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Why Is Cummins (CMI) Up 5.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Cummins (CMI - Free Report) . Shares have added about 5.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cummins due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Cummins Delivers Dismal Q3 Results, Trims View

Cummins reported earnings of $3.83 per share in third-quarter 2019, missing the Zacks Consensus Estimate of $3.84. Lower-than-expected profits from the Engine segment led to the underperformance. Earnings before interest & tax for the segment were $341 million, missing the Zacks Consensus Estimate of $403 million.

In the reported quarter, net income attributable to the company was $622 million compared with net income of $692 million in the prior-year quarter.

Its revenues declined 3% year over year to $5.76 billion in the reported quarter. Moreover, revenues missed the Zacks Consensus Estimate of $5.83 billion.

Earnings before interest, taxes, depreciation and amortization (EBITDA) declined to $958 million (16.6% of sales) from $983 million (16.5% of sales) recorded in the prior-year quarter.

Segmental Performance

Sales for the Engine segment declined 11% year over year at $2.4 billion. The segment’s EBITDA declined to $341 million (14.1% of sales) from $405 million (14.9% of sales) a year ago.

Sales for the Distribution segment grew 4% to $2 billion. The segment’s EBITDA rose to $186 million (9.3% of sales) from $155 million (8% of sales) a year ago.

Sales for the Components segment declined 6% to $1.7 billion. The segment’s EBITDA was $286 million (17.3% of sales) compared with the year-ago quarter figure of $288 million (16.4% of sales).

Sales for the Power Generation segment improved 2% to $1.1 billion. The segment’s EBITDA declined to $158 million (14% of sales) in third-quarter 2019 from $163 million (14.7% of sales) in the year-ago quarter.

Sales for the Electrified Power segment were $9 million. The segment witnessed EBITDA loss of $36 million.

Financial Position

Cummins’ cash and cash equivalents were $1.6 billion as of Sep 29, 2019, up from $1.3 billion as of Dec 31, 2018. Long-term debt totaled $1.62 billion as of Sep 29, 2019, compared with $1.60 as of Dec 31, 2018.

Outlook

For 2019, Cummins now projects revenue decline of 2%. Initially, it expected revenues to remain at the same level as 2018. The company revised projection downward on lower truck production in North America, India, Brazil and Europe, and a decline in demand in off-highway markets, including North America construction and global mining. EBITDA is now expected to be 15.9-16.3% (compared with previously mentioned 16.25-16.75%) on lower volume and the Hydrogenics acquisition. Further, the company anticipates returning 75% of operating cash flow to shareholders in forms of dividends and share repurchases.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -25.2% due to these changes.

VGM Scores

Currently, Cummins has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cummins has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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