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Cummins (CMI) Q4 Earnings Beat Estimates, Increase Y/Y

Cummins Inc. 's CMI earnings per share increased 11.4% to $2.25 in the fourth quarter of 2016 from $2.02 earned in the year-ago quarter. The bottom line also surpassed the Zacks Consensus Estimate of $2.02. Net income rose 6.5% to $378 million from $355 million in the fourth quarter of 2015.

Revenues declined 6% year over year to $4.5 billion in the reported quarter. The figure outpaced the Zacks Consensus Estimate of $4.4 billion. The year-over-year decline was due to lower commercial truck production in North America and weak global demand for industrial engines and power generation equipment.

Operating income increased significantly to $507 million from $229 million a year ago. Earnings before interest and taxes ("EBIT") was $526 million (11.7% of sales) compared with $531 million (11.1% of sales) a year ago.

Cummins Inc. Price, Consensus and EPS Surprise

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

2016 Performance

Earnings for full-year 2016 decreased to $8.23 per share from $8.93 in 2015, missing the Zacks Consensus Estimate of $8.32. Revenues for 2016 dropped 8% to $17.5 billion. However, the figure surpassed the Zacks Consensus Estimate of $17.36 billion. Revenues from North America decreased 12% year over year in 2016. Revenues from international markets declined 2% year over year due to adverse currency impacts.

Segment Performance

Sales at the Engine segment fell 6% to $2 billion due to a 9% decline in on-highway revenues, resulting from weaker truck production in North America. The segment's EBIT increased to $194 million (9.9% of sales) from $160 million (7.6% of sales) a year ago.

Sales at the Components segment fell 5% to $1.2 billion owing to lower sales in North America attributable to lower truck production, partially offset by higher revenues in China. This segment's EBIT declined to $140 million (11.9% of sales) from $175 million (14.2% of sales) in the prior-year quarter.

Sales at the Power Generation segment fell 5% to $932 million due to a drop in sales in major markets resulting from a decline in demand for power generation equipment and industrial engines. The segment's EBIT went up to $68 million (7.3% of sales) in fourth-quarter 2016 from $59 million (6% of sales) in fourth-quarter 2015.

Sales at the Distribution segment dropped 2% to $1.7 billion. Revenues benefited from the company's acquisitions. However, this gain was offset by adverse currency movements and sales decline in off-highway markets. The segment's EBIT increased to $122 million (7.3% of sales) from $111 million (6.5% of sales) a year ago.

Financial Position

Cummins' cash and cash equivalents decreased to $1.1 billion as of Dec 31, 2016, from $1.7 billion as of Dec 31, 2015. Long-term debt totaled $1.6 billion as of Dec 31, 2016, on par with the Dec 31, 2015 level.

In 2016, Cummins' net operating cash flow decreased to $1.9 million from $2.1 million in the same period a year ago. Capital expenditures declined to $531 million from $744 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 75% of its full-year operating cash flow to shareholders in the form of share buybacks and dividends. Cummins' plans to return 50% of its full-year operating cash flow to shareholders this year in the form of share repurchases and dividends.

2017 Guidance

For 2017, Cummins expects revenues to be flat or decline 5% and EBIT is expected in the range of 11%-11.5%. In the first quarter of 2017, the company will likely face challenges due to adverse markets condition.

Price Performance

Cummins has outperformed the Zacks categorized Automotive-Internal Combustion Engines industry over the last three months. The company's share price has increased 8.9% over this period while the industry saw a 6.3% gain.

Zacks Rank & Key Picks

Cummins currently carries a Zacks Rank #3 (Hold).

Better-ranked companies in the auto space include Penske Automotive Group, Inc. PAG , Fox Factory Holding Corp FOXF and General Motors Company GM . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Fox Factory has an expected earnings growth rate of around 16.6% for the current year. Penske Automotive has an expected long-term growth rate of 8.2%, while the same for General Motors is pegged at 9.4%.

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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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