Cummins Inc.
(
CMI
) reported a 19.1% fall in adjusted earnings per share to $1.78
in the third quarter of 2012 from $2.20 in the year-ago quarter.
Net income declined 20.6% to $336.0 million from $423.0 million
in the third quarter of 2011. With this, profits in the quarter
missed the Zacks Consensus Estimate by 6 cents per share.
The decrease in earnings was due to uncertainty in most of the
markets served by the company. The company has actively responded
to this situation by canceling or delaying projects, reducing
production at some of its manufacturing plants, cutting
discretionary expenses. It also plans to reduce workforce by 1000
to 1500 people by the end of this year.
The company's revenues for the quarter dipped 11% to $4.1
billion, lower than the Zacks Consensus Estimate of $4.2 billion.
The decline in revenues was driven by a 21% decline in revenues
in the international market, which offset the 2% rise in revenues
in North America.
Earnings before interest and taxes (EBIT) were $496.0 million, or
12% of sales, in the quarter, down 22.5% from $640.0 million or
13.8% of sales in the third quarter of 2011.
Segment Accomplishments
Revenues from the
Engine
segment went down 14.5% to $2.5 billion. The decrease in revenues
was due to sluggish demand in North American heavy and medium
duty truck, oil and gas and mining markets, weak demand for
trucks in Brazil and in the construction market in China.
Meanwhile, higher demand for light duty truck and construction
engines in North America had favorable impacts on revenues. The
segment had EBIT of $239.0 million (9.5% of sales) versus $349.0
million (11.8%) in the corresponding quarter last year.
Revenues from the
Component
segment declined 7.6% to $938.0 million, due to sluggish demand
in on-highway markets in North America, Europe and China, which
offset the higher product content in Brazil. EBIT was $89.0
million or 9.5% of sales compared with $113.0 million or 11.1%.
Revenues from the
Power Generation
segment decreased 6.9% to $814.0 million, driven by weak demand
in Europe, China, the Middle East and Latin America, partially
offset by higher revenues from North America. Segment EBIT was
$73.0 million, or 9% of sales, compared with $92.0 million, or
10.5%.
Revenues from the
Distribution
segment rose marginally by 2% to $801.0 million, driven by growth
in North America, China and the Middle East, which offset the
impacts of lower sales in Africa, Europe and Asia Pacific.
Segment EBIT was $99.0 million, or 12.4% of sales, compared with
$104.0 million, or 13.3%.
Financial Position
Cummins had cash and cash equivalents of $1.03 billion as of
September 30, 2012 compared with $1.48 billion as of December 31,
2011. Long-term debt was $670.0 million as of September 30, 2012
versus $658.0 million at the end of 2011.
Cash flow from operating activities declined to $787.0 million in
the first nine months of 2012 from $1.4 billion in the same
period of 2011. Capital expenditures increased to $424.0 million
from $377.0 million in the first nine months of 2011.
Guidance
Cummins expects revenues of $17.0 billion for 2012, which is
lower than the previous guidance of $18.0 billion. It also
expects EBIT margin of 13.5%, down from the previous estimate of
14.25%-14.75% during the year.
Our Take
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.
The company faces stiff competition from
Caterpillar Inc.
(
CAT
) and
Navistar International Corporation
(
NAV
). Currently, the stock retains a Zacks #5 Rank, which translates
into a short-term Strong Sell rating.
CATERPILLAR INC (CAT): Free Stock Analysis
Report
CUMMINS INC (CMI): Free Stock Analysis Report
NAVISTAR INTL (NAV): Free Stock Analysis
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