We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
UPS Tailspin Hits Transport ETFs: Should You Buy the Dip?
Read MoreHide Full Article
The transportation sector was jolted by weak results of bellwether United Parcel Service (UPS - Free Report) on Jul 23, which dampened investors’ mood and compelled them to be cautious about the stock and the broader sector.
UPS Soft Q2 Earnings
The world's largest package delivery company returned to volume growth in the United States during the second quarter for the first time in nine quarters but failed to deliver enough on a turnaround plan to cut costs and increase volumes (see: all the Industrials ETFs here).
The company reported earnings per share of $1.79, which missed the Zacks Consensus Estimate of $1.98 and declined 29.5% from the year-ago quarter. Revenues dropped 1% year over year to $21.8 billion and fell short of the Zacks Consensus Estimate of $22.31 billion. The results were a setback for UPS as the company is grappling with higher labor costs in a weak demand environment following a pandemic-driven boom in e-commerce deliveries.
United Parcel revised its revenue guidance to $93 billion from $92-$94.5 billion for the year. The Zacks Consensus Estimate is pegged at $93.01 billion. The company slashed its operating margin guidance to 9.4% from 10-10.6% expected previously.
Market Impact
UPS suffered its worst decline in 25 years, tumbling 12% following the second-quarter earnings miss and a sluggish outlook. The sluggish trading was also felt in the ETF world as iShares U.S. Transportation ETFIYT, First Trust Nasdaq Transportation ETFFTXR and SPDR S&P Transportation ETF XTN lost 1.9%, 2.6% and 0.9%, respectively, on the day.
Image Source: Zacks Investment Research
What Lies Ahead?
Despite the dismal results and UPS’ sluggish outlook, investors shouldn’t completely write off transportation ETFs from their holdings. This is because the funds have spread out exposure to a number of firms in various types of industries like railroads, airlines and low-cost trucking, suggesting that the space can easily counter shocks from some of the industry’s biggest components.
In fact, IYT puts about 27.2% in railroads while airfreight & logistics makes up nearly 21.5% share. FTXR has the highest allocation in automobiles with a 26.9% share, while delivery services accounts for 16%. Meanwhile, XTN is heavily exposed to cargo ground transportation and passenger airlines with 31.4% and 24.6% share, respectively.
In terms of individual holdings, UPS accounts for 9.3% of the IYT portfolio and 6.7% of the FTXR portfolio. On the other hand, XTN uses an equal-weight methodology for each security. While IYT is more popular and liquid among the three, XTN is cheap, charging 35 bps in annual fees (read: FedEx Stock Jumps on Q4 Earnings Beat: ETFs Likely to Gain).
All three ETFs have a Zacks ETF Rank #2 (Buy), suggesting that they could outperform the broader market in the coming months. However, transport sector earnings are expected to decline 12.6%, per the Zacks Earnings Trend report, which could again weigh on ETFs.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
UPS Tailspin Hits Transport ETFs: Should You Buy the Dip?
The transportation sector was jolted by weak results of bellwether United Parcel Service (UPS - Free Report) on Jul 23, which dampened investors’ mood and compelled them to be cautious about the stock and the broader sector.
UPS Soft Q2 Earnings
The world's largest package delivery company returned to volume growth in the United States during the second quarter for the first time in nine quarters but failed to deliver enough on a turnaround plan to cut costs and increase volumes (see: all the Industrials ETFs here).
The company reported earnings per share of $1.79, which missed the Zacks Consensus Estimate of $1.98 and declined 29.5% from the year-ago quarter. Revenues dropped 1% year over year to $21.8 billion and fell short of the Zacks Consensus Estimate of $22.31 billion. The results were a setback for UPS as the company is grappling with higher labor costs in a weak demand environment following a pandemic-driven boom in e-commerce deliveries.
United Parcel revised its revenue guidance to $93 billion from $92-$94.5 billion for the year. The Zacks Consensus Estimate is pegged at $93.01 billion. The company slashed its operating margin guidance to 9.4% from 10-10.6% expected previously.
Market Impact
UPS suffered its worst decline in 25 years, tumbling 12% following the second-quarter earnings miss and a sluggish outlook. The sluggish trading was also felt in the ETF world as iShares U.S. Transportation ETF IYT, First Trust Nasdaq Transportation ETF FTXR and SPDR S&P Transportation ETF XTN lost 1.9%, 2.6% and 0.9%, respectively, on the day.
Image Source: Zacks Investment Research
What Lies Ahead?
Despite the dismal results and UPS’ sluggish outlook, investors shouldn’t completely write off transportation ETFs from their holdings. This is because the funds have spread out exposure to a number of firms in various types of industries like railroads, airlines and low-cost trucking, suggesting that the space can easily counter shocks from some of the industry’s biggest components.
In fact, IYT puts about 27.2% in railroads while airfreight & logistics makes up nearly 21.5% share. FTXR has the highest allocation in automobiles with a 26.9% share, while delivery services accounts for 16%. Meanwhile, XTN is heavily exposed to cargo ground transportation and passenger airlines with 31.4% and 24.6% share, respectively.
In terms of individual holdings, UPS accounts for 9.3% of the IYT portfolio and 6.7% of the FTXR portfolio. On the other hand, XTN uses an equal-weight methodology for each security. While IYT is more popular and liquid among the three, XTN is cheap, charging 35 bps in annual fees (read: FedEx Stock Jumps on Q4 Earnings Beat: ETFs Likely to Gain).
All three ETFs have a Zacks ETF Rank #2 (Buy), suggesting that they could outperform the broader market in the coming months. However, transport sector earnings are expected to decline 12.6%, per the Zacks Earnings Trend report, which could again weigh on ETFs.