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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.
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 - Analyst Report), and Eaton (ETN - Analyst Report). 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-womens 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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