Transport ETFs in Focus on Earnings - ETF News And Commentary

Despite the fact that harsh weather had restricted the movement of people and goods by road, air or ship last quarter, most of the transportation companies have either easily managed to meet or beat the Zacks Consensus Estimate on the earnings front. This suggests strong confidence in the recovering U.S. economy and continued strength in the sector.

Earnings from some companies such as Union Pacific UNP, Kansas City Southern KSU, Ryder Systems R, Delta Air Lines DAL and United Continental UAL, in particular have been inspiring. However, lackluster performance by J.B. Hunt JBHT and United Parcel Service UPS were the dampeners.

Nonetheless, iShares Dow Jones Transportation Average Fund (IYT) surged to an all-time high of $139.45 on April 24 while SPDR S&P Transportation ETF (XTN) is close to its record high of $88.63 reached in early April. Both funds are crushing the broad blue-chip DIA and broad sector XLI funds by wide margins over the past 10 days.

Both the products have solid Zacks ETF Rank of 2 or ‘Buy', suggesting that their outperformance would continue in the coming months as well (read: 4 ETFs Riding High in Q2).

Transportation Earnings in Focus

UNP, the U.S. largest railroad, reported earnings of $2.38 per share matching the Zacks Consensus Estimate but 17% higher than the year-ago earnings. Revenues of $5.6 billion climbed 7% year over year but missed the Zacks Consensus Estimate of $5.7 billion. Robust year-over-year performance is credited to higher volume and increased coal shipments.

Another major railroad, KSU, posted strong earnings of $1.05 per share comfortably beating the Zacks Consensus Estimate by 7 cents and improving from the year-ago earnings by 16 cents. This is primarily owing to higher grain shipments. Revenues rose 10% year over year to $607.4 million, slightly below the Zacks Consensus Estimate of $608 million.

Ryder, the leader in supply chain management and fleet management services, topped on the bottom line but lagged on top line. Earnings per share of 92 cents is above the Zacks Consensus Estimate of 87 cents and higher than the year-ago earnings of 79 cents. Revenues were up 3% year over year but missed our estimate (read: 3 Low Correlated ETFs Surging in Shaky Markets).

Despite severe weather disruptions, the two largest U.S. airlines – DAL and UAL – are flying higher with both beating the Zacks Consensus Estimate on the earnings front. Delta outpaced our earnings estimate by 4 cents while United Continental posted a loss of $1.33 cents, narrower than our estimate of a loss of $1.38. Revenues for Delta were slightly above the Zacks Consensus Estimate but lower for United Continental.

There were also exceptions to the sector performance. Earnings at the trucking carrier – JBHT – missed our estimate by a nickel while revenues fell short thanks to rail service disruptions. The world's largest package delivery company – UPS – was also hurt by winter storms that raised its cost of shipping. Both earnings and revenues missed our estimates.  

IYT in Focus

The ETF tracks the Dow Jones Transportation Average Index, giving investors exposure to the small basket of 21 securities. The fund has a certain tilt towards large cap stock at 54% while mid and small caps account for the 30% and 15% share, respectively, in the basket (see: all the Industrials ETFs here).

Further, the product puts nearly 72% of assets in the top 10 firms, suggesting heavy concentration and dominance of the top 10 holdings with respect to returns. From a sector perspective, railroad takes the top spot at 29.18%, while delivery service (20.38%), trucking (16.91%) and airlines (14.11%) round off to the top four.

The fund has accumulated $872.4 million in AUM while sees good trading volume of around 279,000 shares a day. It charges 45 bps in fees and expenses and was up nearly 2.15% in the last 10 trading sessions.

XTN in Focus

This fund uses equal weight methodology to each security by tracking the S&P Transportation Select Industry Index. Holding 46 stocks in its basket with AUM of $117.5 million, each security accounts for less than 3% of total assets. The ETF is slightly skewed toward small caps at 43% while the rest is evenly split between mid and large caps (read: 3 Small Cap ETFs Surging in the Past Month).

The product is heavily exposed to trucking and airlines as these make up roughly 62% of the total while airfreight & logistics and railroads account for 21% and 13% share, respectively. The fund charges 35 bps in fees per year from investors and trades in a light volume of around 19,000 shares a day. XTN added about 2.5% over the past 10 days.

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