) earnings per share increased 27.1% to $1.83 in the first
quarter of 2014 from $1.44 (excluding special items) reported in
the year-ago quarter. Earnings also surpassed the Zacks Consensus
Estimate of $1.71 per share. Net income came in at $338 million
compared with $271 million in the first quarter of 2013.
Revenues in the quarter rose 12.3% year over year to $4.4
billion, mainly driven by rising demand in on-highway markets and
distributor acquisitions in North America. Also, revenues steered
past the Zacks Consensus Estimate of $4.2 billion.
Operating income increased about 23.9% to $513 million from $414
million a year ago. Earnings before interest and taxes (EBIT)
improved 20.8% to $528 million or 12% of sales, compared with
$437 million or 11.1% a year ago.
Sales in the Engine segment rose 11% to $2.6 billion on increased
demand in on-highway markets in North America, partially offset
by weakness in global mining and power generation markets. The
segment's EBIT increased to $269 million or 10.5% of sales,
compared with $195 million or 8.5% a year ago.
Sales in the Components segment grew 21% to $1.2 billion on the
back of strong on-highway demand in Europe, China and North
America, mitigated by weaker demand in Brazil. This segment's
EBIT surged to $167 million, or 13.6% of sales, versus $119
million or 11.7% in the prior-year quarter.
Sales in the Power Generation segment went down 14% to $639
million due to poor revenues in India, North America and Asia
Pacific. The segment's EBIT fell to $25 million, or 3.9% of
sales, compared with $51 million or 6.8% in the first quarter of
Sales in the Distribution segment rose 22% to $950 million on the
back of benefits from acquisitions and higher demand for parts
and services in the North America and Asia Pacific. The segment's
EBIT decreased to $76 million, or 8% of sales, versus $95 million
or 12.2% a year ago.
Cummins' cash and cash equivalents increased to $2.2 billion as
of Mar 31, 2014 from $2.7 billion at the end of 2013. Debt
decreased to $1.67 billion as of Mar 31, 2014 from $1.72 billion
as of Dec 31, 2013. Consequently, the debt to capitalization
ratio stood at 18.5% as of Mar 31, 2014 compared with 18.7% as of
Dec 31, 2013.
In the first three months of 2014, Cummins' net operating cash
flow was $263 million compared to $428 billion in the same period
a year ago. Capital expenditures declined to $107 million from
$114 million in the previous year.
For 2014, Cummins increased the revenue guidance to 6% to 10%
from the previous estimate of 4% to 8%. The hike in demand was
driven by higher demand in North America. The company also
expects its 2014 EBIT margin to be in the 12.75-13.25% range.
Cummins expects that launch of new products to enhance
profitability. The company repurchased 3 million shares in the
first quarter of 2014 and has committed to return 50% of its
full-year operating cash flow to shareholders through dividends
and share repurchases.
However, we are concerned about weak market conditions in
India and Australia, which will lead to lower demand for power
generation and mining equipment. Currently, CMI retains a Zacks
Rank #2 (Buy).
CUMMINS INC (CMI): Free Stock Analysis Report
MAGNA INTL CL A (MGA): Free Stock Analysis
MERITOR INC (MTOR): Free Stock Analysis
SUPERIOR INDS (SUP): Free Stock Analysis
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Cummins Inc. is a leading worldwide designer, manufacturer and
distributor of diesel and natural gas engines, electric power
generation systems, and engine-related components, fuel systems,
controls and air handling systems.
Other stocks that are performing well in the broader industry
Superior Industries International, Inc.
Magna International Inc.
). All three companies carry a Zacks Rank #1 (Strong Buy).