Cummins Inc.’s (CMI) net income for the first quarter of 2011 was $343 million or $1.75 per share, rising significantly from the year-ago net income of $149 million or 75 cents per share. Reported earnings per share also exceeded the Zacks Consensus Estimate of $1.44.
Besides, Cummins had Earnings before Interest and Taxes (EBIT) of $532 million (13.8% of sales), up from $266 million (10.7% of sales) in the first quarter of 2010. Reported EBIT in 2010 first quarter excluded a one-time gain of $12 million.
Sales for the company amounted to $3.86 billion in the first quarter, up 56% from $2.48 billion in the same quarter last year mainly driven by the truck market recovery in North America, productivity enhancements and increased activities in the international markets.
Cummins beat the Zacks Consensus Estimate of $3.60 billion. Each of its four reportable segments experienced sufficient growth during the quarter.
Segment Details
The Engine segment contributed $2.39 billion in sales, up 68% from $1.42 billion, a year ago. Total on-highway sales increased 86% year over year led by strong demand in Brazil and other emerging economies.
Industrial sales increased 48% and stationary power engine sales increased 65% led by improved power generation demand for high horsepower engines. Segment EBIT was $290 million (12.1% of sales) versus last year’s $133 million (9.3% of sales).
Sales from Power Generation totaled $795 million, again up 54% from $517 million during the corresponding period in 2010. The primary growth facilitating factors in this segment are the 67% rise in commercial projects sales followed by commercial products sales, which increased by 64% and generator technologies which grew by 43%.
Each of the countries including the Middle East, Latin America, India, the United Kingdom and North America has shown substantial developments. Segment EBIT was $89 million (11.2% of sales) versus last year’s $34 million (6.6 % of sales).
Sales from Component division were $924 million, up 47% year over year from $630 million in 2010. Improvements were evident in Emission Solutions sales (up 99%), Fuel Systems (up 52%), Turbo Technologies sales (up 49%) and as well as Filtration sales (up 12%). Segment EBIT was $105 million (11.4% of sales) versus last year’s $57 million (9.0% of sales).
Distribution sales amounted to $642 million, up 35% from $476 million during the prior-year quarter driven by improved sales across all segments in most of the major markets, namely Europe, North and Central America and Asia Pacific. EBIT for the segment was $89 million (13.9% of sales) versus last year’s $72 million (15.1% of sales).
Financial Position
Cummins had cash and cash equivalents of $779 million as of March 27, 2011 compared with $1.02 billion as of December 31, 2010. Besides, total long-term debt as of the same period in 2011 was $685 million versus $709 million at the end of the fourth quarter in 2010.
Cash flow from operating activities was $88 million in the first quarter of 2011 as compared with $126 million during the corresponding period last year. During the quarter, Cummins repurchased shares worth $190 million. Alongside, the company introduced a new share repurchase program in February that authorizes the acquisition of up to $1 billion worth of stock.
Cummins also announced $26.25 per share of quarterly cash dividend on its common stock – a 50% increment from $17.5 paid a year ago.
Guidance
Cummins raised its full-year financial guidance for both sales and EBIT. The company now expects EBIT to reflect 14% of $17 billion in sales. The company exhibited a strong first quarter with great success in international markets. Moreover, the company has ample scope to expand and improve its manufacturing operations.
Thus, given these possibilities, Cummins has a Zacks #2 Rank (Buy) in the short term and maintains an Outperform recommendation in the long term.
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