Tuesday, February 1, 2011

Cummins (CMI) - Strange Non Reaction to another Very Good Quarter

A lot of interesting earnings the past 24 hours, and yet another head scratcher of sorts.  Cummins (CMI) despite what appear to be excellent metrics and a market ripping to the upside, is not reacting to its earning report in a positive manner.  Could be valuation, although that has not stopped countless other companies - perhaps some worry of cost metrics, perhaps the fact North American market is just not keeping up, or guidance was just not high enough (basically "in line" on revenue).  At this moment the stock is trading right at its 50 day moving average, after falling below it earlier today. 

Longer term this continues to be a fantastic way to play the emergence of the new kids on the global economic block, although it would certainly help if North America pulled its weight.  The company believes NA will rebound in 2011.  Frankly, considering how putrid sales in its home market were, the aggregate results globally stand out even more.

Sales were $4.14B vs analysts $3.92B; earnings at $1.84 vs analysts $1.72.  For the year Cummins achieved $5.17 EPS.  Despite an enormous run the past year, if the company can create the $7.00 of earnings projected in 2011 there should still be some upside ahead, although not at the pace we've been spoiled at the past 12-18 months. [Jan 3, 2011: Cummins Gained 140% in 2010]  Definitely a name I should not have been trading so much last year, and just "bought and held"!   Full report here.

Via Marketwatch:
  • Cummins Inc. on Tuesday reported a record year of profitability, but shares of the diesel engine maker slipped as investors likely wanted more from the company’s outlook.  The Columbus, Ind.-based company said fourth-quarter earnings rose 34% to $362 million, or $1.84 a share, from $270 million, or $1.36 a share, in the year-ago quarter.
  • Sales climbed 22% to $4.14 billion, despite a big drop in its key North American truck engine market.
  • Analysts polled by FactSet Research were looking for fourth-quarter earnings of $1.69 a share, on average, with sales of $3.9 billion.
  • Cummins’s big-rig business continues to be affected by weakness in the U.S. economy and a change in emissions standards. In fact, engine shipments to the North American heavy-duty truck segment plunged 61%.
  • However, international markets, particularly in China, India and Brazil more than made up for the problems in Cummins’s home market, where the company is looking for some improvement.  “Given our strong balance sheet, the expected recovery of our North American markets and the global growth opportunities in front of us, we are forecasting further significant growth in 2011 and beyond,” Chairman and Chief Executive Officer Tim Solso said.
  • Earnings were fueled by record sales in its engine, components and distribution segments, with sales up 15%, 25% 44%, respectively, partially offset by declines in its power generation unit.

  • Cummins forecast sales to grow to $16 billion in 2011, up from $13.2 billion in 2010, which was the second-best revenue year on record.
  • Jefferies & Co. analyst Stephen Volkmann said margins concerns and a lackluster outlook drew in the sellers.  He reiterated his hold rating on the stock, pointing out that “other machinery companies have traded off on strong top line coupled with weaker margins during this earnings season." Volkmann had expected more from the company’s bottom line than the Wall Street consensus, though sales topped his target.

Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins employs approximately 40,000 people worldwide and serves customers in approximately 190 countries.

[Nov 19, 2010: Bloomberg - Oldest Truck Fleet Since 1979 May Mean 56% Jump in North American Output]
[Oct 26, 2010:  Cummins Misses on Top and Bottom Lines, but Foreign Sales up to 63% of Revenue]
[Jul 27, 2010: Cummins Demolishes Estimates]
[Feb 11, 2009: WSJ - Cummins Engine Shifts Gears Amid Stall]
[Sep 23, 2007: Stock to Watch: Cummings Hitting on all Cylinders] 

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