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
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.
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.
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.
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.
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.
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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