Cummins Inc.’s Bumper Quarter: 5 Things You Need to Know

1 Weak international markets holding back growth

Brazil a dampener

Revenue from North America grew 12% while international sales slipped 6% year over year.

For 2015, Cummins targeting 34%-35% and 76% market share in the North American heavy-and-medium-duty truck markets, respectively.

Weakest link: Brazil. Industry production of heavy-and-medium-duty trucks projected to slump 50% this year.

Weakness to continue

Markets outside the U.S./Canada contribute more than 40% to sales.

Full-year revenue guidance of 2%-4% growth muted because of slowdown in international markets. Source: Cummins Q2 Earnings Presentation

2 Key business under pressure

Engine segment

Q2 sales improved only 2% year over year.

Slowdown in industrial markets like marine, mining, and construction offsetting strength in North American trucking market.

Full-year outlook remains positive: Operating

margin guidance range of 11%-12% on flat to 2% growth in revenue.

3 Top performing segment: Components

Components: filtration, fuel systems, emission solutions

Q2 sales and operating profit up 9% and 21%, respectively, year over year.

Strong aftermarket demand from North America and China.

Full-year EBIT margin guidance raised to 14.5%-15.5% versus 13.4% reported last year. Revenue projected to rise 4%-8%.

4 Income from joint ventures down, but not a concern

Acquisitions boosting distribution segment

Q2 earnings from joint ventures down 11% year over year as Cummins acquired North American distributors previously held as JV.

On the positive side, distribution segment sales jumped 21% year on year.

Full-year outlook: JV income down 15%, distribution segment revenue growth of 20%-24% and EBIT margin between 7%-8%.

5 Full-year guidance unchanged

On the growth trackCummins kept its full-year guidance unchanged despite a stronger-than-expected quarter.

Source: Cummins Q2 Earnings Presentation

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