May 6, 2013 1:30 AM, EDT

Suppliers’ Quarterly Net Income Declines

Cummins Earns Less, Meritor Posts Loss
By Seth Clevenger, Staff Reporter

This story appears in the May 6 print edition of Transport Topics.

Most leading suppliers to the trucking industry that reported earnings late last month said profits declined, or turned to losses, in the first three months of 2013.

Engine maker Cummins Inc. and supplier Allison Transmission Holdings Inc. reported lower earnings, while component makers Meritor Inc. and Commercial Vehicle Group Inc. swung to losses for the quarter.

But Eaton Corp. posted an earnings gain.

Cummins, based in Columbus, Ind., said its first-quarter profit and revenue fell from a year ago due to “weaker demand in most major geographies and end markets,” including its North American heavy-duty truck engine business.

The truck engine and component maker said its net income fell 38% to $282 million, or $1.49 per share, from $455 million, or $2.38, a year ago. Analysts had expected earnings of $1.86 per share, Bloomberg News reported.

Sales fell 12.3% to $3.92 billion, from $4.47 billion a year earlier, Cummins said.

Cummins said its engine-segment sales fell 19% to $2.3 billion, from $2.86 billion a year ago, as volumes declined 18%. The segment’s earnings before interest and taxes dropped to $195 million, from $381 million.

“While uncertainty remains in a number of markets, we expect that the first quarter will mark the low point of the year for company revenues,” CEO Tom Linebarger said in the company’s April 30 report. “We expect moderately improving order trends in on-highway and construction markets in North America to be the most significant drivers of improvement in revenues going forward.”

Heavy-duty truck engine sales fell to $654 million in the quarter, from $892 million in the same period last year.

Shipment of engines for North American heavy-duty trucks fell to 19,000 units in the quarter, down 37% year over year, Linebarger said on a conference call.

“Demand declined as our industry continued to run at lower production levels, following a period of overproduction in the first half of 2012,” he said. “Retail sales for the industry have exceeded industry production for the last six months and OEM backlogs are increasing. We do expect to see sequential improvement through the year driven largely by replacement demand.”

Cummins projected that full-year revenue will be flat to down 5%.

Meanwhile, Meritor reported losses from continuing operations of $4 million, or 4 cents a share, in its fiscal second quarter, compared with net income of $20 million, or 21 cents, a year ago.

The Troy, Mich.-based company said operating losses include $11 million in restructuring charges. Sales for the quarter ended March 31 fell 21.7% to $908 million, from $1.16 billion, the company said.

CEO Chip McClure said his company expects revenue to strengthen in the second half of the year. On an April 30 conference call, he said the company was pleased to see higher order intake in North America and Europe, “which is supporting a step-up in production for commercial trucks.”

Meritor also announced that it has agreed to sell its 50% stake in Brazilian joint venture Suspensys Sistemas Automotivos LTDA for $195 million. The company said it expects the sale, which is subject to Brazilian antitrust approval, to be complete by the end of its fiscal year.

But Cleveland-based Eaton Corp., a diversified manufacturer, said its first-quarter earnings rose 22%, driven by its $13 billion acquisition of Ireland-based Cooper Industries in November 2012.

Net income rose to $378 million, from $311 million a year earlier, but earnings per share fell to 79 cents, from 91 cents, as the number of outstanding shares increased to 475.1 million, from 339.8 million.

Eaton said operating profits at its vehicle segment decreased 18% to $132 million as sales fell 11% to $939 million.

Overall sales jumped 34% to a quarterly record of $5.31 billion, from $3.96 billion, Eaton said.

Eaton, which entered 2013 anticipating a year of “subpar global economic growth,” continues to expect its markets to grow about 2% to 3% this year, “most likely toward the lower end of the range,” CEO Alexander Cutler said in an April 29 statement.

Allison Transmission Holdings Inc., based in Indianapolis, said its first-quarter income and revenue declined from a year ago on lower demand in the North American hydraulic fracturing market and weaker global on-highway markets.

Net income fell to $27.5 million, or 15 cents per share, from $58 million, or 31 cents, a year ago, the company said. Quarterly revenue dropped 24% to $457 million, with North American on-highway sales declining 14% to $188 million, the transmission maker said April 29.

Allison also affirmed its expectations that full-year sales will decline 6% to 8%.

Commercial Vehicle Group Inc., a supplier of cab-related products, posted a first-quarter loss of $4.6 million, or 16 cents per share, compared with net income of $12 million, or 42 cents, a year earlier. Revenue fell 25% to $177.8 million, from $237 million a year ago, the company said.