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Why Is Cummins (CMI) Up 3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Cummins (CMI - Free Report) . Shares have added about 3% in that time frame, underperforming 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 catalysts.

Cummins’ Q2 Earnings & Revenues Drive Past Estimates

Cummins reported adjusted earnings of $4.14 per share in second-quarter 2018, beating the Zacks Consensus Estimate of $3.67. The company’s earnings per share were $2.53 in the year-ago quarter.

During the reported quarter, net income was $545 million compared with $424 million in the prior-year quarter.

Revenues improved 21% year over year to $6.13 billion in the reported quarter. The top line also surpassed the Zacks Consensus Estimate of $5.76 billion. The year-over-year rise was owing to the improved demand for trucks, construction and power generation equipment.

Earnings before interest, taxes, depreciation and amortization (EBITDA) rose $897 million (14.6% of sales) compared with $764 million (15% of sales) recorded in the prior-year quarter.

Segmental Performance

Sales at the Engine segment grew 17% to $2.7 billion on the back of an increase of 12% in North America and 32% in international markets. The segment’s EBITDA increased to $362 million (13.4% of sales) from $323 million (14% of sales) a year ago.

Sales at the Components segment surged 30% to $1.9 billion, owing to revenue growth of 36% in North America in addition with 22% increase in international sales. The segment’s EBITDA was $237 million (12.6% of sales) compared with the year-ago tally of $228 million (15.7% of sales).

Sales at the Power Generation segment improved 23% to $1.2 billion, banking on an increased demand in mining, oil and gas, and power generation markets. The segment’s EBITDA rose to $186 million (14.9% of sales) in second-quarter 2018 from $90 million (8.8% of sales) in the year-ago quarter.

Sales at the Distribution segment increased 16% to $2.7 billion. Revenues benefited from 22% rise in the North American segment and 8% growth in international markets. The segment’s EBITDA rose to $145 million (7.3% of sales) from $127 million (7.4% of sales) a year ago.

Sales at the Electrified Power Segment were $1 million while segment’s EBITDA loss was $21 million.

Financial Position

Cummins’ cash and cash equivalents were $1.32 billion as of Jul 1, 2018, from $1.37 billion as of Dec 31, 2017. Long-term debt totaled $1.57 billion as of Jul 1, 2018, a slight decline from $1.59 billion recorded on Dec 31, 2017.

At the end of the first half of 2018, Cummins’ net operating cash inflow was $473 million compared with $826 million in the same period last year. Capital expenditure was $186 million, an increase from $182 million in the same time frame.

Capital Deployment

During second-quarter 2018, Cummins returned $393 million to shareholders in forms of dividends and share buybacks. Further, the company has raised its plan to return 75% operating cash inflow compared with its previous plan to return 50%.

2018 Guidance

For 2018, Cummins anticipates revenues to rise 15-17% compared with the prior outlook of 10-14%. EBITDA is expected to be 14.8-15.2%, marking a decline from the previous projection of 15.4-15.8%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

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 a D. 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.

Zacks style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cummins has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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