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Cummins (CMI) Q1 Earnings Beat Estimates, Revenues Miss

Cummins Inc.’s CMI adjusted earnings per share decreased 8.3% to $1.87 in the first quarter of 2016 from $2.04 earned in the year-ago quarter. The bottom line, however, surpassed the Zacks Consensus Estimate of $1.77. Net income fell 13% to $321 million from $369 million in the first quarter of 2015.
 

 

On reported basis, net income attributable to Cummins in the first quarter of 2016 was $321 million or $1.87 per share compared to $387 million or $2.14 per share in the first quarter of 2015.

Revenues went down 9% year over year to $4.29 billion in the reported quarter. The figure also missed the Zacks Consensus Estimate of $4.33 billion. The year-over-year decline in the top line was due to currency headwinds, mainly stemming from a stronger U.S. dollar. Lower production in the North American heavy-duty truck market and sluggish global demand for off-highway and power generation equipment also adversely affected the company’s results.

Operating income decreased significantly to $470 million from $548 million a year ago. Earnings before interest and taxes (“EBIT”) dropped to $484 million (11.3% of sales) from $562 million (11.9% of sales) a year ago.

Segment Performance

Sales in the Engine segment fell 10% to $2.3 billion due to lower production in the North American heavy-duty truck market and sluggish demand in the power generation, oil and gas, commercial marine and mining markets. The segment’s EBIT decreased to $200 million (8.6% of sales) from $253 million (9.7% of sales) a year ago.

Sales at the Components segment dropped 5% to $1.2 billion owing to lower sales in North America and unfavorable currency impact, partially offset by growth in China. This segment’s EBIT declined to $173 million (14% of sales) from $195 million (15% of sales) in the prior-year quarter.

Sales at the Power Generation segment fell 19% to $550 million due to a drop in sales in most regions, with major declines in Asia and Latin America. The segment’s EBIT went down to $31 million (5.6% of sales) in first-quarter 2016 from $49 million (7.2% of sales) in first-quarter 2015.

Sales at the Distribution segment dropped 1% to $1.5 billion. Revenues benefited from the company’s acquisitions undertaken and expansion in the international market. However, this gain was offset by adverse currency movements and a sales decline in off-highway markets in North America. The segment’s EBIT rose to $95 million (6.5% of sales) from $88 million (6% of sales) a year ago.

Financial Position

Cummins’ cash and cash equivalents decreased to $915 million as of Apr 3, 2016, from $1.7 billion as of Dec 31, 2015. Long-term debt totaled $1.78 billion as of Apr 3, 2016, compared with $1.64 billion as of Dec 31, 2015.

In the first quarter of 2016, Cummins’ net operating cash flow increased to $263 million from $173 million in the same period a year ago. Capital expenditures decreased to $71 million from $100 million in the prior-year period.

Capital Deployment

Cummins is focused on enhancing shareholder value by pursuing aggressive share repurchases and increasing dividend payouts. The company returned $745 million to shareholders in the first quarter of 2016 through dividends and share repurchases. This is consistent with Cummins’ plans to return 75% of its full-year operating cash flow to shareholders this year in the form of share repurchases and dividends.

2016 Guidance

For 2016, Cummins anticipates revenues to decline by 5%–9%. EBIT is expected in the 11.6%–12.2% range.

Zacks Rank

Currently, Cummins carries a Zacks Rank #3 (Hold).

Some better-ranked automobile stocks include Lear Corp. LEA, Wabash National Corp. WNC and Oshkosh Corporation OSK. All the three stocks sport a Zacks Rank #1 (Strong Buy).

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CUMMINS INC (CMI): Free Stock Analysis Report
 
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