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Cummins Inc. (CMI - Analyst Report) posted earnings per share of $1.94 (excluding special items) in the fourth quarter of 2013, compared with $1.93 reported in the year-ago quarter. However, earnings lagged the Zacks Consensus Estimate of $1.98 per share. Net income came in at $362 million compared with $365 million in the fourth quarter of 2013.

Revenues in the quarter rose 6.9% year over year to $4.6 billion, mainly driven by higher revenues in North America, China and Brazil partially offset by poor sales in Mexico, India and Australia. Revenues surpassed the Zacks Consensus Estimate of $4.3 billion.

Operating income increased about 18.9% to $553 million from $465 million a year ago. Earnings before interest and taxes (EBIT) increased 6.4% to $566 million or 12.3% of sales, compared with $532 million or 12.4% a year ago.

Fiscal 2013 Performance

Cummins’ adjusted earnings dropped 11.9% year over year to $7.52 per share for full-year 2013, missing the Zacks Consensus Estimate of $7.58. Revenues for full-year 2013 decreased marginally to $17.30 billion from $17.33 billion in 2012.

Meanwhile, revenues surpassed the Zacks Consensus Estimate of $16.9 billion. Revenues benefited from improvement in the Components business, increased share in the North American medium-duty truck market and favorable impacts from distributor acquisitions. This was offset by weakness in global mining markets, international power generation and the North American heavy-duty truck market.

Segment Performance

Sales in the Engine segment rose 2% to $2.6 billion due to increased demand for construction equipment in international markets and higher demand for medium duty trucks in North America. This was partially offset by weakness in global mining markets and lower demand in the North American bus market. The segment’s EBIT decreased to $235 million or 9.2% of sales, compared with $272 million or 10.9% a year ago.

Sales in the Components segment grew 21% to $1.1 billion on the back of strong on-highway demand in Europe, China and North America. This segment’s EBIT surged 66.7% to $140 million, or 12.3% of sales, versus $84 million or 8.9% in the prior-year quarter.

Sales in the Power Generation segment went down 1% to $759 million due to weak revenues in Europe and India partially offset by higher demand in North America and the Middle East. The segment’s EBIT fell 14.8% to $46 million, or 6.1% of sales, compared with $54 million or 7.1% in the fourth quarter of 2012.

Sales in the Distribution segment rose 18% to $1.1 billion (excluding acquisitions) on enhanced demand for power generation equipment and parts and services in the U.S and benefits from acquisitions. The segment’s EBIT increased 9.2% to $107 million, or 10% of sales, versus $98 million or 10.8% a year ago.

Financial Position

Cummins’ cash and cash equivalents increased to $2.7 billion as of Dec 31, 2013 compared with $1.4 billion at the end of 2012. Debt increased to $1.69 billion as of Dec 31, 2013 from $714 million as of Dec 31, 2012. Consequently, debt to capitalization ratio was 18.4% as of Dec 31, 2013 compared with 9.8% as of Dec 31, 2012.

In 2013, Cummins’ net operating cash flow surged to $2.1 billion from $1.5 billion in 2012. Capital expenditures in 2013 declined to $676 million from $690 million in the previous year. Cummins repurchased 3.3 million shares for $381 million during 2013, compared with $256 million worth of shares a year ago.

2013 Guidance

For 2014, Cummins expects revenues to increase 4% to 8%. The company also expects its 2014 EBIT margin to be in the 12.75%–13.25% range. Cummins also anticipates that earnings will increase at a faster pace than revenues.

Our Take

Cummins Inc. is a leading worldwide designer, manufacturer and distributor of diesel and natural gas engines, electric power generation systems, and engine-related components, fuel systems, controls and air handling systems. Currently, CMI retains a Zacks Rank #2 (Buy).

Other stocks that are performing well in the broader industry include STRATTEC Security Corp. (STRT - Snapshot Report), Meritor, Inc. (MTOR - Analyst Report) and Gentex Corp. (GNTX - Snapshot Report). All three companies carry a Zacks Rank #1 (Strong Buy).

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