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Cummins (CMI) Q1 Earnings Beat Estimates, Guidance Raised

Cummins Inc. 's CMI earnings per share increased 26.2% to $2.36 in the first quarter of 2017 from $1.87 earned in the year-ago quarter. The bottom line also surpassed the Zacks Consensus Estimate of $1.81. Net income rose 23.4% to $396 million from $321 million in the first quarter of 2016.

Revenues increased 7% year over year to $4.59 billion in the reported quarter. The figure outpaced the Zacks Consensus Estimate of $4.18 billion. The year-over-year increase was due to higher demand from construction and mining customers as well as higher sales from a distributor acquired in the fourth quarter of 2016.

Operating income increased significantly to $546 million from $470 million a year ago. Earnings before interest and taxes (EBIT) was $566 million (12.3% of sales) compared with $484 million (11.3% of sales) a year ago.

Cummins Inc. Price, Consensus and EPS Surprise

Cummins Inc. Price, Consensus and EPS Surprise | Cummins Inc. Quote

Segment Performance

Sales at the Engine segment rose 2% to $2 billion due to a 20% increase in on-highway revenues, resulting from higher engines sales to global construction markets. The segment's EBIT increased to $229 million (11.3% of sales) from $197 million (10% of sales) a year ago.

Sales at the Components segment increased 9% to $1.3 billion owing to high international revenue growth, primarily in China. This was, however, partly offset by lower sales in North America due to lower commercial truck production. The segment's EBIT rose to $179 million (13.3% of sales) from $163 million (13.2% of sales) in the prior-year quarter.

Sales at the Power Generation segment increased 9% to $882 million due to higher demand for industrial engines primarily in mining and energy markets. The segment's EBIT went up to $57 million (6.5% of sales) in first-quarter 2017 from $46 million (5.7% of sales) in first-quarter 2016.

Sales at the Distribution segment went up 12% to $1.6 billion. Revenues benefited from the company's acquisitions as well as 6% growth in organic sales. The segment's EBIT increased to $100 million (6.1% of sales) from $87 million (5.9% of sales) a year ago.

Financial Position

Cummins' cash and cash equivalents increased to $1.32 billion as of Mar 31, 2017 from $1.12 billion as of Dec 31, 2016. Long-term debt totaled $1.6 billion as of Mar 31, 2017, on par with the Dec 31, 2016 level.

In first-quarter 2017, Cummins' net operating cash flow increased to $379 million from $267 million in the same period a year ago. Capital expenditures rose to $81 million from $71 million in the prior-year period.

Capital Deployment

Cummins is focused on enhancing shareholder value by pursuing aggressive share repurchases and increasing dividend payouts. The company returned $222 million to shareholders in the form of share buybacks and dividends.

Business Development

Cummins expects the joint venture with Eaton to be operational by the third quarter of 2017, subject to regulatory approval. The venture aims at designing, developing and manufacturing next generation automated transmissions. The transmissions will be fully integrated with the company's existing engine development to deliver up to an additional 7% improvement in fuel economy.

2017 Guidance

For 2017, Cummins anticipates revenues to grow by 4-6% compared with the prior guidance of revenues remaining flat or declining by 5%. EBIT is expected in the range of 11.75-12.5%, up from the prior guidance of 11-11.5%. The projection excludes the impact of the new joint venture with Eaton.

Price Performance

Cummins outperformed the Zacks categorized Auto-Tires-Trucks market in the last three months. The company's share price increased 3.4% over this period while the industry saw a 0.6% decline.

Zacks Rank & Other Key Picks

Cummins currently carries a Zacks Rank #2 (Buy).

Some other well-ranked automobile stocks include Gentex Corporation GNTX , Tata Motors Ltd TTM and Tower International, Inc. TOWR . All these stocks currently carry a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Gentex has long-term growth rate of 10.5%.

Tata Motors has expected long-term earnings-per-share growth rate of 27.9%.

Tower International has expected earnings growth rate of 10% over the long term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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