CAT Caterpillar Inc

By Bob Tita 

Cummins Inc. said its fourth-quarter profit plunged 64%, becoming the latest U.S. equipment manufacturer pulled down by a sliding demand for trucks in North America, anemic commodity prices and slower growth in developing overseas markets.

Cummins, which supplies diesel engines for commercial trucks, construction and mining machinery and power generators, widened its forecasted decline for 2016 revenue to down 5% to 9% from 2015 after projecting a 5% decrease in October. Caterpillar Inc., Eaton Corp., Meritor Inc. and other companies facing the commercial truck and off-road machinery markets expect lower 2016 sales as well.

"Due to weak or slowing demand in many our major markets, 2016 will be another challenging year," Chairman and Chief Executive Tom Linebarger said during a conference call Thursday. "The market circumstances are everything we expected."

Cummins' latest outlook implies 2016 revenue of $17.3 billion to $18 billion with earnings per share of about $7.90, according to analysts. Cummins' revenue for 2015 was about flat with 2014 at $19.1 billion. Profit for the year declined 15% to $1.4 billion, or $7.84 a share.

Cummins stock was recently trading up 7.3% at $97.29 a share as part of a broad advance by industrial stocks Thursday.

Fourth-quarter profit was lower than expected, reflecting deteriorating demand for Cummins' commercial trucks in North America. Truck buyers dialed back purchases late in the year as U.S. industrial activity weakened. Cummins, the leading supplier of engines for heavy-duty commercial trucks, said fourth-quarter sales of heavy-duty truck engines fell 11% from a year earlier to $700 million.

A flurry of truck orders early in 2015 pushed North American truck sales to their highest level since 2006. With most trucking fleets already well-stocked with new equipment, Columbus, Ind.-based Cummins, expects industrywide production of heavy-duty trucks to fall 25% this year. The decline is in line with forecasts offered this week by truck transmission maker Eaton Corp. and truck axle manufacturer Meritor Inc.

Cummins expects revenue from heavy-duty truck engines to fall 20% this year from 2015 because of declining truck volumes in North America. Cummins recorded a fourth-quarter impairment charge of $211 million to account for the diminished value of its light-duty truck engine business. Cummins, which supplies diesel engines for Ram and Nissan pickup trucks, expanded production capacity for V-8 engines in the U.S. in anticipation of additional customers.

"In light of the current economic situations [that is] is less likely in the short-term," said Rich Freeland, chief operating officer. "The line remains intact. We're not actually getting rid of any assets. We'll continue to look for more customers. We'll add some non-pickup truck customers in 2016."

Cummins is facing tough business conditions in once-highflying engine markets in China and Brazil. The company said revenue from Brazil plunged 48% last year under the weight an economic recession and low prices for mined commodities that are crimping demand for high-horsepower Cummins engines used in trucks, mining equipment and power generators.

"At some point we will see a return to growth in Brazil, but that appears unlikely in 2016," Mr. Linebarger said.

Meanwhile in China, Cummins said its 2015 revenue of $3.3 billion was flat with 2014. Mr. Linebarger said the company increased its engine share in China's truck market, but sales of trucks and other machinery continue to fall as the country shifts the focus of its economy to consumer spending and away from infrastructure construction project and factory expansions.

"Almost all of our markets are declining, even as the economy grows. That's a reflection of that shift," said Mr. Linebarger, noting that more efficient use of trucks and machinery is contributing to lower demand. Cummins expects industrywide sales in most of its end-markets in China to contract by about 10% this year with a slightly a lower decline expected for commercial trucks.

Overall for the fourth quarter, Cummins reported a profit of $161 million, or 92 cents a share, down from $444 million, or $2.44 a share, a year earlier. Excluding one-time items, per-share earnings fell to $2.02 from $2.56 a year ago. Revenue declined 6% to $4.77 billion. Analysts expected $2.11 in per-share earnings and $4.68 billion in revenue.

Write to Bob Tita at robert.tita@wsj.com

(END) Dow Jones Newswires

February 04, 2016 15:49 ET (20:49 GMT)

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