Cummins Inc. (NYSE:CMI) reported results for the second quarter of 2016.
Second quarter revenues of $4.5 billion decreased 10 percent from the same quarter in 2015. Lower truck production in North America and weak global demand for off-highway and power generation equipment were the most significant drivers of the decline in sales. Currency negatively impacted revenues by approximately 1 percent compared to last year, primarily due to a stronger US dollar.
Revenues in North America decreased 13 percent while international sales declined by 4 percent. Within international markets, revenues in the Middle East, Mexico and Brazil declined the most.
Earnings before interest and taxes (EBIT) in the second quarter were $591 million, or 13.1 percent of sales, down from $721 million or 14.4 percent of sales a year ago.
Net income attributable to Cummins was $406 million ($2.40 per diluted share), compared to $471 million ($2.62 per diluted share) in the second quarter of 2015. The tax rate in the second quarter of 2016 was 25.7 percent.
“We made strong progress in our cost reduction initiatives in the second quarter, while continuing to invest in and launch new products that will drive profitable growth in the future,” said Tom Linebarger, Cummins Chairman and CEO. “Benefits from restructuring actions, material cost reduction initiatives, and improvements in product quality helped to mitigate the impact of weak demand in a number of our largest markets and will position the Company for stronger performance when markets improve. We have returned more than $1 billion to shareholders so far this year, through a combination of dividends and share repurchases. Our Board of Directors recently approved an increase in our quarterly dividend of 5.1 percent, consistent with our plans to return 75 percent of operating cash flow to shareholders in 2016,” concluded Linebarger.
Based on the current forecast, Cummins expects full year 2016 revenues to be down 8 to 10 percent, lower than our previous guidance of down 5 to 9 percent primarily due to a lower outlook for North America truck production and weaker demand in global off-highway markets. EBIT is expected to be in the range of 11.6 to 12.2 percent of sales, unchanged from three months ago.
Other recent highlights:
- Cummins won the 2016 Award of Excellence in Energy Management from the Clean Energy Ministerial (CEM), a high-level global forum that promotes policies and programs to advance clean energy
- The Board of Directors approved an increase in the Company’s quarterly cash dividend from 97.5 cents per share to $1.025 per share
- Cummins was recently named as one of the Top 50 Companies for Diversity by DiversityInc for the tenth consecutive year
- The Company repurchased 1.8 million shares in the second quarter
Second quarter 2016 detail (all comparisons to same period in 2015)
- Sales – $2.0 billion, down 14 percent
- Segment EBIT – $206 million, or 10.3 percent of sales, compared to $278 million or 12.0 percent of sales
- Segment EBIT reflects a $39 million charge to increase our estimate for the loss contingency recorded in the fourth quarter of 2015
- On-highway revenues declined 15 percent primarily due to weaker truck production in North America
- Sales – $1.5 billion, up 3 percent
- Segment EBIT – $87 million, or 5.6 percent of sales, compared to $113 million or 7.6 percent of sales
- Increased revenue from acquisitions was partially offset by a decline in organic sales in North America and the Middle East and the negative impact from a stronger US dollar
- Sales – $1.3 billion, down 8 percent
- Segment EBIT – $190 million, or 14.9 percent of sales, compared to $223 million or 16.0 percent of sales
- Revenues declined in North America due to lower industry truck production, partially offset by growth in China
Power Systems Segment
- Sales – $921 million, down 16 percent
- Segment EBIT – $90 million, or 9.8 percent of sales, compared to $127 million, or 11.6 percent of sales
- Revenues declined in most major markets due to weak demand for power generation equipment and industrial engines (Original Source)
Shares of Cummins closed yesterday at $121.8, down $0.97 or -0.79%. CMI has a 1-year high of $131.08 and a 1-year low of $79.88. The stock’s 50-day moving average is $115.70 and its 200-day moving average is $107.58.
On the ratings front, Cummins has been the subject of a number of recent research reports. In a report issued on July 22, UBS analyst Steven Fisher reiterated a Hold rating on CMI, with a price target of $111, which represents a potential downside of 8.9% from where the stock is currently trading. Separately, on July 21, Robert W. Baird’s David Leiker reiterated a Sell rating on the stock .
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Steven Fisher and David Leiker have a total average return of 2.1% and 11.7% respectively. Fisher has a success rate of 47.4% and is ranked #1530 out of 4083 analysts, while Leiker has a success rate of 69.9% and is ranked #264.
The street is mostly Neutral on CMI stock. Out of 9 analysts who cover the stock, 6 suggest a Hold rating , 2 suggest a Buy and one recommends to Sell the stock. The 12-month average price target assigned to the stock is $120.50, which represents a slight downside potential from current levels.
Cummins, Inc. operates as a diesel engine manufacturing company. It engages in the designing, manufacturing, marketing, distribution and servicing of diesel and natural gas engines, electric power generation systems and engine-related component products, including filtration, exhaust after-treatment, fuel systems, controls, air handling and power generation systems. Cummins sells its products to original equipment manufacturers, distributors and other customers worldwide. The company operates in four segments: Engine, Power Generation, Components and Distribution. The Engine segment manufactures and markets a broad range of diesel and natural gas powered engines under the Cummins brand name, as well as certain customer brand names, for the heavy- and medium-duty truck, bus, recreational vehicle, light-duty automotive, agricultural, construction, mining, marine, oil and gas, rail and governmental equipment markets. The Components segment supplies products which complement its Engine segment, including filtration products, turbochargers, after-treatment systems, intake and exhaust systems and fuel systems for commercial diesel applications. The Components segment consists of four businesses: Emission Solutions, Turbo Technologies, Filtration and Fuel Systems. The Power Generation segment designs and manufactures most of the components that make up power generation systems, including engines, controls, alternators, transfer switches and switchgear. The Power Generation businesses segment consists of Commercial Products, Generator Technologies, Commercial Projects, Consumer and Power Electronics. The Distribution segment consists of many company-owned and joint venture distributors that serves and distributes its products and services to end-users. The Distribution segment consists of Parts and Filtration, Power Generation, Engines and Service.