Cummins Inc (CMI) this morning reported record sales and
earnings for the second quarter on strong growth in nearly every
global market. Three of the company's four major business segments
-- Engines, Components, and Distribution -- each delivered record
sales and earnings.
The fourth segment, Power Generation, still
delivered 28% revenue growth with sales of $909 million. Shares
have been trading as high as $114, up over 7% to a two-month high
on the news in early trade.
The global giant in diesel and natural gas engines
earned $505 million, or $2.60 per share compared to $246 million,
or EPS of $1.25 in the year-ago quarter. The Zacks Consensus
Estimate, compiled from 15 analysts covering the company, called
for EPS of $2.01. From the company press release...
"Second quarter sales were $4.6 billion, up 45
percent from the same period last year. Earnings before interest
and taxes (EBIT) were $775 million and included a $68 million gain
on the sale of the exhaust business from our Components segment.
Excluding the gain from the sale of the exhaust business, EBIT was
$707 million, or 15.2 percent of sales, the highest level and
percent of sales the company has reported in any quarterly period
in its history."
Earnings Beat Goes On
Excluding the gain on the sale, EPS of $2.41
represents a 20% earnings surprise from CMI over Wall Street
expectations. In the first quarter, the company surprised analysts
with a nearly 22% beat. Even the second quarter of last year was a
40% beat.
This momentum does not appear about to slow down
either as the company provided a robust outlook for the remainder
of the year. Cummins today increased both its sales and EBIT
forecast for 2011.
The engine dominator now expects to earn 14.5% EBIT
on $18 billion in sales in 2011. This forecast excludes any current
or future gains from the sale of businesses and exceeds previous
expectations closer to $17 billion in revenues.
"The Company's performance in the second quarter
underscores the success of our long-term strategy to diversify and
seek profitable growth across geographies and end markets," says
Tim Solso, Chairman and Chief Executive Officer. "As a result of
our efforts over the last 10 years, Cummins is better positioned
than ever to grow in this global economy."
Because the World Needs Powerful and Clean
Engines
Cummins is named for Clessie Cummins, an auto
mechanic and inventor who, with the financial support of Columbus
banker-investor William Glanton Irwin was among the first to see
the commercial potential of diesel engine technology.
The company's major products include diesel and
natural gas engines for on- and off-highway applications, power
generating systems and standby generators, engine filters, advanced
exhaust after-treatment products, turbochargers, and automotive
fuel systems.
Their customer base includes Chrysler, Daimler AG,
Volvo, PACCAR (PCAR), Navistar, CNH Global (CNH),
Komatsu, Ford, and Volkswagen.
Now the largest independent maker of diesel engines
and related products in the world, Cummins is ready to dominate the
next engine growth area when more trucks that run on natural gas
are demanded by energy- and environmentally-conscious countries,
businesses, and consumers around the world. See my article "Naked
Put Trades: CMI and WPRT" for more on this innovation.
And Emerging Markets Fuel Opportunities
Cummins has operations in more than 190 countries
and territories worldwide, with 60% of its sales generated outside
the United States. They are a leading maker of diesel engines and
related products in China, India, Brazil, the United Kingdom, and
Mexico.
As I write about here almost weekly, Emerging
Markets growth in terms of population, urbanization, transportation
and related infrastructure is a driving force of new profits for
companies like Cummins, Caterpillar (CAT), and Eaton
(ETN). See my article from Monday "Industrial Strength Power" for
more on that story.
CMI currently holds a Zacks #1 Rank (strong buy)
for its earnings momentum. It will likely maintain this top spot as
analysts now will spend the next week or so revising their current
estimates upward after the company's strong forward guidance.
Global Citizen, Tons of Discipline
From the company website, I offer below examples of
its outstanding citizenship. These may not be a factor in their
business strategies and growth, but they probably don't hurt too
much when it probably pays to maintain your reputation as a good
guy to do business with in 190 different countries.
Cummins was named one of the world's most ethical
companies by Ethisphere magazine in 2010 and 2011, and was named to
the Dow Jones World Sustainability Index for the sixth straight
year in 2010.
Cummins was named to Corporate Responsibility
magazine's list of "Best Corporate Citizens" for the 11th year out
of the last 12 in 2011.
Cummins China was a finalist for the Award for
Corporate Excellence given by the U.S. State Department each year
to foreign operations of U.S.-based companies for their work in
corporate responsibility.
In January 2007, Cummins became the first company
to meet the 2010 U.S. EPA emissions standards for nitrogen oxides
with its 6.7-liter turbo diesel engine made for the Dodge Ram
pickup.
Cummins helped create and continues to support the
only all-women’s engineering college in India.
All in all, it looks like Cummins is poised to
continue its domination of global markets for industrial-strength
diesel engines. All eyes will be on the market for natural gas
engines in the coming years to see if they own that one too.
Kevin Cook is a Senior Stock Strategist for
Zacks.com
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