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Cummins Beats, Expects Higher Revenues

By Zacks Equity Research | Zacks – Thu, Feb 2, 2012 3:25 PM ESTShare0EmailPrintCompanies:Cummins Inc.Caterpillar Inc.Navistar International CorporationRELATED QUOTESSymbol Price Change
CMI 120.09 +0.00

CAT 113.94 +0.00

NAV 47.20 +0.00


Cummins Inc. (NYSE:CMI - News) posted a profit of $548 million or $2.86 per share in the fourth quarter of 2011 compared with $362 million or $1.84 per share in the same quarter of 2010. Excluding special items, the company recorded a profit of $491 million or $2.56 per share, surpassing the Zacks Consensus Estimate of $2.24 per share.

Revenues in the quarter grew 19% to $4.9 billion driven by higher demand in trucks, construction, power generation and oil and gas markets in North America as well as strong growth in global mining markets. However, these were partially offset by weaker demand in the construction market in Chinaand the same for power generation in India. Revenues were higher than the Zacks Consensus Estimate if $4.8 billion.

Earnings before interest and taxes (:EBIT) were $768 million in the quarter compared with $541 million in the fourth quarter of 2010. Excluding special items, EBIT was $677 million or 13.8% of sales in the quarter.

Segment Accomplishments

Sales in the Engine segment appreciated 23% to $3.1 billion. The increase in revenues was attributable to higher demand for on-highway heavy duty, midrange and light duty engines in North America and strong demand for oil and gas engines in North America and mining engines globally. Segment EBIT was $368 million, or 12.0% of sales, versus $256 million, or 10.3% of sales, in the fourth quarter of 2010.

Sales in the Component segment escalated 19% to $1.1 billion driven by higher demand in North America, Europe, Indiaand Brazil that more than offset weaker demand in China. Segment EBIT was $132 million, or 12.1% of sales, compared with $83 million, or 9.0% of sales

Sales in the Power Generation segment inched up 2% to $920 million. The increase was driven by higher sales of commercial products due to stronger demand in most regions as well as higher demand in North America, China and Europe. Segment EBIT was $87 million, or 9.5% of sales, compared with $92 million, or 10.2% of sales.

Sales in the Distribution segment scaled up 19% to $834 million driven by strong growth in Asia-Pacific region, higher demand for power generation in North America as well as in oil and gas and mining markets. Segment EBIT was $87 million, or 10.4% of sales, compared with $82 million, or 11.7% of sales.

Annual Results

For full year 2011, Cummins reported a profit of $1.85 billion or $9.55 per share, up from $1.04 billion or $5.28 per share in 2010. Excluding special items, the company’s profits were $1.75 billion or $9.07 per share, exceeding the Zacks Consensus Estimate of $8.72 per share.

Revenues in the year surged 36% to $18 billion due to strong growth in most geographic regions. It was higher than the Zacks Consensus Estimate of $17.8 billion.

EBIT for the year, excluding special items, was $2.56 billion or 14.2% of sales, compared with $1.66 billion or 12.5% of sales in 2010.

Financial Position

Cummins had cash and cash equivalents of $1.5 billion as of December 31, 2011 compared with $1.0 billion at the end of fourth quarter of 2010. Besides, total long-term debt at the end of 2011 was $658 million versus $709 million at the end of 2010.

Cash flow from operating activities improved to $2.1 billion in 2011 from $1.0 billion in the prior year. Capital expenditures nearly doubled o $622 million from $364 million in 2010.

Guidance

Cummins anticipates revenues to go up by 10% in 2012. It also expects EBIT in the range of 14.5% to 15% of sales during the year. With this, the company expects to reach its target of achieving $30 billion in sales and 18% EBIT in 2015.

Our Take

Cummins is well positioned to benefit from several trends, such as new emission standards, fuel economy improvement and favorable trends for its Power Generation business. New emission regulations provide lucrative opportunities for the company.

However, we are concerned about the strengthening U.S. dollar, macroeconomic environment around the world and tough competitions with companies including Caterpillar Inc. (NYSE:CAT - News) and Navistar International Corporation (NYSE:NAV - News). As a result, the company retains a Zacks #3 Rank on its stock, which translates to a short-term (1–3 months) rating of Hold.