FedEx Disappoints: Transport ETFs In Focus

After the closing bell yesterday, transport bellwether FedEx (NYSE:FDX) disappointed investors with weak first-quarter fiscal 2020 earnings results. The courier company missed the estimates on both the top and bottom lines, and slashed its fiscal 2020 outlook on concerns over trade war and global growth slowdown (read: Momentum ETFs & Stocks in Focus as Trump Delays Tariff Hike).

Earnings per share came in at $3.05, missing the Zacks Consensus Estimate of $3.17 and declining from the year-ago earnings of $3.46. Revenues were almost flat year over year at $17.05 billion and fell shy of the estimated $17.1 billion.

For fiscal 2020, the company lowered earnings forecast as its revenue guidance has been reduced on increased trade tensions and weakening of global economic conditions since the company’s initial fiscal 2020 forecast in June. FedEx projects earnings per share of $10.00-$12.00 before the year-end mark-to-market retirement plan accounting adjustments, and earnings per share of $11.00-$13.00 before the year-end mark-to-market retirement plan accounting adjustments and excluding TNT Express integration expenses.

Following the weak results, shares of FDX tumbled more than 9% in after-hours trading. FedEx has a Rank #3 (Hold) and an impressive VGM Score of B. It currently falls under a top-ranked Zacks industry (top 39%).

ETFs in Focus

The FedEx report has put transport ETFs — iShares Dow Jones Transportation Average Fund IYT, SPDR S&P Transportation (NYSE:XTN) ETF XTN and First Trust Nasdaq Transportation ETF FTXR — in focus. All these funds currently have a Zacks ETF Rank #4 (Sell) (see: all the Industrials ETFs here).

IYT

The ETF tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 20 securities. Of these, FedEx occupies the second position with 9.8% of the assets. Within the transportation sector, railroads, and air freight and logistics take the top two spots with 31.5% and 25.8% share, respectively, while airlines (17.7%) and trucking (17.5%) round off the next two. The fund has accumulated nearly $513 million in AUM while it sees a good trading volume of around 252,000 shares a day. It charges 42 bps in fees per year.

XTN

This fund follows the S&P Transportation Select Industry Index and uses almost an equal-weight methodology for each security. Holding 43 stocks with AUM of $136.8 million, FedEx accounts for 2.6% share in the basket. The product is heavily exposed to trucking, which represents one-third of the portfolio while airlines and air freight & logistics also make up for 23.8% and 22%, share each. The fund charges 35 bps in fees per year from investors and trades in a light volume of about 13,000 shares a day (read: 5 Ultra-Cheap Growth ETFs to Tap on Global Stimulus Hopes).

FTXR

This fund offers exposure to the 29 most-liquid U.S. transportation securities based on volatility, value and growth by tracking the Nasdaq US Smart Transportation Index. FedEx holds 1.4% share in the basket. Here, ground freight & logistics takes the largest share at 29.6% followed by airlines (26.2%), auto & truck manufacturers (20.0%). FTXR has amassed $2.4 million in its asset base and charges 60 bps in annual fees. Average trading volume is meager at 4,000 shares.

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iShares Transportation Average ETF (IYT): ETF Research Reports

SPDR S&P Transportation ETF (XTN): ETF Research Reports

FedEx Corporation (FDX): Free Stock Analysis Report

First Trust NASDAQ Transportation ETF (FTXR): ETF Research Reports

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Zacks Investment Research