Zacks Consensus Estimate by seven cents but revenues of $5.56 billion fell short of our estimate of $5.65 billion. Other major railroads like CSX Corp. (NYSE: CSX ) and Kansas City Southern (NYSE: KSU ) also missed on revenues. At CSX, revenues lagged the Zacks Consensus Estimate by $68 million while at KSU revenues missed by $8 million. However, CSX outpaced our earnings estimate by couple of cents while KSU missed our earnings estimate by a penny. Ryder Systems (NYSE: R ) , the leader in supply chain management and fleet management services, topped the bottom line but lagged the top line. Earnings per share of $1.74 came above the Zacks Consensus Estimate of $1.72 while revenues of $1.67 billion were below our estimate of $1.72 billion. The two largest U.S. airlines – Delta Air Lines (NYSE: DAL ) and United Continental (NYSE: UAL ) – beat our earnings estimates by three cents and four cents, respectively. Revenues for Delta were slightly below the Zacks Consensus Estimate but above for United Continental (read: Highflier Airlines Earnings: Time for JETS ETF ). Last but not the least, earnings for the leading trucking carrier – J.B. Hunt (NASDAQ: JBHT ) – also came in above the Zacks Consensus Estimate by three cents and revenues were $30 million below our estimate. ETFs in Focus Despite the slew of earnings beat, many stocks have seen rough performances. As a result, the transport ETFs has been modestly up over the past 15 days. Both the iShares Dow Jones Transportation Average Fund (NYSEARCA: IYT ) and the SPDR S&P Transportation ETF (NYSEARCA: XTN ) are up 0.4% and 0.2%, respectively. Both funds have a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (see: all the Industrials ETFs here ). IYT The fund tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 21 securities. The fund has a certain tilt toward large cap stocks at 49% while mid and small caps account for 31% and 20% share, respectively, in the basket. The product is heavily concentrated on the top firm – FedEx (NYSE: FDX ) – at 11.9%, followed by UPS (8%), UNP (6.8%) and KSU (6.3%). From a sector perspective, air freight & logistics takes the top spot with more than one-fourth of the portfolio while trucking, airlines and railroads round off to the next three spots with double-digit exposure each. The fund has accumulated nearly $965 million in AUM while sees solid trading volume of more than 409,000 shares a day. It charges 43 bps in annual fees. XTN This fund uses an almost equal weight methodology for each security by tracking the S&P Transportation Select Industry Index. Holding 49 stocks in its basket with AUM of $270 million, each security accounts for less than 3.4% of total assets. The ETF is skewed toward small caps at 55% while the rest is evenly split between mid and large caps. About one-third 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. The fund charges 35 bps in fees per year from investors and trades in a moderate volume of nearly 96,000 shares a day. Link to the original post on Zacks.com Scalper1 News

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