The transportation sector is widely diversified in nature comprising of airlines, railroads, truckers, equipment and leasing stocks, logistics companies, among others. So far this year, the sector has been experiencing a tough time courtesy multiple headwinds like back to back hurricanes, terror attacks and driver shortages, to name a few.

Turbulence Awaits Transports in Q3?

The Q3 earnings season has seen releases from 52 S&P 500 participants as of Oct 18. In fact, the latest Earnings Trends predicts that the entire S&P 500 space will end the quarter with earnings per share and revenues improving 3% and 4.9%, respectively, on a year-over-year basis.

However, this overall bright picture is not shared by the transportation sector. Per the report, the bottom line for this key sector (one of the 16 Zacks sectors) is expected to decline 15.2% in Q3 due to high costs, on a year-over-year basis. Markedly, the same had increased 9.4% in Q2.

Disappointing Price Performance

The turbulence in the space can be gauged from the fact that the Zacks Transportation sector has underperformed the S&P 500 Index on a year-to-date basis. The sector has gained 8.3%, significantly underperforming the S&P 500’s rally of 14.4%.

Why this Slide?

The recent natural calamities (Harvey, Irma, Maria and the earthquake in Mexico) have hurt the sector participants, significantly. For example, airline operators had to cancel multiple flights leading to significant loss in revenues. In fact, the negative impact of the hurricanes is also well reflected in the key transportation earnings reports available thus far. Evidently, United Continental Holdings had to cancel 8,300 flights in the quarter and consequently its third-quarter pretax income reduced to the tune of approximately $185 million.

Additionally, these catastrophes have hurt operations of railroads by damaging important rail lines, leading to rapid increase in freight costs. In this regard, Union Pacific Corporation, which will reveal its results on Oct 26, expects Harvey to hurt its bottom line to the tune of approximately 5 cents per share in the third quarter.