Cummins Inc. (CMI) has posted a profit of $270 million or $1.36 per share in the fourth quarter of 2009 compared to $43 million or 22 cents a share a year ago. This was the company’s most profitable fourth quarter since 2007. The company also succeeded in overriding the Zacks Consensus Estimate of 74 cents during the quarter.

Sales grew 3% to $3.4 billion. Earnings before Interest and Taxes (EBIT) was 11.3% of sales compared 1.7% of sales in the fourth quarter of 2008.

The fourth quarter results were driven favorably by continued strength in China, India and Brazil, along with a significant increase for on-highway truck engines and components in North America in advance of new emissions standards that took effect at the beginning of 2010.

For full-year 2009, Cummins’ profit declined by 43% to $428 million or $2.16 per share from $755 million or $3.84 per share in 2008. However, this is better than the Zacks Consensus Estimate of $1.88 per share. Sales went down 25% to $10.8 billion, due to the deep global recession that reduced demand in most markets throughout the year. EBIT before restructuring and other charges was 7.2% of sales compared to 8.8% of sales in 2008.

Segment Performance

Sales in the Engine segment rose 12% to $2.17 billion due to an increase in on-highway sales. Sales in Power Generation slashed 32% to $601 million due to a sales decline in all geographic markets, except India, where sales increased 19%.

Sales in the Components segment inched up 8% to $732 million, driven by improved fuel systems and turbocharger sales, which was attributable to large increases in volumes in North America as result of on-highway engine purchase in advance of emissions changes recommended by Environmental Protection Agency (EPA) for 2010.

Sales in the Distribution segment slipped 13% to $486 million triggered by decreased global demand. Income from Joint Ventures (JVs) went up 31% to $67 million due to strong earnings from China JV.

Financial Position

Cummins had cash and cash equivalents of $930 million as of December 31, 2009, an improvement from $426 million as on December 31, 2008. The improvement was attributable to lower costs, align manufacturing capacity with demand and reduce inventory levels across all the businesses.

Long-term debt amounted to $637 million as of December 31, 2009. The long-term debt-to-capitalization ratio was as low as 14%.

In 2009, Cummins had a net cash flow of $1.14 billion from operating activities, an improvement from $987 million in the prior year. Meanwhile, capital expenditures reduced to $310 million from $543 million in 2008.

Company Guidance

Cummins has projected sales of $11 billion for 2010, with an EBIT of 7% of sales. The company anticipates 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.

Estimate Revisions Trend

Over the last 30 days, out of the 16 analysts covering the stock, none has revised upward or downward estimates for full year 2010. Therefore, in the absence of any upward or downward revision of estimate, our long-term recommendation on the stock remains “Neutral.”

With respect to earnings surprise, the stock has performed consistently well over the trailing four quarters, barring the first quarter of 2009. The average earnings surprise was as high as 25.26%. This implies that Cummins has beaten the Zacks Consensus Estimate by 25.26% over the last four quarters.

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