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Why Is Cummins (CMI) Down 11.2% 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 11.2% in that time frame, underperforming 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 catalysts.

Cummins Earnings and Revenues Miss Estimates in Q2

Cummins has reported earnings of $4.27 per share in second-quarter 2019, missing the Zacks Consensus Estimate of $4.38.

During the reported quarter, net income attributable to the company was $675 million in comparison to net income of $545 million in the prior-year quarter.

Revenues improved 1% year over year to $6.2 billion in the reported quarter. However, the company’s revenues missed the Zacks Consensus Estimate of $6.36 billion. This year-over-year rise was due to increased truck production in North America and strong demand in North America power generation markets, which were partly offset by lower demand in oil and gas, and international truck markets.

Earnings before interest, taxes, depreciation and amortization (EBITDA) rose to $1.1 billion (17% of sales) from $897 million (14.6% of sales) recorded in the prior-year quarter.

Segmental Performance

Sales for the Engine segment were flat year over year at $2.7 billion. The segment’s EBITDA increased to $416 million (15.4% of sales) from $362 million (13.4% of sales) a year ago.

Sales for the Distribution segment increased 2% to $2 billion. The segment’s EBITDA rose to $172 million (8.5% of sales) from $145 million (7.3% of sales) a year ago.

Sales for the Components segment declined 2% to $1.8 billion. The segment’s EBITDA was $297 million (16.1% of sales) compared with the year-ago figure of $237 million (12.6% of sales).

Sales for the Power Generation segment were $1.2 billion. The segment’s EBITDA declined to $173 million (14.4% of sales) in second-quarter 2019 from $186 million (14.9% of sales) in the year-ago quarter.

Sales for the Electrified Power segment were $8 million while it witnessed EBITDA loss of $33 million.

Financial Position

Cummins’ cash and cash equivalents were $1.4 billion as of Jun 30, 2019, up from $1.3 billion as of Dec 31, 2018. Long-term debt totaled $1.62 billion as of Jun 30, 2019, in comparison to $1.60 as of Dec 31, 2018.

In the six months ending Jun 30, 2019, capital expenditure was $242 million, marking an increase from $186 million in the six months ending Jul 1, 2018.

Guidance

For 2019, Cummins projects revenues to be in the low end of the previously mentioned range of flat to 4%. However, EBITDA is expected to be 16.25-16.75%, similar to that mentioned previously. 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?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Cummins has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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. Notably, Cummins has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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