Cummins Inc. (CMI) posted a 34% increase in profit to $362 million or $1.84 per share in the fourth quarter of 2010 from $270 million or $1.36 per share in the same quarter of 2009 led by growth in the international markets, particularly, China, India and Brazil.

The profit surpassed the Zacks Consensus Estimate by 13 cents per share. Earnings Before Interest and taxes (EBIT) rose 41% to $541 million or 13.1% of sales from $383 million or 11.3% of sales.

Sales in the quarter escalated 22% to $4.14 billion despite a significant 42% fall in revenues in North American medium-duty truck engine markets on the back of a continued weakness in the U.S.economy and a change in emissions standards. The company’s sales were also higher than the Zacks Consensus Estimate of $3.94 billion.

Segment Accomplishments

Sales in the Engine segment went up 15% to $2.5 billion. Total on-highway engine sales fell 18% led by a steep fall in American medium-duty truck engine. This was more than offset by a whopping 89% rise in Industrial sales led by impressive sales growth in worldwide construction, mining and agricultural market.

Sales in the Power Generation segment soared 50% to $903 million. Commercial Products sales increased 59%, Commercial Projects rose 66%, Consumer sales went up 15%, Generator Technologies surged 42% and Power Electronics sales inched up 8%.

Sales in the Component segment appreciated 25% to $918 million. The increase was driven by rise in sales in Emission Solutions by 70%, Filtration by 18%, Turbo Technologies by 17%, offset partially by a 2% fall in Fuel Systems sales.

Sales in the Distribution segment perked up 44% to $699 million. The growth was led by led by strong gains for engines and power generation in Western Europe.

Annual Results

Cummins reported a significant increase in profit to $1.04 billion or $5.28 per share from $428 million or $2.16 per share in 2009. Results for 2009 included restructuring and other charges of 33 cents per share.

Sales in the year went up 22% to $13.2 billion from $10.80 billion in 2009. EBIT was $1.66 billion or 12.5% of sales, an increase of 114% from $774 million or 7.2% of sales excluding restructuring and other charges in 2009.

The company’s profit was led by 48% increase in international sales that accounted for 64% of total sales and compensated for the drop in revenues from North American truck engine markets. Sales in China and Brazil jumped more than 70%, while sales in India shot up 37% during the year. Engine shipments to the North American heavy-duty truck market plunged 61% and to the North American medium-duty truck and bus markets shrank by 44%.

Financial Position

Cummins had cash and cash equivalents of $1.02 billion as of December 31, 2010compared with $930 million at the end of fourth quarter of 2009. Besides, total long-term debt at the end of 2010 was $709 million versus $637 million at the end of 2009.  

Cash flow from operating activities was $1.01 billion in 2010 compared with $1.14 billion in the prior last year. During the year, Cummins repurchased shares worth $241 million.

Guidance

Cummins raised its full-year financial guidance to an EBIT of 13.5% of sales on revenues of $16 billion given the expected recovery in its North American markets as well as global opportunities.

The company forecasted sales in its Engine and Components segments to grow by 25% in 2011, led by a recovery in the North American truck markets. It also expects sales in its Power Generation and Distribution segments to increase by 15%, driven by continued strength in the key international markets.

Cummins has a strong cash position that can enable it to make sufficient investments to meet the growing demand for its products. The company expects to invest $600 million-$650 million in capital expenditures in its consolidated operations in 2011.

Thus, given these possibilities, Cummins Inc. retains a Zacks #2 Rank (Buy) in the short term (1–3 months) and Outperform recommendation in the long term (more than 6 months).

 
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