By Robert Tita
Engine manufacturer Cummins Inc. reported a more than 14%
increase in its first-quarter profit, but fell short of earnings
expectations because of a weaker profit margin.
The company affirmed its earlier revenue and profit outlook for
2015, despite facing increasingly difficult markets for its
engines, particularly from the mining and construction sectors.
Moreover, weak economic conditions in key foreign markets and a
stronger U.S. dollar also is pressuring Cummins' revenue.
The Columbus, Ind.-based company said revenue from overseas
markets declined 6% from a year earlier, but its revenue from North
America increased 17% amid continued strong demand for commercial
truck engines.
"North America remains our strongest market," said Chairman and
Chief Executive Tom Linebarger during a conference call Tuesday
with analysts.
Overall engine sales during the quarter rose 1% from a year
earlier to $2.6 billion, while pretax profit fell 6% to $253
million on higher warranty costs for engines. World-wide sales of
Cummins engines for heavy-duty trucks rose 5% to $757 million.
Sales of heavy-duty truck engines to North America truck makers
alone rose 8%. Cummins said it had a 33% share of the market for
heavy-duty truck engines during the first quarter, but expects its
share for reach 36% for the year. Meanwhile, engine sales to North
America medium-duty truck market -- where Cummins has an 80% market
share -- rose 10%.
Sales of parts and components for engines rose 6% in the quarter
to $1.3 billion as Cummins continued to benefit from supplying
pollution-reduction components to truck marker Navistar
International Corp. Profit from the business increased 17% to $195
million.
Cummins engines sales for off-road equipment dropped 8% during
the quarter to $616 million on weaker demand from the construction
and mining industries. The company reported a 35% drop in sales to
construction machinery manufacturers in China where there has been
a prolonged slump in demand for equipment.
Cummins' margin on pretax income was 11.9%, compared with 12%
last year and below the 13% analysts expected. Overall, for the
period ended March 29, the company posted earnings of $387 million,
or $2.14 a share, up from $338 million, or $1.83 a share, during
last year's quarter. Revenue improved 7% to $4.71 billion, even
though unfavorable currency exchange rates trimmed sales by 3%.
First-quarter per-share profit benefited from a one-time tax
benefit. Excluding that, Cummins' profit came in at $2.04 a
share.
Analysts expected earnings of $2.14 per share on revenue of
$4.55 billion.
For 2015, Cummins expects revenue growth of 2% to 4% over 2014,
or about $19.6 billion to $19.9 billion. The company projected its
margin for the year to be in a range of 13.5% to 14% of sales,
implying per-share earnings of $9.80 to $10.40. Analysts expect the
company to earn $10.06 per share with revenue of $19.8 billion.
Cummins stock was recently trading down 2.8% at $135.27 a
share.
Angela Chen contributed to this article.
Write to Robert Tita at robert.tita@wsj.com
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