On Jan 9, 2015, we issued an updated research report on Cummins Inc. (CMI). The company had reported a +1.75% earnings surprise in the last quarter.
Cummins’ earnings per share increased 22.1% to $2.32 in the third quarter of 2014. Earnings also surpassed the Zacks Consensus Estimate of $2.28 per share.
Revenues in the reported quarter rose 15% year over year to $4.9 billion, mainly driven by stronger demand in on-highway markets and distributor acquisitions in North America, additional content growth for the Components business in Europe and China, and higher engine sales to commercial marine customers. Further, revenues surpassed the Zacks Consensus Estimate of $4.71 billion.
Cummins expects to achieve revenues of $25–$31 billion by 2018. The company also projects earnings before interest and taxes (EBIT) in the range of 16–18% by 2018.
Cummins is focused on enhancing shareholder 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 buybacks. During the first nine months of 2014, the company repurchased $605 million worth of shares under its repurchase plan.
In Jul 2014, Cummins’ board authorized 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 78 cents. The company has returned $975 million to shareholders in the first nine months of 2014.
Moreover, Cummins is poised to benefit from its innovative products and planned acquisitions. During the first nine months of 2014, the company completed four acquisitions and another three are expected to close soon. The acquisitions are anticipated to generate incremental revenues of $500 million in 2014. The company also expects earnings per share to increase by 35 cents in 2014 due to these acquisitions.
However, weakness in the operating markets is considerably affecting the company’s results. Cummins is witnessing a challenging situation in Mexico and Brazil, and apprehends lower truck production and revenues in the future.
Cummins also operates in a highly competitive environment. New technologies, including those developed for gasoline, will provide further competition for the company.
Cummins 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), and Navistar International Corp. (NAV) among others. Cummins currently carries a Zacks Rank #2 (Buy).
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