Cummins Inc. (CMI) has posted an improvement in profit to $149 million or 75 cents per share in the first quarter of 2010, from $51 million or 26 cents per share (excluding restructuring charges) in the same quarter a year ago. With this, the company has far exceeded the Zacks Consensus Estimate of 35 cents per share.
Operating income improved substantially to $246 million from $29 million a year ago. Earnings before interest and taxes (EBIT) increased to $266 million or 10.7% of sales from $94 million or 4% of sales a year ago, excluding restructuring charges.
Sales in the quarter increased marginally by 2% to $2.48 billion as growth in the company’s Components and Distribution segments slightly more than offset declines in the Engine and Power Generation segments.
The fourth quarter results were driven favorably by continued strength in China, India and Brazil, partially offset by weak demand in North America with medium-duty truck, bus and heavy-duty engine shipments decreasing 80% on a year-over-year basis.
Segment Performance
Sales in the Engine segment slipped 5% to $1.42 billion due to a decrease in on-highway sales. Sales in Power Generation slashed 21% to $517 million due to a sales decline in all geographic markets — Europe, Middle East, Africa and North America — except India, China and Western Europe.
Sales in the Components segment rose 19% to $630 million, driven by improved emission solutions (especially in North America), turbo technologies (especially in China) and filtration sales, partially offset by a decline in fuel systems sales (especially in North America).
Sales in the Distribution segment went up 15% to $476 million triggered by a significant sales gain in the Asia-Pacific region. Income from joint ventures (JVs) more than doubled to $76 million from $33 million due to strong earnings from Chinese and Indian JVs.
Financial Position
Cummins had cash and cash equivalents of $885 million as of March 28, 2010, a decrease from $930 million as of December 31, 2009. Long-term debt amounted to $640 million as of March 28, 2010. The long-term debt to capitalization ratio was as low as 14%.
In the quarter, Cummins’ net operating cash flow increased to $126 billion from $76 million in the prior year, driven primarily by an improvement in profit. Meanwhile, capital expenditures reduced to $47 million from $64 million in the year-ago quarter.
Guidance
Cummins has projected sales of $12 billion for 2010, up from the previous guidance of $11 billion for 2010. The company now anticipates EBIT margin of 10% of sales, up from the prior outlook of 7% of sales.
The company continues to expect a capital spending of $400 million in 2010, an increase of nearly 30% from 2009, to fund projects critical to the company’s long-term growth.
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