2 Shipping Stocks Likely To Beat Earnings Estimates In Q3

The third-quarter 2016 earnings season is in its last leg for most of the 16 Zacks sectors, with only a few companies left to unveil their quarterly financial numbers.  Per our latest Earnings Preview report, 445 S&P 500 companies (representing 91.1% in terms of market capitalization) have already reported their numbers.

The picture is an extremely bullish one with the bottom line expanding 4% and the top line displaying 2.7% growth. The healthy performance indicates that the current earnings season is set to become the first quarter to display bottom-line expansion after five consecutive quarters of earnings contraction.

Transports Continue to Lag

Despite the overall favorable scenario, the transportation sector remains one of the most underperforming sectors. The sector has already seen reports from its entire S&P 500 fraternity this reporting cycle. The above report states that the bottom-line contracted 13.6% on a year-over-year basis for the sector. The earnings performance is worse than that witnessed in the second quarter, wherein the bottom line contracted 12.4%.
However, the outcome is not surprising as the sector has been passing through turbulent times. The multiple headwinds confronting stocks in the space include declining travel demand due to security fears, weak coal market, driver shortages and Brexit-induced uncertainty. Collectively, these negatives resulted in the disappointing year-over-year earnings performance.

The unfavorable Zacks Industry Ranks of most of the sub-groups of the transportation industry also reflect the challenges faced by the space. We note that the Transportation-Airline, Transportation-Truck, Transportation-Services and the Transportation-Ship units carry a bearish Zacks Industry Rank of 184, 247, 206 and 178, respectively, among more than 260 groups.

Glimmer of Hope

Despite the multiple challenges confronting sector participants, quite a few players in the transportation space have outperformed on the bottom-line front. Per the above report, an impressive 66.7% of the S&P 500 transportation companies have reported better-than-expected earnings in the current reporting cycle. Key sector participants to have reported better-than-expected earnings in the quarter include the likes of Delta Air Lines (DAL), United Parcel Service, Inc. (UPS) and Norfolk Southern Corp. (NSC).

However, we note that earnings estimates have been declining for most of the sector participants due to the multiple headwinds. Consequently, it was easier for transports to surpass the Zacks Consensus Estimate on the earnings front in the third quarter as the “bar was lowered” significantly.

Shipping Stocks in Trouble

With the broader transportation sector in doldrums, it is unlikely for any sub-group to outperform. Shipping stocks, which form an integral part of the sector, have been hurt by headwinds like low freight rates and weak financial position.

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