Cummins (CMI) Q4 Earnings Top Estimates, Guidance Revised

Cummins Inc. CMI reported adjusted earnings of $3.03 per share in fourth-quarter 2017, surpassing the Zacks Consensus Estimate of $2.65. The company’s bottom line was $2.25 in the year-ago quarter.

Excluding the tax reform impact, net income was $503 million in fourth-quarter 2017.

Revenues improved 22% year over year to $5.48 billion in the reported quarter. The top line also outpaced the Zacks Consensus Estimate of $5.2 billion. The year-over-year rise was owing to increased demand for trucks, construction and mining equipment.

Cummins Inc. Price, Consensus and EPS Surprise

Cummins Inc. Price, Consensus and EPS Surprise | Cummins Inc. Quote

 

Operating income increased to $595 million from $507 million a year ago. Earnings before interest and taxes (EBIT) were $620 million (11.3% of sales) compared with $526 million (11.7% of sales) a year ago.

Fiscal 2017 Results

Cummins reported adjusted earnings of $5.97 per share in fiscal 2017, down from $8.23 earned in fiscal 2016. Also, earnings missed the Zacks Consensus Estimate of $10.22.

Net income fell to $999 million from $1.4 billion recorded a year ago. Consolidated revenues rose to $20.43 billion, up from $17.5 billion in the prior fiscal. Moreover, the figure beat the Zacks Consensus Estimate of $20.15 billion.

Segmental Performance

Sales at the Engine segment grew 16% to $2.3 billion on the back of a 14% increase in on-highway revenues and 27% in off-highway revenues, resulting from growing demand in global truck and construction market. The segment’s EBIT increased to $224 million (9.8% of sales) from $194 million (9.9% of sales) a year ago.

Sales at the Components segment surged 32% to $1.6 billion owing to revenue growth of 35% in North America in addition to international sales increase of 30% on the back of higher commercial truck manufacturing in North America and China. The segment’s EBIT was $168 million (10.8% of sales) compared with the year-ago tally of $140 million (11.9% of sales).

Sales at the Power Generation segment augmented 18% to $1.1 billion, banking on increased demand in mining, oil and gas and power generation markets. The segment’s EBIT rose to $95 million (8.6% of sales) in fourth-quarter 2017 from $68 million (7.3% of sales) in fourth-quarter 2016.

Sales at the Distribution segment shot up 16% to $1.9 billion. Revenues benefited from a 21% rise in the North American segment and a 7% ascent in the international markets. The segment’s EBIT plunged to $97 million (5% of sales) from $122 million (7.3% of sales) a year ago.

Financial Position

Cummins’ cash and cash equivalents increased to $1.37 billion as of Dec 31, 2017 from $1.12 billion as of Dec 31, 2016. Long-term debt totaled $1.59 billion as of Dec 31, 2017, a slight increase from $1.57 billion recorded on Dec 31, 2016.

At the fiscal 2017-end, Cummins’ net operating cash inflow increased to $2.3 billion from $1.9 billion in the same period last year. Capital expenditures declined to $506 million from $531 million within the same time frame.

Capital Deployment

In 2017, Cummins returned $1.2 billion to shareholders in the form of dividends and share buybacks. The company achieved its plan to return 50% of operating cash inflow in the year.

2018 Guidance

For 2018, Cummins anticipates revenues to grow 4-8% compared with the prior outlook of 14-15% rise in revenues. EBIT is expected in the range of 15.8-16.2%, an increase from the previous projection of 11.8-12.2%.

Zacks Rank & Key Picks

Cummins carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the auto space are Peugeot SA PUGOY, Lear Corporation LEA and Genuine Parts Company GPC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peugeot has an expected long-term growth rate of 16.6%. Shares of the company have climbed 2.6% in the last 30 days.

Lear Corp has an expected long-term growth rate of 7.1%. The stock has jumped 21.2% in the last six months.

Genuine Parts has an expected long-term growth rate of 7.2%. In the last six months, shares of the company have rallied 18.4%.

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