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Key Predictions for Q3 Earnings Reports of EXPD and AAWW

Zacks Equity Research

The third-quarter earnings season is in its tail end with majority of the companies having already unveiled their quarterly financial numbers. The picture that has emanated so far is a healthy one and this earnings season remains on track to end on a strong note, displaying substantial growth.

The already reassuring picture is expected to get rosier by the end of this week. During the course, 826 companies including the 49 S&P 500 players are expected to report their financial figures. Consequently, we will have reports from the 455 S&P 500 players as 406 companies in the highly-sought after space had already posted results as of Nov 3.

Per the latest Earnings Preview, the top and bottom lines for the 406 S&P 500 companies expanded 6.3% and 7.5%, respectively, on a year-over-year basis. Additionally, approximately 66.7% and 73.9% of the S&P 500 members have outperformed on the revenues and earnings front. This progress in the quarterly performance can be attributed to a turnaround in the economy and improved job market scenario, among other factors.

In fact, stocks in the highly sought-after fraternity are projected to end the third quarter with their top and bottom lines expanding 5.6% and 6.5%, respectively. Also, nine of the 16 Zacks sectors are expected to witness their bottom line expand on a year-over-year basis.

Turbulent Q3 for Transports

The widely-diversified Zacks Transportation sector does not share this rosy picture with the sectoral earnings projected to contract 14%, due to higher costs and the recent hurricanes.

Evidently, the bottom line for key sectoral participants like Delta Air Lines DAL and United Continental Holdings UAL in the third quarter has contracted a respective 7.6% and 28.6%, on a year-over-year basis. Thus, substantiating the fact that the transportation sector has been one of the worst victims of the natural disasters (Harvey, Irma, Maria and the earthquake in Mexico). For example, airline operators had to cancel multiple flights leading to significant loss in revenues.

Additionally, these catastrophes have hurt operations of railroads by damaging important rail lines leading to rapid increase in freight costs. Also, the sluggishness of the automotive unit is a cause of concern for railroads. For trucking companies, shortage of drivers remains a major headwind. Meanwhile, the rise in labor costs has hurt J.B. Hunt Transport Services’ JBHT third-quarter results and the trend is likely to continue in the rest of the quarter.

Given this backdrop, investors interested in the transportation space will keenly await third-quarter reports from sector participants like Expeditors International of Washington EXPD and Atlas Air Worldwide Holdings AAWW that are scheduled for Nov 7.

According to our quantitative model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Expeditors International of Washington provides logistic services globally. The company is engaged in the business of global logistics management including international freight forwarding and consolidation for both air and ocean freight.

Higher operating expenses are likely to hit this transportation company’s bottom line in the quarter. In fact, increased volumes might lead to higher operating expenses at all the three primary divisions — Airfreight services, Ocean freight and ocean services, and Customs brokerage and other services — of the company. Personnel expenses are also expected to be high, owing to higher headcount.

However, the top line is anticipated to improve in the soon-to-be reported quarter. Despite the prevalent imbalance between demand and supply in the Airfreight market, volume growth is likely to drive revenues at this flagship division. In fact, the Zacks Consensus Estimate for the Airfreight services segment’s third-quarter revenues is pegged at $692 million, higher than the $672 million reported in the previous quarter.

Total revenues from the Ocean freight and ocean services unit are also expected to increase, backed by volume growth. The Zacks Consensus Estimate for the segment’s third-quarter revenues is pegged at $547 million, higher than the $529 million reported in the second quarter of 2017.

Meanwhile, the Zacks Consensus Estimate for the Customs brokerage and other services segment’s third-quarter revenues is pegged at $476 million, higher than the $472 million reported in the last quarter.

Yet, the chances of this transportation company beating the Zacks Consensus Estimate are less, even though it carries a Zacks Rank #3. This is because Expeditors has an Earnings ESP of 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 60 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

In fact, our model did not predict an earnings beat earlier as well. Previously, when we issued its Q3 earnings preview article, the company had an Earnings ESP of -0.28%, while the Zacks Rank remained the same.

Expeditors International of Washington, Inc. Price and EPS Surprise

 

Expeditors International of Washington, Inc. Price and EPS Surprise | Expeditors International of Washington, Inc. Quote

Atlas Air Worldwide is the parent company of Atlas Air and Polar Air Cargo, which together operate the world's largest fleet of Boeing freighter aircraft. The company is primarily involved in the airport-to-airport air transportation of heavy freight cargo through its two operating subsidiary airlines.

We expect higher costs to hurt the company’s bottom line in the third quarter. The Zacks Consensus Estimate for expenses on aircraft fuel is pegged at $85 million, 30.8% higher than figure reported a year-ago. Moreover, the Zacks Consensus Estimate for block hours (a measure of aircraft utilization) is pegged at 64,313, 4.9% higher than the figure reported in the second quarter of 2017.

Moreover, according to our proven model Atlas Air Worldwide has less chances of beating the estimates this quarter, despite its Zacks Rank #3. This is because it has an Earnings ESP of 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.13.

Atlas Air Worldwide Holdings Price and EPS Surprise

 

Atlas Air Worldwide Holdings Price and EPS Surprise | Atlas Air Worldwide Holdings Quote

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
Expeditors International of Washington, Inc. (EXPD) : Free Stock Analysis Report
 
J.B. Hunt Transport Services, Inc. (JBHT) : Free Stock Analysis Report
 
Atlas Air Worldwide Holdings (AAWW) : Free Stock Analysis Report
 
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