Cummins Q3 results

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Today's Trucking  /  November 1, 2016

Cummins Inc. reports that its third quarter revenue of $4.2 billion is down 9% over the same period last year.

In its earnings statement, Cummins noted that “lower truck production in North America and weak international demand for power generation equipment were the most significant drivers of the decline in sales.”

North America revenue dropped 13%, while international sales declined by 3%. Within international markets, higher revenues in China partially offset declines in the Middle East and Africa.

Net income attributable to Cummins was $289 million ($1.72 per diluted share).

“Due to the slow pace of growth in the global economy, we continue to face weak demand in a number of our most important markets,” announced Cummins chairman and CEO Tom Linebarger. “The restructuring actions that we initiated in the fourth quarter of 2015, combined with strong execution on material cost reduction initiatives, productivity gains and improvements in product quality are all helping to mitigate the impact of weaker revenues. We are on track to deliver our goal of 25% decremental EBIT margin for the full year 2016, as a result of strong operational performance in very challenging economic conditions. We have returned $1.3 billion to shareholders so far this year, through a combination of dividends and share repurchases, consistent with our plans to return 75 percent of operating cash flow to shareholders in 2016."

For a more comprehensive look at at Cummins' third quarter performance, please click here.

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Cummins third-quarter profit drops on weak truck production

Reuters  /  November 1, 2016

Engine maker Cummins Inc on Tuesday reported a lower quarterly profit as revenue was hit by weak heavy-duty truck production in North America and poor global demand for power generation equipment.

"Due to the slow pace of growth in the global economy, we continue to face weak demand in a number of our most important markets," Cummins Chief Executive Officer Tom Linebarger said.

The Columbus, Indiana-based company provides engines for the large trucks that haul a large majority of U.S. freight. Truck makers have experienced a drop in sales this year as lackluster economic growth and high retail inventories have discouraged many trucking firms from putting in orders for new vehicles.

The company reiterated its downbeat full-year revenue forecast.

Sales in the company's engines unit were down 12 percent versus the same period in 2015.

Third-quarter net income fell 24 percent to $289 million, or $1.72 per share, from $380 million, or $2.14, a year earlier.

Excluding a one-time loss contingency charge, earnings per share were $2.02. Analysts, on average, expected $1.96.

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Cummins Sees Its Business Slow Down as Demand Weakens

The Motley Fool  /  November 1, 2016

Restructuring efforts can only do so much to offset the damage from a sluggish global economy.

The global economy hasn't been kind to Cummins, and the engine maker has had to take dramatic actions to try to shore up its business and make the most of its opportunities despite facing tough conditions. Coming into Tuesday's third-quarter financial report, Cummins investors were bracing for declines in revenue and net income. Cummins' numbers on the earnings front were a bit better than most had expected, but tough sales conditions were evident and aren't likely to get better in the near future. Let's take a closer look at the latest from Cummins and whether investors should have much hope for better times ahead.

Is Cummins stalling out?

Cummins' third-quarter results revealed signs of just how tough the macroeconomic environment is for the engine manufacturer right now. Revenue dropped more than 9% to $4.19 billion, which was an even steeper drop than most of those following the stock had looked to see. Net income fell by nearly a quarter to $289 million, but even though the reported $1.72 per share in earnings was below the consensus forecast among investors for $1.96 per share, Cummins said that it suffered a $0.30 per share hit due to loss contingencies. On an adjusted basis, therefore, many saw Cummins as having beaten expectations.

Taking a closer look at how Cummins fared, the reversal of fortune in where the company brought in revenue continued. The once-strong North American market suffered a 13% decline in sales, while international markets were down just 3%. In China, Cummins managed to increase revenue [primarily ISF light truck engines], helping to offset declines in the Middle East and Africa. The company blamed lower truck production in North America and weakness in demand for power generation equipment internationally for the overall drop in revenue.

Cummins' key divisions were fairly weak across the board. The distribution business held up the best on the sales front, with segment revenue falling just 3%, but pre-tax operating income was down by more than a fifth. The components division suffered an 8% drop in sales but limited its profit decline to just 5%. Meanwhile, the engine segment and the power systems segment both saw their top lines fall double-digit percentages, and segment profit took hits as well. In particular, on-highway revenue for the engine segment fell 13% because of the pressure on heavy-duty and medium-duty truck production.

CEO Tom Linebarger discussed the difficulties that Cummins faces. "Due to the slow pace of growth in the global economy," Linebarger said, "we continue to face weak demand in a number of our most important markets." The CEO noted that restructuring and cost-containment initiatives are helping to offset the negative effects of lower revenue, and he was proud of the operational performance that Cummins has had recently.

When will Cummins start growing again?

Unfortunately, Cummins doesn't see any immediate relief from the industry's tough conditions. It now expects full-year 2016 sales to fall 9%, which is at the midpoint of its previous guidance range for an 8% to 10% decline. However, Cummins did cut its expectations from pre-tax operating margin, now predicting a figure of 11.3%, down from its previous range of 11.6% to 12.2%. The company blamed the cut on higher loss contingencies from a field campaign that Cummins decided to expand, addressing emissions issues connected with third-party after-treatment systems about which some customers have reported problems.

More importantly, the main downward impacts on Cummins' business don't appear likely to disappear anytime soon. The trucking industry is having its own problems, and that bodes ill for truck production, which is hitting both the core engine segment and the related components segment. Negative currency impacts have largely gone away as the dollar's strength wanes, but declines in organic sales on the distribution side of Cummins' business reflect the overall weak demand for its products overall. Meanwhile, power systems rely on healthy industrial sectors of the economy, and that strength hasn't been present, either.

Cummins investors weren't happy with the report, sending the stock down more than 3% in pre-market trading following the announcement. Until conditions in the industrial economy start to improve, it will be tough for Cummins to see a return to fundamental strength in its core businesses.