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Cummins Stock Up on Q3 2018 Earnings Beat

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CMI’s third-quarter earnings

Cummins (CMI) reported its third-quarter earnings today before the markets opened. The engine manufacturer (IYJ) beat Thomson Reuters’ adjusted EPS estimate of $3.75 by a wide margin of 7.80%. Cummins’ third-quarter adjusted EPS of $4.05 were up 49.4% YoY (year-over-year) from $2.71 in Q3 2017.

Today, the stock opened at $129.73—down 2.3% from yesterday’s close of $132.70. The stock peaked at $134.99 on the company’s earnings beat and double-digit revenue growth. However, Cummins shares slightly declined to $130.75 in the mid-trading hours and moved sideways after that.

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Q3 2018 revenue and other stats

In Q3 2018, Cummins marginally missed analysts’ revenue estimate of $5.95 billion by 0.20%. The company’s third-quarter revenue was up 12.4% YoY to $5.94 billion from $5.28 billion in the corresponding period of 2017. Higher demand for power generating equipment, trucks, construction, and mining equipment in most of CMI’s major markets drove the third-quarter revenue growth.

CMI’s revenue in North America expanded 17% YoY in the third quarter. International revenue growth remained subdued at 6% YoY, led by higher revenue growth in India, China, Latin America, and Europe. The Engine segment reported 17% YoY revenue growth while the Components vertical reported 14% YoY revenue growth, followed by 10% YoY revenue growth in the Distribution division. The Power Systems segment posted 5% YoY revenue growth in Q3 2018. The new Electrified Power segment generated $2.0 million in revenue.

The company’s gross margin, expressed as a percentage of revenue, expanded by 70 basis points to 26.1% from 25.4% in Q3 2017. The quarter’s EBITDA jumped 24.7% to $983.0 million from $788.0 million in Q3 2017. The company’s EBITDA margin expanded 1.6% to 16.5% from 14.9% in the third quarter last year.

Management’s outlook

Cummins expects its full-year 2018 revenues to increase 15%–17%. It forecasts its 2018 EBITDA at 14.8%–15.2% of revenue. CMI chairman and CEO Tom Linebarger said, “We have completed our previously announced $500 million accelerated share repurchase plan and our Board of Directors recently authorized a new $2 billion share repurchase plan, which reflects our confidence in our long-term performance. Year to date, we have returned $1.4 billion to shareholders in the form of dividends and share repurchase, consistent with our plan to return 75 percent of Operating Cash Flow in 2018.”

Cummins has a 1.51% weight in the Invesco S&P 500 Equal Weight Industrials ETF (RGI). The ETF invests 1.51% of its portfolio in 3M Company (MMM), 1.50% in Illinois Tool Works (ITW), and 1.49% in Ingersoll-Rand (IR).

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