Cummins stocks level-off as company misses EPS, beats revenue

(IMAGE: JIM ALLEN)

(IMAGE: JIM ALLEN)

Shares of Cummins Inc. (NYSE: CMI) decreased by $0.47 on February 6 after the company missed the consensus expectations of fourth quarter earnings per share (EPS) of $3.81 by 8.6 percent, according to Seeking Alpha. Non-GAAP EPS was only $3.48.

However, Cummins’ beat its fourth quarter revenue expectations by $20 million as revenue increased 11.3 percent year-over-year (Y/Y) from the fourth quarter of 2017 to $6.1 billion. The consensus was that revenue would be $6.08 billion – an increase of 10.9 percent Y/Y – according to Seeking Alpha.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the fourth quarter were $896 million, or 14.6 percent of sales. This was an increase of over 16.5 percent Y/Y from $769 million (also 14 percent of sales).

“Increased truck production in North America and stronger demand in global construction and power generation markets drove the majority of the revenue increase,” said Cummins’ fourth quarter earnings release. “Currency negatively impacted revenues by 2 percent primarily due to a stronger U.S. dollar.”

Cummins Inc. designs, manufactures, distributes and services a wide range of engine applications. The company is headquartered in Columbus, Indiana and employs over 62,000.

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Performance across five business segments

Engine Segment

Sales were $2.7 billion, up 18 percent Y/Y. Segment EBITDA was $393 million, or 14.6 percent of sales, compared to $271 million or 11.8 percent of sales in 2017’s fourth quarter. On-highway revenues increased by 17 percent Y/Y, and off-highway revenues increased 21 percent Y/Y, primarily due to increased global demand in the truck and construction markets.

Distribution Segment

Sales were $2.1 billion, up 6 percent Y/Y. Segment EBITDA was $140 million, or 6.8 percent of sales, compared to $123 million or 6.3 percent of sales in the fourth quarter of 2017. Revenues in North America increased by 6 percent Y/Y and international sales grew by 5 percent Y/Y. Strong demand for power generation equipment and growth in parts and service were partially offset by a lower demand in oil and gas markets and the unfavorable impact of a stronger U.S. dollar.

Components Segment

Sales were $1.8 billion, up 14 percent Y/Y. Segment EBITDA was $278 million, or 15.7 percent of sales, compared to $214 million or 13.7 percent of sales in the fourth quarter of 2017. The Eaton Cummins Automated Transmission joint venture recorded sales of $135 million and an EBITDA loss of $7 million in the fourth quarter. Revenues in North America increased by 23 percent Y/Y, and international sales grew by 3 percent Y/Y.

Power Systems Segment

Sales were $1.2 billion, up 9 percent Y/Y. Segment EBITDA was $123 million, or 10.3 percent of sales, compared to $125 million, or 11.3 percent of sales in the fourth quarter of 2017. Power generation revenues increased by 13 percent Y/Y, while industrial revenues were flat.

Electrified Power Segment

Sales were $2 billion for this segment, which was created in 2018 from the acquisition of Efficient Drivetrains Inc.

Full Year

Revenues for 2018 increased 16 percent to a record $23.8 billion. According to Cummins’ earnings release, the increase is attributable to North American revenues growing by 19 percent and international sales growing by 12 percent. Net income was $2.1 billion, creating a diluted EPS of $13.15. The company returned $1.9 billion, or 78 percent of operating cash flow, to shareholders in 2019 through dividends and share repurchases.

2019 Forecast

Revenues for 2019 are expected to be flat to up to four percent higher according to Cummins’ release. EBITDA is expected to be in the range of 15.75 to 16.25 percent. The company expects to return 75 percent of operating cash flow to shareholders in 2019 in the form of dividends and share repurchases.