Cummins’s second-quarter earnings
Cummins (CMI) announced its second-quarter earnings today before the markets opened. The worldwide industrial (IYJ) company with diverse operations missed Thomson Reuters analysts’ adjusted EPS estimate of $3.63 by 8.6%. With its adjusted EPS of $3.32, Cummins registered 31.2% YoY (year-over-year) growth. It reported EPS of $2.53 in Q2 2017.
Today, Cummins stock opened at $136.9, marginally down from yesterday’s close of $137.21. The stock declined to $134.6 on the company’s earnings miss and a contraction in its gross margin. However, it recovered quickly only to go up from that level. The markets were impressed with CMI’s top-line growth in the second quarter. The stock was up 2.4% at $141.17 in the first two hours of trading.
Second-quarter revenue and other stats
Cummins missed analysts’ earnings estimates but beat revenue estimates of $5.8 billion by 5.3%. The company’s second-quarter revenue was up 20.8% YoY from $5.0 billion in Q2 2017. CMI’s quarterly revenue in the second quarter of 2018 was the highest of all its second-quarter revenue. Increased demand for trucks, construction, mining, and power generation equipment in most of CMI’s major markets drove the Q2 2018 revenue growth.
CMI’s revenue in North America expanded 22% YoY. International revenue rose 18% YoY on higher revenue growth in China, Europe, and Latin America. The Components vertical reported 30% YoY revenue growth, followed by a 23% YoY revenue rise in the Power System division. The Engine and Distribution segments posted YoY revenue growth of 17% and 16%, respectively, in Q2 2018.
The company’s gross margin, expressed as a percentage of revenue, contracted by 110 basis points to 24.6% in the second quarter from 24.6% in Q2 2017. The quarter’s EBITDA margin declined 0.4% to 14.6% from 15% in the second quarter of 2017. CMI recorded a $181.0 million or 0.85 per diluted share charge relating to a previously disclosed product campaign.
Management’s 2018 outlook
CMI’s chairman and CEO, Tom Linebarger, said, “As a result of strong customer demand for our products, solid execution from our global manufacturing and supply chain teams and continued focus on cost reduction, the Company delivered record quarterly sales and earnings per share in the second quarter.”
He further stated, “We are on track to deliver record full-year sales, earnings and cash flow. The Company now plans to return 75 percent of Operating Cash Flow to shareholders in the form of dividends and share repurchases in 2018, up from our previous plan to return 50 percent.”
Among major industrial (IYJ) companies, Lincoln Electric Holdings (LECO) met analysts’ adjusted EPS estimate in the second quarter. Ingersoll-Rand (IR) and Boeing (BA) beat their adjusted EPS estimates in that quarter.
Charter Communications (CHTR) impressed investors by beating Wall Street expectations for both earnings and revenues in the second quarter.
Yesterday, Apple (AAPL) launched a newly upgraded range of its iPad Air and iPad mini devices ahead of its March 25 special event.
Nike (NKE) is scheduled to report its earnings results for the third quarter of fiscal 2019 after the market closes on March 21.
On March 18, Chesapeake Energy’s (CHK) implied volatility was 51.9%, which is ~14.7% less than its 15-day average.
Sprint (S) reported an adjusted EPS of $0.06 in the first nine months of fiscal 2018—compared to $0.08 during the same period in fiscal 2017.
On March 18, Brent crude oil May futures settled ~$8.2 higher than the WTI crude oil May futures. On March 11, the spread was ~$9.5.
Out of the 34 analysts covering Broadcom (AVGO), 25 analysts rated the stock a “buy,” while nine analysts rated the stock a “hold."