Cummins Inc. (CMI) reported net income of $505 million or $2.60 per share in the second quarter of 2011, significantly higher than the year-ago net income of $246 million or $1.25 per share.
However, excluding the after-tax gain of $37 million or 19 cents per share during the quarter related to the sale of the exhaust business from the Components segment, the company’s adjusted income stood at $468 million or $2.41 per share, which is well ahead of the Zacks Consensus Estimate of $2.01 per share.
Besides, Cummins reported earnings before interest and taxes (EBIT) of $707 million (15.2% of sales), up from $401 million (12.5% of sales) in the second quarter of 2010. Reported EBIT in the second quarter excluded a gain of $68 million related to the sale of the exhaust business from the Components segment.
Revenues in the reported quarter amounted to $4.64 billion, up 45% from $3.21 billion in the year-ago quarter, mainly driven by strong performance across all the major markets. Moreover, each of the major segments of the company delivered strong growth. Revenues also surpassed the Zacks Consensus Estimate of $4.25 billion.
Segment Details
The Engine segment contributed $2.90 billion to sales, up 53% from $1.90 billion a year ago. The improvement in results was attributable to strong growth in global truck markets and off-highway markets including mining and oil and gas.
Worldwide engine shipments to medium-duty truck markets climbed 84%, while that to heavy-duty truck markets shot up 159%. Segment EBIT was $377 million (13% of sales) versus $197 million (10.4% of sales) in the prior-year quarter.
Sales from Power Generation totaled $909 million, up 28% from $708 million during the corresponding period in 2010. The upside in sales was mainly driven by a 41% rise in generator technologies sales, 30% growth in commercial products sales and 29% increase in power electronics sales.
Notable improvements were registered across most regions, including Asia, North America, Brazil and the U.K. Segment EBIT was $105 million (11.6% of sales) versus last year’s $76 million (10.7 % of sales).
Sales from Component division were $1.03 billion, up 42% year over year from $729 million in 2010. Significant upside was also witnessed in Emission Solutions sales (up 88%), Fuel Systems sales (up 45%), Turbo Technologies sales (up 39%) and Filtration sales (up 15%). Segment EBIT was $120 million (11.6% of sales) versus last year’s $75 million (10.3% of sales).
Distribution sales amounted to $785 million, up 36% from $576 million during the prior-year quarter, driven by strong demand for industrial engines, power generation equipment and parts. EBIT for the segment was $106 million (13.5% of sales) versus the year-ago level of $69 million (12% of sales).
Financial Position
Cummins had cash and cash equivalents of $1.11 billion as of June 26, 2011 compared with $1.02 billion as of December 31, 2010. Besides, long-term debt was $702 million at the end of the second quarter of 2011 versus $709 million at the end of the fourth quarter in 2010.
Cash flow from operating activities was $744 million in the first half of 2011 compared with $427 million during the corresponding period last year.
During the quarter, Cummins repurchased shares worth $183 million. Moreover, Cummins also increased its quarterly cash dividend on its common stock by 52% to 40 cents per share from 26.25 cents per share. The dividend is payable on September 01, 2011 to shareholders of record as of August 22, 2011.
Guidance
Cummins raised its full-year financial guidance for both sales and EBIT. The company now expects EBIT to account for 14.5% of $18 billion in sales. The company has ample scope to expand and improve its manufacturing operations.
Our Take
Cummins is positioned to benefit from several trends, such as new emission standards, fuel economy improvement (i.e., light-duty diesel penetration) and favorable trends for its Power Generation business (i.e., increased demand for electricity against either aging or insufficient grid capacity).
New emission regulations provide lucrative opportunities for the company, including price rise ($3,000 higher than the cost of implementing the new regulations), market share gains (as some competitors cannot implement the new regulations) and increased engine content.
In addition, to consolidate its position in the engine division, the company invested heavily in capacity expansion and introduced new products. The company plans to add 22 major facility or upgrades and is also expanding its global distribution network.
Moreover, the company pursues an aggressive share repurchases policy. In 2010, the company repurchased shares worth $241 million. In February 2011, the company’s Board of Directors authorized the repurchase of up to $1 billion of common stock upon the completion of the $500 million program approved earlier in 2007. In the first six months of 2011, the company repurchased shares worth $373 million.
Thus, keeping these in mind, the shares of Cummins Inc. are maintaining a Zacks #1 Rank, which translates into a short-term Strong Buy rating. Alongside, the shares also have an Outperform recommendation for the long term.
CUMMINS INC (CMI): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment