Cummins’ Results Lifted by Construction, Mining
This story appears in the May 8 print edition of Transport Topics.
Cummins Inc., a manufacturer of diesel and natural gas engines and other technologies, posted first-quarter increases in profits and sales that were driven by demand from construction and mining customers rather than North American truck engines.
On May 2, the Columbus, Ind.-based corporation said it earned $396 million, or $2.36 a share, on sales of $4.59 billion for the three months ended March 31. During the same time in 2016, the company earned $321 million, or $1.87, on revenue of $4.29 billion.
Over the same time, quarterly operating income rose to $546 million from $470 million.
“Stronger demand from construction and mining customers and higher sales from a distributor acquisition in the fourth quarter of last year, more than offset the impact of weaker truck production in North America,” the company said in its earnings statement.
“Currency negatively impacted revenues by approximately 1% compared to last year, primarily due to a stronger U.S. dollar. International sales improved by 17%, primarily due to growth in China and Europe, while revenues in North America increased 1%,” the company said.
The Department of Commerce said in its April 28 estimate of first-quarter economic growth that “private, fixed nonresidential Investment” was a major contributor to gross domestic product. That category includes mining exploration and shafts (see story, p. 6).
Equipment spending also grew at a strong pace, Commerce said, even though overall GDP growth was just 0.7% per year during the year’s first three months.
Cummins is the only independent engine maker for heavy-duty, North American truck engines. Its flagship model is the X15, new this year to comply with 2017 federal environmental standards.
The engine division — the largest of the company’s four — had operating income of $229 million on sales $2.02 billion. In the 2016 quarter, engines earned $197 million on revenue of $1.98 billion.
Operating margin increased to 11.3% from 10%.
Cummins’ other major divisions are power systems, components and distribution.
Within the engine division, revenue from heavy-duty trucks, medium- duty trucks and buses and light-duty vehicles declined, year-over-year. All improvement in the engine division came from power plants for off- highway vehicles. Quarterly sales rev- enue from off-highway soared by 20.1% to $436 million from $363 million.
As for heavy-duty trucks, the company shipped out 19,200 engines during the quarter and received $620 million in revenue. In the year-ago period, Cummins shipped 19,700 heavy-duty power plants, which generated $631 million in revenue.
Revenue per engine inched up 0.8% to $32,292 from $32,030.
Stock analyst Ann Duignan told clients of J.P. Morgan Securities that the per-share earnings consensus estimate was $1.81 per share. Cummins beat that by 55 cents a share.
She said the company’s discussion of its joint venture with Eaton Corp. on truck systems was noteworthy in that it “is expected to result in the development of integrated drivetrains to deliver improved fuel efficiency,” and that the current sales rate of $300 million per year is “forecast to triple over the next five years, starting in [this year’s third quarter].”
Analyst Neil Frohnapple told clients of Longbow Research, “Cummins reported a blowout quarter stemming from stronger-than-anticipated total revenue and profitability across all of its segments.”
“Additionally, the company significantly raised its consolidated sales growth and [operating income] margin guidance,” he added.
