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Cummins Inc. (CMI - Analyst Report) posted a sharp 39.5% fall in earnings to $1.44 per share in the first quarter of 2013 from $2.38 in the same quarter of 2012 (all excluding special items), missing the Zacks Consensus Estimate of $1.86.

Net earnings nearly halved to $271 million from $455 million in the first quarter of 2012. Lower earnings were attributable to weaker demand in the company’s most major geographies and end markets.

Revenues in the quarter dipped 12% to $3.9 billion, which was marginally lower than the Zacks Consensus Estimate of $4.0 billion. Revenues in North America dropped 15% while international revenues decreased 10% during the quarter.

Cummins’ Engine segment experienced the most significant decline in demand during the quarter with an 18% fall in unit volumes. Shipments of high horsepower engines ebbed 24% due to weakness in mining, oil and gas and power generation markets.

Earnings before interest and taxes (EBIT) were $437 million or 11.1% of sales, compared with $658 million or 14.7% a year ago.

Segment Accomplishments

Revenues from the Engine segment went down 19% to $2.3 billion. The decline in revenues was attributable to lower demand in North American heavy duty truck, oil and gas, and bus markets and fall in global mining. The segment EBIT plunged 48.8% to $195 million, or 8.5% of sales, compared with $381 million or 13.3% in the prior-year quarter.

Revenues from the Component segment slipped 7% to $1.0 billion due to lower on-highway demand in North America. EBIT declined 16.8% to $119 million, or 11.7% of sales, compared with $143 million or 13.0% in the prior-year quarter.

Revenues from the Power Generation segment tumbled 4% to $746 million due to lower demand in Europe, Brazil and China, partially offset by stronger revenues in North America, India and Africa. Segment EBIT fell 32.9% to $51 million, or 6.8% of sales, compared with $76 million or 9.7% a year ago.

Revenues from the Distribution segment scaled down 11% to $778 million, driven by weaker demand in the construction market in Europe, the oil and gas market in North America and a reduction in orders for power generation in Asia Pacific and the Middle East. However, segment EBIT upped 1.1% to $95 million, or 12.2% of sales, compared with $94 million or 12.1% in the previous year.

Financial Position

Cummins had cash and cash equivalents of $1.5 billion as of Mar 31, 2013, up from $1.4 billion at the end of 2012. Long-term debt increased to $790 million as of Mar 31, 2013, translating into a long-term debt-to-capitalization ratio of 10.6%, from $759 million or 10.3% at the end of 2012.

Cash flow from operating activities improved significantly to $428 million from $21 million in the first quarter of 2012, due to many factors such as lower inventories, higher accounts payable and lower accounts and notes receivable. Capital expenditures declined to $114 million from $126 million in the first quarter of 2012.


Cummins expects revenues to be flat to down 5% in 2013. The company also expects EBIT margin between 13% and 14% for the year.

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, the company retains a Zacks Rank #3 (Hold).

Other stocks that are performing well in the industry include Visteon Corp. (VC - Snapshot Report), Tower International, Inc. (TOWR - Snapshot Report) and STRATTEC Security Corporation (STRT - Snapshot Report). They carry a Zacks Rank #1 (Strong Buy).

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