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Q4 Earnings Fail to Impress Transport ETFs

The transportation sector has been affected by the outbreak of coronavirus, which is already turning for the worse into a widespread pandemic. Fourth-quarter earnings hitherto released also don’t paint a rosy picture (read: Wining & Losing ETF Areas on Coronavirus Outbreak).

Total earnings accounting for 75% of the sector’s market capitalization have been reported so far. The bottom line is down 8% on no revenue growth. Earnings and revenue beat ratio came in at 50% each as most industry players managed to surpass on either earnings or revenues and a few on both counts.

For a better understanding, let’s delve into the results of some well-known industry players:

Transportation Earnings in Focus

The world's largest package delivery company United Parcel Service UPS beat on the bottom line but missed on revenues. Earnings of $2.11 were a penny ahead of the consensus mark while the top line of $20.57 billion was marginally below the estimated $20.58 billion. For 2020, the company expects earnings per share in the range of $7.76-$8.06.

Major railroads Union Pacific UNP, Kansas City Southern KSU and Norfolk Southern Corp NSC posted a mixed bag. Union Pacific missed on earnings by a penny but beat on revenues by $47 million while Kansas City surpassed on earnings by a penny and missed on revenues by $5 million. Meanwhile, Norfolk Southern’s earnings came in at 26 cents, above the Zacks Consensus Estimate while revenues were on par with the consensus mark (see: all the Industrials ETFs here).

U.S. airlines Delta Air Lines DAL and United Continental UAL delivered better-than-expected results. Earnings per share at Delta and United Continental trumped the Zacks Consensus Estimate by 30 cents and 3 cents, respectively. Revenues of $11.44 billion for Delta and $10.9 billion for United Continental were above the consensus estimate of $11.34 billion and $10.89 billion, respectively. Delta projects earnings per share guidance of $6.75-$7.75 for 2020 while United Continental expects the same in the range of $11-$13.
    
Last but not the least, leading trucking carrier J.B. Hunt JBHT missed on earnings by 17 cents per share and its revenues of $2.45 billion fell slightly short of the consensus mark of $2.454 billion.

ETFs in Focus

Mixed results coupled with the impact of the coronavirus outbreak induced a dismal trading scenario for the transport ETFs over the past 10 days. iShares Transportation Average ETF IYT, SPDR S&P Transportation ETF XTN and First Trust Nasdaq Transportation ETF FTXR shed 6.1%, 5.2% and 3.2% of share value, respectively, in the same time frame. All these products have a Zacks ETF Rank #4 (Sell).

IYT

The fund tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 20 securities. The in-focus seven firms make up for a combined 49.4% share. From a sector perspective, railroads, and air freight & logistics take the largest share with 36.7% and 21.8% share each while airlines and trucking round off the next two spots with double-digit exposure each. The fund accumulated $521.2 million in AUM and sees a solid trading volume of around 211,000 shares a day. It charges 42 bps in annual fees.

XTN

This fund tracks the S&P Transportation Select Industry Index, holding 43 stocks in its basket. The in-focus firms account for not more than 3% share each. Further, 37.1% of the portfolio is dominated by trucking while airlines takes around one-fourth share. With AUM of $117.8 million, the fund charges 35 bps in fees per year from investors and trades in a lower volume of around 12,000 shares a day (read: Top ETF Stories of January 2020).

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 represent a combined 30.7% share. Airlines takes the top spot at 34.7% while ground freight & logistics, auto & truck manufacturers as well as auto, truck & motorcycle parts round off the next three. FTXR amassed $1.2 million in its asset base and charges 60 bps in annual fees. Average trading volume amounts to meager 1,000 shares.

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Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL): Free Stock Analysis Report
 
Union Pacific Corporation (UNP): Free Stock Analysis Report
 
Kansas City Southern (KSU): Free Stock Analysis Report
 
Norfolk Southern Corporation (NSC): Free Stock Analysis Report
 
J.B. Hunt Transport Services, Inc. (JBHT): Free Stock Analysis Report
 
SPDR S&P Transportation ETF (XTN): ETF Research Reports
 
iShares Transportation Average ETF (IYT): ETF Research Reports
 
United Parcel Service, Inc. (UPS): Free Stock Analysis Report
 
First Trust NASDAQ Transportation ETF (FTXR): ETF Research Reports
 
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