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Cummins (CMI) Down 5.7% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Cummins Inc. (CMI - Free Report) . Shares have lost about 5.7% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is CMI due for a breakout? 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 Surpasses Q1 Earnings & Revenue Estimates

Cummins reported adjusted earnings of $3.30 per share in first-quarter 2018, surpassing the Zacks Consensus Estimate of $2.91. The company’s earnings per share were $2.36 in the year-ago quarter.

Excluding tax charges, net income was $403 million in first-quarter 2018.

Revenues improved 21% year over year to $5.57 billion in the reported quarter. The top line also surpassed the Zacks Consensus Estimate of $5.17 billion. The year-over-year rise was owing to strong demand for trucks, construction and mining equipment.

Operating income decreased to $530 million from $540 million a year ago. Earnings before interest and taxes (EBIT) were $700 million (12.6% of sales) compared with $705 million (15.4% of sales) a year ago.

Segmental Performance

Sales at the Engine segment grew 21% to $2.4 billion on the back of an increase of 20% in on-highway revenues and 23% in off-highway revenues, resulting from growing demand in global truck and construction market. The segment’s EBIT increased to $286 million (11.7% of sales) from $273 million (13.5% of sales) a year ago.

Sales at the Components segment surged 30% to $1.8 billion, owing to revenue growth of 35% in North America, along with 25% increase in international sales, on the back of higher commercial-truck manufacturing in North America. The segment’s EBIT was $227 million (12.9% of sales) compared with the year-ago tally of $216 million (16.1% of sales).

Sales at the Power Generation segment improved 22% to $1.1 billion, banking on increased demand in mining, oil and gas, and power generation markets. The segment’s EBIT rose to $142 million (13.2% of sales) in first-quarter 2018 from $85 million (9.6% of sales) in the year-ago quarter.

Sales at the Distribution segment increased 13% to $1.9 billion. Revenues benefited from 15% rise in the North American segment and 8% growth in international markets. The segment’s EBIT plunged to $123 million (6.6% of sales) from $130 million (7.9% of sales) a year ago.

Financial Position

Cummins’ cash and cash equivalents decreased to $1.21 billion as of Apr 1, 2018, from $1.37 billion as of Dec 31, 2017. Long-term debt totaled $1.57 billion as of Apr 1, 2018, a slight decline from $1.59 billion recorded on Dec 31, 2017.

At the end of first-quarter 2018, Cummins’ net operating cash outflow was $117 million compared with an inflow of $379 million in the same period last year. Capital expenditures declined to $72 million from $81 million in the same time frame.

Capital Deployment

During first-quarter 2018, Cummins returned $341 million to shareholders in forms of dividends and share buybacks. This was in sync with the company’s plan to return 50% of operating cash inflow in 2018.

2018 Guidance

For 2018, Cummins anticipates revenues to rise 10-14% compared with the prior outlook of 4-8%. EBIT is expected to be 15.4-15.8%, a decline from the previous projection of 15.8-16.2%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been eight revisions higher for the current quarter. Last month, the consensus estimate has shifted by 8.7% due to these changes.

Cummins Inc. Price and Consensus

 

VGM Scores

At this time, CMI has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stocks 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.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, CMI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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