On Sep 30, 2014, we issued an updated research report on Cummins Inc. (CMI). The company reported a +1.67% earnings surprise in the last quarter.
Cummins’ earnings per share increased 10.5% to $2.43 in the second quarter of 2014 from $2.20 in the year-ago quarter. Earnings also surpassed the Zacks Consensus Estimate of $2.39 per share. Net income came in at $446 million compared with $414 million in the second quarter of 2013.
For 2014, Cummins raised the revenue guidance to 8–11% from the previous projection of 6–10%. The upside was driven by improving North American on-highway demand and synergies from distributor acquisitions. Meanwhile, Cummins expects its 2014 EBIT margin in the 12.75–13.25% range. The company also anticipates earnings to increase at a higher rate than revenues and expects product launches to enhance profitability.
Cummins is focused on enhancing shareholders’ value by pursuing aggressive share repurchases and increasing dividend payouts. The company has committed to return 50% of its full-year operating cash flow to shareholders through dividends and share repurchases. In Jul 2014, Cummins’ board authorized a share repurchase of up to $1 billion after the completion of the current $1 billion program. Cummins also announced a 25% increase in dividend to $0.78. The company has returned $659 million to shareholders in the first half of 2014.
Moreover, Cummins is positioned to benefit from planned acquisitions. The company plans to acquire its North American distributors, which is expected to generate incremental revenues of $500 million and increase earnings per share by 30 cents.
However, weakness in the operating markets is considerably affecting the results of Cummins. The company is witnessing a challenging situation in China and Brazil and apprehends lower truck production in the countries in 2014.
Cummins also operates in a highly competitive environment. New technologies, including those developed for gasoline, will provide further competition for the company.
Cummins Inc. is a leading worldwide designer, manufacturer and distributor of diesel and natural gas engines, electric power generation systems, and engine-related components. The company’s customer base comprises leading manufacturers, namely, Daimler AG (DDAIF), PACCAR Inc. (PCAR), Navistar International Corporation (NAV) among others.
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