Engine maker Cummins Inc. (NYSE: CMI) expects full-year 2021 sales to rise as much as 24% following consensus-crushing Q1 revenue and profits.
First-quarter revenues of $6.1 billion rose 22% over $5 billion the same quarter in 2020. Q1 net income was $603 million, or $4.07 per fully diluted share, compared to $511 million, or $3.41. Earnings before interest, taxes, depreciation and amortization (EBITDA) was 16.1% of sales.
Analysts expected per-share earnings of $3.47 and revenue of $5.35 billion, according to investor site Seeking Alpha.
North American sales rose 7%. International revenues, led by China, increased 45%. New emissions regulations are prompting truck makers in China to buy now to avoid higher-cost engines later.
“The strength and breadth of the rebound in demand has surpassed our original expectations and we have raised our full year outlook,” Cummins Chairman and CEO Tom Linebarger said in a press release. “The ability to supply is our key focus now. And we are doing everything we can to mitigate the impact.”
Rising demand — notably six consecutive months of Class 8 truck orders of 40,000 or more units — is straining global supply chains and making it harder for Cummins to fulfill deliveries without paying premium shipping costs to get parts.
“You name it, and we have a shortage on it,” Linebarger said on the company’s earnings call with analysts. “But semiconductors is the biggie. That’s the one that’s really hard to deal with. In [the first quarter], we ended up buying chips on the market through the aftermarket and bringing them back into production.”
Multiple reschedulings to meet customer demand resulted, a situation that should ease this quarter and beyond because Cummins has better visibility on where its chip supply is coming from.
“Frankly we took it on the chin,” Linebarger said. “We basically brought in everything we could and shipped it out to them as fast as we could and didn’t raise prices or didn’t do any of those things.”
The company raised its full-year 2021 revenue guidance to be up 20% to 24% from 8% to 12%. EBITDA is now expected to be in the range of 15.5% to 16% up from 15% to 15.5%.
Cummins estimates Class 8 heavy-duty engine production of 264,000 units this year, up 45% from 2020. Medium-duty engine production, including lighter-duty Class 8, is projected at 140,000 units, up 35%. India and Brazil are expected to be up 90% and 25%, respectively.
Production in China, the first country to reopen after the pandemic, saw big gains last year. It is expected to be down 15%.
Cummins signed major supply contracts for medium-duty diesel engines with Daimler Truck, Isuzu Motors and Hino Trucks during the first quarter.
“The diesel stuff is moving now because [manufacturers] have to make investment choices today,” Linebarger said, referring to California emissions rules in 2024 and tougher federal guidelines in 2027. “Do I invest in a new platform or do I have someone else invest?”