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Transport ETFs In Focus As FedEx Reports Dismal Q2 Earnings

Published 12/18/2019, 11:05 PM
Updated 07/09/2023, 06:31 AM
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After the closing bell on Dec 17, transport bellwether FedEx (NYSE:FDX) disappointed investors with weak second-quarter fiscal 2020 results. The courier company missed the estimates on both the top and the bottom lines and slashed its fiscal 2020 outlook for the second time amid slowing global trade and increasing pressure from rival shipping companies.

Earnings per share came in at $2.51, missing the Zacks Consensus Estimate of $2.79 and declining from the year-ago earnings of $4.03. Revenues dipped 2.8% year over year to $17.32 billion and fell shy of the estimated $17.57 billion (read: 5 Sector ETFs to Win After Robust November Jobs Data).

For fiscal 2020, the company slashed its earnings per share forecast to $10.25-$11.50 from $11.00-$13.00 due to higher-than-expected expansion costs, including the launch of seven-day delivery, lost revenues from its split with Amazon (NASDAQ:AMZN) and the ongoing U.S-China trade standoff. The new range includes 51 cents per share in tax benefits due to a lower tax rate.

Following the weak results, shares of FDX tumbled nearly 9% in yesterday trading. FedEx has a Rank #3 (Hold) and an unimpressive VGM Score of D. It currently falls under a bottom-ranked Zacks industry (bottom 27%).

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 third position with 9.1% of the assets. Within the transportation sector, railroads, and air freight and logistics take the top two spots with 33.2% and 24.5% share, respectively, while airlines (17.9%) and trucking (17.4%) round off the next two. The fund has accumulated nearly $575.8 million in AUM while it sees a good trading volume of around 210,000 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 44 stocks with AUM of $132.3 million, FedEx accounts for 2.3% share in the basket. The product is heavily exposed to trucking, which represents one-third of the portfolio while airlines and air freight & logistics take up 25.5% and 19.9% share, respectively. The fund charges 35 bps in fees per year from investors and trades in a light volume of about 12,000 shares a day (read: Follow Morgan Stanley (NYSE:MS) to Trade 2020 Election With ETFs).

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 1.1% share in the basket. Here, ground freight & logistics takes the largest share at 40.8%, followed by airlines (27.1%), auto & truck manufacturers (11.8%). FTXR has amassed $1.2 million in its asset base and charges 60 bps in annual fees. Average trading volume is meager at 2,000 shares.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report

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

Original post

Zacks Investment Research

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