Transport ETFs In Focus As FedEx Disappoints

After the closing bell yesterday, transport bellwether FedEx (FDX - Free Report) reported robust fiscal second-quarter 2019 earnings. The courier company missed the Zacks Consensus Estimate on the top line and cut its earnings guidance for fiscal 2019.

Earnings per share came in at $4.03, missing the Zacks Consensus Estimate by a couple of cents but up from the year-ago earnings of $3.18. Revenues rose 9.2% year over year to $17.82 billion and edged past the estimate of $17.71 billion.

FedEx slashed its full 2019 earnings per share guidance to $15.50-$16.60 from $17.20-$17.80, much lower than the current Zacks Consensus Estimate of $17.32. Management stated that global trade has slowed in recent months and leading indicators point to a further deceleration in the near term. These trends coupled with the change in service mix at FedEx Express are negatively impacting the segment's financial results.

While the U.S. economy remains solid, international business weakened during the quarter, especially in Europe. To compensate for weakness in its international segment, FedEx announced plans to cut costs. It will implement a voluntary buyout program, limit hiring, reduce international network capacity at FedEx Express and reduce discretionary spending. The buyouts are expected to cost $450-$575 million and "should predominantly occur in the fourth quarter of fiscal 2019," FedEx said. Savings from the program are expected to be between $225 million and $275 million in fiscal 2020.

Following the weak results, FDX shares dropped more than 6% in aftermarket hours. FedEx carries a Rank #3 (Hold) and has a VGM Score of C. It currently falls under a bottom-ranked Zacks industry (bottom 17%), suggesting that more pain might be in store.

ETFs in Focus

The disappointing FedEx report is expected to hurt transport ETFs- iShares Dow Jones Transportation Average Fund (IYT - Free Report) SPDR S&P Transportation ETF (XTN - Free Report) and First Trust Nasdaq Transportation ETF (FTXR - Free Report) . IYT and XTN have a Zacks ETF Rank #3 (Hold) while FTXR has a Zacks ETF Rank #4 (Sell).

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