Airlines Drag Down Transportation Q4 Earnings: ETFs in Focus

The fourth-quarter earnings picture for the transportation sector has been dismal so far. This is especially true as total earnings for the sector that have been reported so far are down 85.7% on 20.7% lower revenues. This is reflective of continued operating woes in the airline space, which has been hit hard by the COVID-19 pandemic.

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

Transportation Earnings in Brief

The world's largest package delivery company United Parcel Service UPS topped the estimates on both revenues and earnings. Earnings of $2.66 per share were 55 cents ahead of the consensus mark and the top line of $24.9 billion was above the estimated $22.79 billion.

Major railroads Union Pacific UNP and Norfolk Southern Corp NSC also topped estimates. Union Pacific outpaced earnings estimates by 11 cents and revenues by $5 million, while Norfolk Southern surpassed on earnings by 16 cents and on revenues by $17 million. Meanwhile, Kansas City KSU lagged the earnings estimate by a couple of cents and the revenue estimate by $7 million (see: all the Industrials ETFs here).

U.S. airlines Delta Air Lines DAL and United Continental UAL delivered worse-than-expected results. Delta incurred a loss of $2.53 per share, wider than the Zacks Consensus Estimate of a loss of $2.43. Revenues of $3.97 billion topped the consensus mark of $3.75 billion. United posted a loss of $7 per share, wider than the Zacks Consensus Estimate of a loss of $6.56 and revenues of $3.41 billion were slightly below the estimated $3.42 billion.

Last but not the least, leading trucking carrier J.B. Hunt JBHT beat estimates for earnings by 17 cents per share and revenues by $208 million.

ETFs in Focus

The Q4 earnings reports have led to rough trading in transport ETFs over the past 10 days. As such, iShares Dow Jones Transportation Average Fund IYT, SPDR S&P Transportation ETF XTN and First Trust Nasdaq Transportation ETF FTXR have shed 5.4%, 3.8% and 2%, respectively. However, all these products currently have a Zacks ETF Rank #2 (Buy), suggesting their outperformance in the months ahead (read: Sector ETFs to Gain the Most on COVID-19 Vaccine Rollout).

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 44.5% share. From a sector perspective, railroads, and air freight & logistics take the largest share with 31.2% and 25.7% share, respectively, while trucking and airlines round off the next two spots with a double-digit exposure each. The fund has accumulated $1.7 billion in AUM and sees a solid trading volume of around 120,000 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 less than 2.8% share each. Further, 35.5% of the portfolio is dominated by trucking while airlines take around one-fourth share. With AUM of $492.5 million, the fund charges 35 bps in fees per year from investors and trades in a lower volume of around 102,000 shares a day.

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 14.7% share. Ground freight & logistics takes the top spot at 33.4% while auto & truck manufacturers, auto, truck & motorcycle parts, and air freight & courier services round off the next spots with a double-digit exposure each. FTXR has amassed $1 billion in its asset base and charges 60 bps in annual fees. The average trading volume is a modest 151,000 shares (read: 2020 US Auto Sales Slip to 1970s Level: ETFs, Stocks in Focus).

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