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Why Is Cummins (CMI) Down 4.6% 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 lost about 4.6% in that time frame, outperforming the S&P 500.

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

Cummins Earnings & Revenues Surpass Estimates in Q1

Cummins reported earnings of $4.20 per share in first-quarter 2019, beating the Zacks Consensus Estimate of $3.51. In the year-ago quarter, it recorded earnings per share of $1.96.

During the reported quarter, net income attributable to the company was $663 million against net loss of $325 million in the prior-year quarter.

Revenues improved 8% year over year to $6 billion in the reported quarter. The top line surpassed the Zacks Consensus Estimate of $5.81 billion. This year-over-year rise was due to increased truck production in North America, and strong demand in global construction and North America’s power generation markets.

Earnings before interest, taxes, depreciation and amortization (EBITDA) rose to $1 billion (17.2% of sales) from $700 million (12.6% of sales) recorded in the prior-year quarter.

Segmental Performance

Sales for the Engine segment grew 8% to $2.7 billion on the back of 9% increase in on-highway revenues and 6% in off-highway revenues. The segment’s EBITDA increased to $438 million (16.5% of sales) from $286million (11.7% of sales) a year ago.

Sales for the Distribution segment increased 8% to $2 billion. Revenues benefited from 10% rise in the North America segment and 4% growth in international markets. The segment’s EBITDA rose to $171 million (8.5% of sales) from $123 million (6.6% of sales) a year ago.

Sales for the Components segment improved6% to $1.9 billion, owing to revenue growth of 17% in North America in addition to 8% increase in international sales. The segment’s EBITDA was $325 million (17.5% of sales) compared with the year-ago figure of $227 million (12.9% of sales).

Sales for the Power Generation segment were $1.1 billion. The segment’s EBITDA declined to $138 million (12.8% of sales) in first-quarter 2019 from $142 million (13.2% of sales) in the year-ago quarter.

Sales for the Electrified Power segment were $3 million while the segment witnessed EBITDA loss of $29 million.

Financial Position

Cummins’ cash and cash equivalents were $1.3 billion as of Mar 31, 2019, almost similar to the figure recorded as ofMar 31, 2019. Long-term debt totaled $1.6 billion as of Dec 31, 2019, similar to Dec 31, 2018.

At the end of the first quarter, the company’snet operating cash inflow was $412 million against outflow of $117 million in the same period of 2018. Capital expenditure was $109 million, marking an increase from $72 million in first-quarter 2018.

Guidance

For 2019, Cummins maintained the revenue projection at flat to up 4%. However, EBITDA is expected to be 16.25-16.75% as a percentage of sales compared with previously mentioned15.75-16%. 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, fresh estimates flatlined during the past month.

VGM Scores

Currently, Cummins has a nice Growth Score of B, however its Momentum Score is doing a bit 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 top 40% 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

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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