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Cummins (CMI) Q3 Earnings, Revenues Miss Estimates

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Cummins Inc. 's CMI earnings per share decreased 7.8% to $2.14 in the third quarter of 2015 from $2.32 a year ago. Earnings also missed the Zacks Consensus Estimate of $2.59. Net income fell 10.2% to $380 million from $423 million in the third quarter of 2014.

Cummins Inc. - Earnings Surprise | FindTheBest

Revenues in the reported quarter went down 6% year over year to $4.6 billion. The figure also fell short of the Zacks Consensus Estimate of $4.96 billion. The year-over-year decline in the top line was due to sluggish demand in global off-highway markets and power generation markets, along with currency headwinds, mainly stemming from a stronger U.S. dollar, partially offset by distributor acquisitions in North America.

Operating income decreased 15.5% to $557 million from $659 million a year ago. Earnings before interest and taxes ("EBIT") dropped to $577 million (12.5% of sales) from $684 million (14% of sales) a year ago.

Segment Performance

Sales in the Engine segment fell 10% to $2.5 billion due to sluggish demand in global off-highway and power generation markets and the Brazilian truck market, partially offset by rising demand in global bus markets. The segment's EBIT decreased to $252 million (10% of sales) from $330 million (11.7% of sales) a year ago.

Sales at the Components segment dropped 4% to $1.2 billion owing to sluggish demand in Brazil and the adverse impact of currency fluctuations, partially offset by better sales in on-highway markets in North America and China. This segment's EBIT fell to $156 million (12.6% of sales) from $172 million (13.4% of sales) in the prior-year quarter.

Sales at the Power Generation segment fell 13% to $659 million due to a decline in revenues from North America and international markets, along with the adverse impact of foreign currency translation. The segment also recorded poor sales in Europe, China, and Russia. This was partially offset by sales growth in Africa and the Middle East. The segment's EBIT declined to $42 million (6.4% of sales) in third-quarter 2015 from $60 million (8% of sales) in third-quarter 2014.

Sales at the Distribution segment surged 20% to $1.6 billion. Revenues benefited from the company's acquisition undertaken in North America. However, this gain was partially offset by adverse currency movements. The segment's EBIT fell to $123 million (7.9% of sales) from $131 million (10.1% of sales) a year ago.

Financial Position

Cummins' cash and cash equivalents decreased to $1.7 billion as of Sep 27, 2015, from $2.3 billion as of Dec 31, 2014. Long-term debt totaled $1.63 billion as of Sep 27, 2015, compared with $1.61 billion as of Dec 31, 2014.

In the first nine months of 2015, Cummins' net operating cash flow reduced to $1.13 billion from $1.39 billion in the same period a year ago. Capital expenditures went down to $393 million from $409 million in the prior-year period.

Capital Deployment

Cummins is focused on enhancing shareholder value by pursuing aggressive share repurchases and increasing dividend payouts. On Jul 14, 2015, the company's board of directors approved a 25% increase in its quarterly dividend to 97.5 cents per share, higher than the previous payout of 78 cents. The dividend was paid on Sep 1, to shareholders on record as of Aug 21, 2015.

Cummins returned $1.1 billion to shareholders in the reported quarter through dividends and share repurchases. This strategy is consistent with the company's plan to return 38% of its full-year operating cash flow to shareholders in 2015.

2015 Guidance

Cummins is facing a challenging situation due to sluggish global markets. Consequently, the company announced restructuring and cost-reduction strategies, and also lowered its outlook for 2015. Cummins will cut its professional workforce by up to 2,000 employees by the end of 2015. With this, the company expects to generate annualized savings of $160-$200 million.

However, it will also incur pre-tax costs of between $70 million and $90 million due to workforce reduction. The company may undertake more significant restructuring actions to deal with the situation in the near future.

Cummins lowered its full-year revenue and EBIT guidance for 2015. Now the company anticipates revenues to be flat to down 2%, compared with 2%-4% growth projected earlier. EBIT is expected in the range of 12.75%-13%, lower than the previous expectation of 13.5%-14%.

Zacks Rank

Currently, Cummins carries a Zacks Rank #5 (Strong Sell). Better-ranked automobile stocks include Superior Industries International, Inc. SUP , Ford Motor Co. F and General Motors Co. GM . All these stocks carry a Zacks Rank #2 (Buy).

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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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