Engine and power generation equipment maker Cummins Inc. (CMI) Tuesday reported a surge in net income for the fourth quarter that surpassed Street view, as sales increased 3%, driven by continued demand in China, India and Brazil along with a significant increase for on-highway truck engines and components in North America.
Looking ahead, the company, however, expects the first half of 2010 to be extremely challenging, especially in the United States and Europe. Cummins also expects fiscal 2010 sales and earnings to be similar to its fiscal 2009 performance. Cummins stock is currently trading up nearly 6% on the New York Stock Exchange.
Cummins' net income for the fourth quarter attributable to the company was $270 million or $1.36 per share from $43 million or $0.22 per share a year ago. On average, sixteen analysts polled by Thomson Reuters expected the company to report earnings of $0.76 per share for the quarter. Analysts' estimates typically exclude special items.
Fourth quarter results included a pre-tax charge of $4 million to cover costs associated with restructuring, while the prior-year quarter results included $37 million as restructuring charge. Excluding charges, earnings before interest and tax was $387 million, or 11.4% of sales, compared to $93 million, or 2.8% of sales, in the same quarter of 2008.
The Columbus, Indiana-based company's net sales were $3.40 billion, up 3% from $3.29 billion in the fourth quarter of 2008, driven by continued strength in China, India and Brazil, along with a significant increase for on-highway truck engines and components in North America in advance of new emissions standards that took effect at the beginning of 2010. Analysts estimated revenues of $2.83 billion for the quarter.
The company operates through four segments: Engine Segment, Power Generation Segment, Components Segment, and Distribution Segment.
Engine Segment sales were $2.17 billion, up 12% from the previous year. Power Generation segment generated revenues of $601 million, 32% lower than the same period a year ago. Sales from Components segment grew 8% year-over-year to $732 million. Distribution segment recorded revenues of $486 million, down 13% from the comparable quarter.
In the preceding third quarter, Cummins reported a 59% drop in profit, as sales declined 31% amid continued economic weakness in many of its markets. Net income attributable to the company plunged to $95 million or $0.48 per share from $229 million or $1.17 per share in the same period last year. Third quarter sales plummeted to $2.53 billion from $3.70 billion in the same quarter of 2008.
Cummins' cost of sales for the fourth quarter declined to $2.63 billion from $2.75 billion a year ago. Gross margin was $773 million, up from $534 million last year.
For fiscal year 2009, net income attributable to the company plunged to $428 million or $2.16 per share from $755 million or $3.84 per share in the previous year. Annual net sales were $10.80 billion, down from $14.34 billion reported a year ago. Analysts estimated earnings of $1.89 per share on revenues of $10.23 billion for the year.
Among peers, truck maker Navistar International Corp. (NAV) reported a swing to profit for the fourth quarter, boosted by higher commercial truck volume and continued military sales, as well as lower expenses. The Warrenville, Illinois-based company posted net income of $86 million or $1.19 per share for the fourth quarter, compared to a loss of $343 million or $4.81 per share in the same quarter of 2008.
Looking ahead to the first half of 2010, Cummins expects North American truck and bus engine shipments to fall by as much as 80% sequentially, based on current orders and forecasts for the first part of the year. This translates into a 50% sequential drop in externally reported revenue for heavy-duty truck and medium-duty truck and bus for the first half of 2010.
President and Chief Operating Officer Tom Linebarger said, "In many ways, the first half of 2010 will be more challenging than the environment we faced in the early part of the recession."
Further, Cummins expects weakness in these segments to be offset by continued strong growth in the distribution business and further improvement in China, India and Brazil. The company expects revenue in China and India to return to pre-recession levels for 2010, with solid growth also expected in Brazil.
Based on its current forecasts, Cummins expects 2010 sales and earnings to be similar to its 2009 performance. The company's current full-year guidance calls for sales of $11 billion for the year, with an EBIT of 7% of sales. Analysts currently expect the company to report earnings of $1.98 per share on revenues of $10.23 billion for fiscal 2010.
CMI is currently trading at $50.20 per share, up $3.26 or 6.95%, on the New York Stock Exchange. In the past 52-week period, the shares have been trading in the range of $18.34 to $55.41 with a three-month average volume of 2.20 million.
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