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Transport ETFs Gain Despite Soft Q2 Earnings

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The transportation sector has been badly impacted by the coronavirus pandemic, which had halted almost all activities in the United States. As such, second-quarter earnings are painting a dismal picture for the sector.

Total earnings accounting for 73% of the sector’s market capitalization that have been reported so far are down 178.1% on 50.9% lower revenues. The earnings and revenue beat ratio came in at 53.8% and 69.2%, respectively, as most industry players managed to surpass on both or either counts (see: all the Industrials ETFs here).

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 - Free Report) topped the estimates on both revenues and earnings. Earnings of $2.13 per share were $1.09 ahead of the consensus mark while the top line of $20.46 billion was above the estimated $17.34 billion.

Major railroads Union Pacific (UNP - Free Report) , Kansas City Southern and Norfolk Southern Corp (NSC - Free Report) posted a mixed bag. Union Pacific outpaced on earnings by 6 cents but missed on revenues by $155 million while Kansas City surpassed on earnings by 3 cents and missed on revenues by $2 million. Meanwhile, Norfolk Southern beat the consensus mark on earnings per share by 14 cents and revenues by $24 million (read: 5 ETFs to Make the Most From Fourth of July).

U.S. airlines Delta Air Lines (DAL - Free Report) and United Continental (UAL - Free Report) delivered worse-than-expected results. Delta incurred a loss of $4.43 per share, wider than the Zacks Consensus Estimate of a loss of $3.97. This represents the first quarterly loss since 2010. Revenues of $1.47 billion edged past the consensus mark of $1.4 billion. United Continental posted a loss of $9.31 per share, wider than the Zacks Consensus Estimate of a loss of $9.13 while revenues of $1.47 billion were above the estimated $1.22 billion.

Last but not the least, leading trucking carrier J.B. Hunt (JBHT - Free Report) topped on earnings by 31 cents per share and on revenues by $85 million.

ETFs in Focus

Despite the overall dismal earnings picture, the sector has gained 2.22% (average price difference between a day before and after the earnings announcement of a stock) post results. Thus, iShares Transportation Average ETF (IYT - Free Report) , SPDR S&P Transportation ETF (XTN - Free Report) and First Trust Nasdaq Transportation ETF (FTXR - Free Report) has been on a smooth ride over the past month, gaining 8.4%, 4.01% and 4.4%, respectively. However, all these products currently 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 52% share. From a sector perspective, railroads, and air freight & logistics take the largest share with 36.1% and 24.6% share, respectively, while trucking and airlines round off the next two spots with a double-digit exposure each. The fund has accumulated $664.2 million in AUM and sees a solid trading volume of around 188,000 shares a day. It charges 42 bps in annual fees.

XTN

This fund tracks the S&P Transportation Select Industry Index, holding 42 stocks in its basket. The in-focus firms account for not more than 3.5% share each. Further, 35.5% of the portfolio is dominated by trucking while air freight and logistics take around one-fourth share. With AUM of $198.3 million, the fund charges 35 bps in fees per year from investors and trades in a lower volume of around 52,000 shares a day (read: Travel & Leisure ETFs Jump on Vaccine Optimism).

FTXR

This fund offers exposure to the 31 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 17.7% share. Ground freight & logistics takes the top spot at 33.1% while auto & truck manufacturers, auto, truck & motorcycle parts, airlines, and air freight & courier services round off the next spots with a double-digit exposure each. FTXR has amassed $6.3 million in its asset base and charges 60 bps in annual fees. Average trading volume amounts to a meager 5,000 shares.

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