The Dow Jones Transportation Average (DJTA), which is a price weighted index of 20 transportation stocks made up of airlines such as Delta Airlines (NYSE:DAL), railways like Norfolk Southern (NYSE:NSC) and trucking and delivery companies such as FedEx (NYSE:FDX), is up nearly 8% for the year, while the S&P 500 has remained fairly flat. When the historical performance is observed, the transportation index is up 65% in the last 10 years, while the S&P 500 has declined by 24%.

IN PICTURES: 9 Simple Investing Ratios You Need To Know

FedEx Earnings Release

In its first-quarter earnings release, package delivery giant, FedEx saw net income increase by 110% from $181 million to $380 million on revenues increases of only 18%. Similar to many other corporations who were forced to cut cost while maintaining operation, FedEx used resources more efficiently than in previous years. Operating income increased drastically in the Express and Ground segments, while decreasing by 8% in the FedEx Freight business, resulting in a total increase of 99%.

Despite the year-over-year increases, the market did not reward FedEx as shares fell nearly 4.5% after the announcement. Although positive signals have been appearing in terms of holiday shipment volumes, management noted that they predict slower economic growth moving forward. As a result, approximately 5% of the workforce is expected to be cut from the payroll.


FedEx, the second largest player in the air delivery and freight service industry, provided weak earnings guidance due to an expected increase in fuel, maintenance and repair costs in the second quarter. However, more indicators regarding the health of the overall industry will emerge when United Parcel Services (NYSE:UPS) and C.H. Robinson Worldwide (Nasdaq:CHRW) release their quarterly earnings performance results in late October. UPS and CHRW are the largest the third largest firms in the industry respectively.

Small Cap Delivery

While FedEx, UPS, and C.H. Robinson are incorporated in the Dow Jones Transportation Average, other lesser known firms are also key players in the air delivery & freight service sector and are subject to the similar economic conditions as the large caps.

Air Transport Service Group (Nasdaq:ATSG) has undergone massive cost cutting operations to maintain its level of profitability. On a year-over-year basis, earnings per share increased from $0.13 to $0.15 on a revenue decrease of 14%. EPS figures were higher because the salaries, benefits and wages expense fell by nearly 55% as a result of job cuts and overall downsizing. Head count declined by 24%. Although, the firm's financial results are mixed, Air Transport Service Group has doubled in price through 2010, largely thanks a long term aircraft and operating agreement with DHL.

The Bottom Line

The air delivery and freight service industry, like other areas within the transportation service sector, are forced to adopt a new business model by which they have to do more with fewer resources. While such measures are harmful to the overall economy, they improve the long-term efficiency of the business. As FedEx CEO said, the focus should not be on the short range, but on the momentum going into 2012 as the "headwinds from 2011 will be gone." (For more stock analysis, check out Facebook Surpasses Google.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  5. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  6. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  7. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  8. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  9. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  10. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center