Cummins Earnings Slump Along With North American Truck Market
Engine maker Cummins Inc. said the slumping North American truck market pulled down second quarter earnings and revenue but it partially offset that with restructuring, quality and cost-cutting initiatives.
Net income in the quarter ended June 30 was $406 million, or $2.40 per share, down 14% compared with $471 million, or $2.62 a year earlier.
Cummins is the only independent engine manufacturer supplying the North American medium- and heavy-duty commercial vehicle market.
The earnings per share beat the street estimate of $2.16, analyst Jamie Cook with Credit Suisse wrote in an email. “Overall, CMI's operating performance is fairly impressive considering the challenging end-market outlook.”
Second-quarter revenue of $4.5 billion decreased 10% 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, the company said.
“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,” Tom Linebarger, Cummins chairman and CEO, said in a statement.
Cummins said sales dropped 14% in its engine segment, while on-highway revenues declined 15% primarily due to weaker truck production in North America.
“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,” Linebarger said.
But the company does not see that happening this year.
Cummins lowered its full-year guidance by 8% to 10%, compared with its previous guidance of down 5% to 9% due mostly to a lower outlook for North America truck production and weaker demand in global off-highway markets.
Also, Linebarger said, “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%, consistent with our plans to return 75% of operating cash flow to shareholders in 2016.”
“Investors look to CMI as a proxy for emerging markets, especially China, which we estimate contributes about 10% of CMI’s earnings before interest and taxes; China’s HD truck industry sales are up 15% year-to-date versus CMI’s outlook for down 4% in this market for 2016,” Ann Duignan, an analyst with JP Morgan said in an email.
Cummins 10-Q filing with the U.S. Security and Exchange Commission, containing year-to-date results, was not immediately available.
