Tuesday, October 26, 2010

Cummins (CMI) Misses on Top and Bottom Lines, but Foreign Sales Up to 63% of Revenue

"American" company Cummins (CMI) did not join the party with the rest of the industrial multinationals after its report this morning, as expectations have finally reached a point the company was unable to match. Despite some fantastic data points.  Last quarter's earnings report set the analysts on fire in raising future estimates;  90 days ago EPS estimates for this quarter were $0.99 - they had surged to $1.41.  That's a huge bar to jump.  I continue to look extremely favorably on the company long term, but wish to see how it acts in the next few days.   I don't love 'gap downs' on earnings but it bounced smartly off the 50 day moving average.

This is the exact same story as Caterpillar (CAT), Eaton (ETN), and a host of other industrials - overseas sales, especially of the emerging kind off the charts... American business "meh".  Cost cutting drives profits, and we all win - as long as we are not American labor of course. ;)  CMI is now getting close to IBM status where roughly 2/3rds of revenue is foreign based.

Analysts were in for $1.41 on $3.56B in revenue.  Excluding a settlement in Brazil of 11 cents, Cummins delivered $1.33.  Still should be on track for just under $5 EPS for the year so forward PE of about 18, putting it at valuations near Eaton, and below Caterpillar.

Of the 4 business lines, the results were sharp across the board; engines are about half the business:

  • Engine +44% revenue
  • Power Generation +44%
  • Components +30%
  • Distribution +36%

[full report here]

Via AP:
  • Engine and generator maker Cummins Inc. said on Tuesday that its third-quarter profit nearly tripled, but its per-share profit and revenue both came in short of analyst expectations.
  • The company earned $283 million, or $1.44 per share, for the quarter that ended Sept. 26. That was up from $95 million, or 48 cents per share, during the quarter that ended Sept. 27, 2009. Revenue rose 34.4 percent to $3.4 billion, from $2.53 billion a year earlier.
  • The third-quarter profit was boosted by an after-tax benefit of $21 million, or 11 cents per share, for a favorable legal ruling in Brazil. On that basis, its profit was 8 cents per share short of the $1.41 per share expected by analysts surveyed by Thomson Reuters. Analysts expected revenue of $3.6 billion.
  • The company said its increased profit and revenue were due to strong overseas sales, which rose 56 percent from a year earlier. Non-U.S. revenue accounted for 63 percent of its revenue.
  • Sales in its engine segment rose 44 percent to $2.1 billion. Power generation sales were up 44 percent to $791 million.
  • Cummins said the North American truck engine market continued to be weak because of federal emissions changes and a slow economic recovery in the U.S. It predicted 2010 revenue of $13 billion. Analysts were expecting almost $13.2 billion.
  • (CEO) “In addition to a number of favorable long-term trends that we have discussed over the past year, we are preparing for growth in many of our markets outside the United States next year.”
  • Cummins affirmed its 2010 sales target of $13 billion and raised its margin forecast to 12.5% from 12%, citing stronger performance in its power generation and distribution segments.

Via Reuters:

  • "Components looked like a bit of a disappointment," said Ann Duignan, an analyst at JPMorgan Chase. She said the problem appeared to be both lighter-than-expected sales at the unit and single-digit margins that were "worse than expected.'
  • The company did not mention specific geographies, but said sales were strong in emerging markets where commodity prices are driving a mining boom.

[Jul 27, 2010: Cummins Demolishes Estimates]
[Sep 23, 2007: Stock to Watch: Cummings Hitting on all Cylinders] 
[Feb 11, 2009: WSJ - Cummins Engine Shifts Gears Amid Stall]

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