By Bob Tita
Engine manufacturer Cummins Inc.'s is counting on new joint
venture with an export-minded Chinese truck maker to boost sluggish
sales in China.
Although Cummins has been among the most successful U.S.
manufacturers at penetrating China's capital goods market,
infrastructure spending and GDP growth is slowing. Trucking
however, remains strong, as newly constructed highways fuel demand
for more powerful trucks with high-mileage durability.
"We're feeling good about the truck market in China," said
Chairman and Chief Executive Tom Linebarger during a conference
call Tuesday with analysts. "Trucking growth rates can continue
even if the build out of cities, factories and airports slows down.
And that's exactly what we're seeing now."
Rising truck engine sales in China and North American in the
first quarter helped offset falling engine demand in off-road
equipment and power generation markets, particularly in India and
Brazil. Profits rose 20% from a year ago to $338 million, or 1.83
per share-quarter share. Overall sales climbed 12% from last year
to $4.4 billion.
The company said it now expects overall 2014 revenues to rise
between 6% and 10% from 4% to 8%. It also boosted its full-year
sales outlook in China to $3.4 billion, a 15% gain. Cummins' 2013
China revenue climbed 11.5%.
Cummins improving market outlook for China coincides with the
roll out of a new joint venture with Chinese truck maker Beiqi
Foton Motor Co. to supply engines for Foton's heavy-duty trucks.
The Beijing-based company, third in the market for trucks weighing
more than 28,000 pounds, has 15% of the Chinese market. It sold
115,400 heavy-duty trucks last year, according to Minnesota market
forecaster Power Systems Research.
Cummins already supplies engines for Foton's small trucks.
Foton expects to export its high-end heavy duty trucks, which
feature a popular international design with the cab over the
engine. "We want to distribute this kind of truck," said Foton CEO
Hu Ting, in an interview during a recent trip to Cummins' southern
Indiana headquarters. India, in particular, is expected to be a
strong market for the trucks.
Cummins also expects to benefit from stricter pollution
regulations on diesel engine exhaust in China. Enforcement of
long-delayed regulations is scheduled to begin in January 2015.
After complying with increasingly tougher emissions standards in
the U.S. and Europe, Cummins' believes its technology and
production provide an edge over Chinese engine manufacturers.
Industry analysts predict that some machinery and truck
manufacturers will opt for Cummins' engines over making the big
investments to keep their own engines in compliance. "As the year
goes on everybody in China will be scrambling for new engines,"
said Joel Tiss, an analyst with BMO Capital Markets.
Write to Bob Tita at robert.tita@wsj.com
Corrections & Amplifications
Cummins's overall revenue for the quarter climbed 12% to $4.4
billion. An earlier version incorrectly said it was $4.4
million.
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