Back to top

Image: Bigstock

Cummins (CMI) Up 1.8% Since Last Earnings Report: Can It Continue?

Read MoreHide Full Article

A month has gone by since the last earnings report for Cummins (CMI - Free Report) . Shares have added about 1.8% 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 Q4 Earnings Miss Estimates

Cummins reported fourth-quarter 2022 earnings of $4.52 per share, which reflects substantial improvement from the prior-year quarter of $2.85 per share. But the figure missed the Zacks Consensus Estimate of $4.66. Weaker-than-expected EBITDA in the Engine, Components and New Power segments resulted in the underperformance. Cummins’ revenues totaled $7.8 billion, up 32.8% from the $5.9 billion recorded in the year-ago quarter. The top line also beat the Zacks Consensus Estimate of $7.4 billion. 

Key Takeaways

In the reported quarter, sales in the Engine segment were up 9% year over year to $2.63 billion. The metric missed the Zacks Consensus Estimate of $2.66 billion. The segment’s EBITDA increased to $364 million (accounting for 13.8% of sales) from $264 million (10.9% of sales). But the metric lagged the Zacks Consensus Estimate of $432 million. On-highway revenues climbed 11%, driven by pricing actions and strong demand in the North American truck markets, strong aftermarket demand and smart pricing actions. Off-highway revenues declined 1% as a result of a slowdown in China construction. Sales increased by 21% in North America but fell by 16% in international markets.

Sales in the Distribution segment totaled $2.3 billion, up 13% year over year and beat the consensus mark of $2.1 billion. The segment’s EBITDA came in at $256 million (11% of sales), up from the previous year’s $178 million (8.6% of sales). Also, the metric surpassed the consensus mark of $225 million. Revenues from North America jumped 24%, while international sales plunged by 5%. Higher revenues were driven by increased demand for parts and services.

Sales in the Components segment were up 13% from the prior-year quarter to $3.1 billion (excluding Meritor buyout impact) and surpassed the consensus mark of $3.05 billion. Sales in North America were up 23%, while the same in international markets increased by 1% amid strong demand in India, partially offset by weak demand from China. The segment’s EBITDA was $377 million (12.2% of sales) compared with the year-ago figure of $205 million (11.9% of sales). The metric missed the Zacks Consensus Estimate of $421 million.

Sales in the Power Systems segment rose 22% from the year-ago quarter to $1.3 billion, topping the consensus mark of $1.2 billion. The segment’s EBITDA increased to $185 million (14% of sales) from $97 million (8.9% of sales) and beat the consensus mark of $127 million. Power generation revenues were up 25% and industrial revenues rose 17%.

Sales in the New Power segment came in at $75 million, soaring 79% from the year-ago level and outperforming the consensus metric of $62 million. The segment incurred a pretax loss of $97 million, which was wider than the consensus mark of $78 million.

Financials

Cummins’ cash and cash equivalents were $2,101 million as of Dec 31, 2022, down from $2,592 million on Dec 31, 2021. Long-term debt totaled $4,498 million, up from $3,579 million on Dec 31, 2021. During FY2022, Cummins maintained its streak of increasing cash dividends for the 13th consecutive year in 2023. It spent a total of $1.2 billion in dividends and share repurchases in 2022.

2023 Outlook

Cummins expects revenues to grow in the range of 12 year over year. EBITDA is forecasted in the range of 14.5%-15.2% of sales. Cummins continues to stick to its plan of returning nearly 50% of its operating cash flow to shareholders in the form of dividends and share repurchases.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, 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 A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Cummins Inc. (CMI) - free report >>

Published in