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Transportation stocks slightly outperformed the Dow Jones Industrial Average on Thursday, building on a week of relative gains, and suggesting closer convergence between the manufacturing and transportation sectors. A broad-based recovery should see strength in both sectors, so this trend supports the idea of continued economic growth.
FedEx (NYSE: FDX ) wrapped up its investors conference on Thursday, adding more details to the sweeping cost-cutting plan it announced Wednesday. As customers switch to slower, more economical services, FedEx will be investing more in its low-cost ground operations. In particular, FedEx will phase out older trucks in favor of newer, more efficient models that will help keep fuel costs down. FedEx was virtually flat at $90 per share, but that's good news, considering that FedEx held on to the 4% advance it saw on Wednesday.
J.B. Hunt (Nasdaq: JBHT ) , the nation's largest trucking company by market capitalization, announced third quarter earnings late Thursday afternoon, and shares were up as much as 4% in after-hours trading. Earnings per share came in at $0.65, compared to $0.57 in the third quarter of 2011. Analysts had expected $0.66, but J.B. Hunt attributed the slight underperformance to temporary costs incurred when the trucker signs up new clients. Operating revenue of $1.3 billion was not only 11% higher than 2011's $1.17 billion, but also slightly higher than analyst expectations of $1.27 billion.
J.B. Hunt's results suggest that North American demand may not be deteriorating as many investors expect. A stronger-than-expected holiday season could boost freight shipments, which would be a good signal that consumer confidence remains in recovery mode. The next major sign to look for will be earnings report of Class I railroad CSX (NYSE: CSX ) , which derives 12% of revenue from intermodal traffic, which would be expected to grow if shoppers really are opening up their wallets for the holidays. CSX serves the eastern U.S., home to two-thirds of the American population, so its results on October 16th will be an important indicator, not only for the transportation sector, but for the broader economy.
Air travel was a dark cloud for the transportation sector, with September air traffic down from 2011 numbers. Airlines are hurting from low demand for business travel. Traffic fell 2.1% for the largest American domestic airline, United Continental Holdings (NYSE: UAL ) . Shares were down 1.3% Thursday, making United Continental one of the worst performers in the Dow Jones Transportation Average. The nation's second-largest carrier, Delta Air Lines (NYSE: DAL ) , also recorded a drop in traffic. Weakness in domestic travel pulled a good international performance down to a net contraction of 1.1% in September. Shares slipped 0.9%.
Airlines are also being squeezed by steadily rising fuel costs. The Department of Transportation announced Thursday that August fuel costs rose 3.6% from July, and some airlines are cutting flights, or upgrading their fleets, to keep up with rising energy prices. Delta even bought its own jet fuel refinery, anticipating an era of higher fuel costs in the future.