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Cummins to Benefit from Innovative Products, Risks Remain
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On Aug 16, 2016, we issued an updated research report on Cummins Inc. (CMI - Free Report) . The company continues to gain from increased use of its engines by a number of original equipment manufacturers (OEMs), share buybacks, innovative products and benefits from acquisitions in North America. However, weakness in the operating markets and a highly competitive environment are considerably affecting its results.
Cummins’ earnings per share decreased 8.4% to $2.40 in the second quarter of 2016 from $2.62 earned in the year-ago quarter. The bottom line, however, surpassed the Zacks Consensus Estimate of $2.15
Revenues declined 10% year over year to $4.53 billion in the reported quarter. The figure, however, outpaced the Zacks Consensus Estimate of $4.51 billion. The year-over-year drop was due to lower production in North America and sluggish global demand for off-highway and power generation equipment.
Cummins is poised to benefit from its innovative products. The transition to new emission standards in various economies will boost the company’s results. In Apr 2016, Cummins announced that it will develop a Class 6 commercial plug-in hybrid electric vehicle that will reduce fuel consumption by 50% compared to conventional Class 6 vehicles.
In addition, Cummins is focused on enhancing shareholder value by pursuing aggressive share repurchases and increasing dividend payouts. The company returned $1 million to shareholders in the first half of 2016. This is consistent with Cummins’ plans to return 75% of its full-year operating cash flow to shareholders this year in the form of share repurchases and dividends. In Jul 2016, the board of directors of Cummins also approved a 5.1% hike in its quarterly cash dividend to $1.025 per share from the prior payout of 97.5 cents.
Cummins has the potential to benefit from higher use of its engines by a number of OEMs, including Nissan Motor Co. Ltd. (NSANY - Free Report) and Navistar International Corporation . In second-quarter 2016, shipments to Fiat Chrysler Automobiles N.V. went up 4% to 33,000 units. Shipments to Nissan also increased due to the launch of the 5-liter V8 engine in fourth-quarter 2015.
However, for 2016, Cummins anticipates revenues to decrease 8%–10% compared with the previous forecast of a 5%–9% fall. The company revised its revenue outlook due to lower expectations for North American truck production and sluggish demand in global off-highway markets. Cummins expects EBIT for 2016 in the range of 11.6%–12.2%, down from 12.5% recorded in 2015.
Moreover, most of Cummins’ businesses are expected to be under pressure in 2016 due to soft global demand. High competition and supplier concentration are other concerns.
Cummins currently carries a Zacks Rank #3 (Hold).
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Cummins to Benefit from Innovative Products, Risks Remain
On Aug 16, 2016, we issued an updated research report on Cummins Inc. (CMI - Free Report) . The company continues to gain from increased use of its engines by a number of original equipment manufacturers (OEMs), share buybacks, innovative products and benefits from acquisitions in North America. However, weakness in the operating markets and a highly competitive environment are considerably affecting its results.
Cummins’ earnings per share decreased 8.4% to $2.40 in the second quarter of 2016 from $2.62 earned in the year-ago quarter. The bottom line, however, surpassed the Zacks Consensus Estimate of $2.15
Revenues declined 10% year over year to $4.53 billion in the reported quarter. The figure, however, outpaced the Zacks Consensus Estimate of $4.51 billion. The year-over-year drop was due to lower production in North America and sluggish global demand for off-highway and power generation equipment.
Cummins is poised to benefit from its innovative products. The transition to new emission standards in various economies will boost the company’s results. In Apr 2016, Cummins announced that it will develop a Class 6 commercial plug-in hybrid electric vehicle that will reduce fuel consumption by 50% compared to conventional Class 6 vehicles.
In addition, Cummins is focused on enhancing shareholder value by pursuing aggressive share repurchases and increasing dividend payouts. The company returned $1 million to shareholders in the first half of 2016. This is consistent with Cummins’ plans to return 75% of its full-year operating cash flow to shareholders this year in the form of share repurchases and dividends. In Jul 2016, the board of directors of Cummins also approved a 5.1% hike in its quarterly cash dividend to $1.025 per share from the prior payout of 97.5 cents.
Cummins has the potential to benefit from higher use of its engines by a number of OEMs, including Nissan Motor Co. Ltd. (NSANY - Free Report) and Navistar International Corporation . In second-quarter 2016, shipments to Fiat Chrysler Automobiles N.V. went up 4% to 33,000 units. Shipments to Nissan also increased due to the launch of the 5-liter V8 engine in fourth-quarter 2015.
However, for 2016, Cummins anticipates revenues to decrease 8%–10% compared with the previous forecast of a 5%–9% fall. The company revised its revenue outlook due to lower expectations for North American truck production and sluggish demand in global off-highway markets. Cummins expects EBIT for 2016 in the range of 11.6%–12.2%, down from 12.5% recorded in 2015.
Moreover, most of Cummins’ businesses are expected to be under pressure in 2016 due to soft global demand. High competition and supplier concentration are other concerns.
Cummins currently carries a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>