By Lisa Beilfuss
Engine manufacturer Cummins Inc. said second-quarter profit rose
5.6% as demand in North American markets and the benefit of
acquisitions offset weakness in Brazil and other foreign
markets.
Shares, which have declined nearly 10% in the past three months,
rose 4.1% in midday trading as both profit and revenue topped
analysts' expectations.
The Indiana company backed its outlook for the year, still
projecting 2% to 4% revenue growth. That translates to $19.61
billion to $19.99 billion, bracketing the $19.81 billion analysts
predict. The affirmed guidance comes despite weak economic
conditions in key foreign markets and a stronger U.S. dollar that
also is pressuring Cummins's revenue.
For the latest period, Cummins reported earnings of $471
million, or $2.62 a share, up from a year-earlier profit of $446
million, or $2.43 a share.
Revenue grew 3.7% to $5.02 billion. Adverse foreign exchange
shaved 4% off the top line, the company said.
Analysts projected $2.55 in per-share profit and $4.94 billion
in revenue.
Sales in North America rose 12%, although international revenue
fell 6%. Sales in Brazil, down 43% from a year earlier, fell the
most, the company said. Cummins, like other companies, is grappling
with a weak Brazilian economy dogged by slow growth and high
inflation that is hampering demand for its products.
In China, revenue grew 6%, though industry demand for heavy- and
medium-duty trucks in the country declined 20% in the second
quarter, Cummins said. On a call with analysts, Chief Executive
Thomas Linebarger more than halved the projection for full-year
revenue from China, to 6%, citing "very weak" motor demand. India
is a bright spot, though, thanks to changing emissions
standards.
Cummins's engine segment, its largest, reported a 2% increase in
sales to $2.8 billion as strong demand in North American truck and
bus markets countered weaker sales in global industrial markets and
lower truck demand in Brazil.
Distribution revenue rose 21% to $1.5 billion, thanks largely to
distributor acquisitions. Mr. Linebarger said Cummins is on track
to complete three more purchases of distributors in North America,
which would help add 20 cents in per-share profit and $600 million
in revenue this year. Adverse exchange rates will be a partially
offsetting factor, the company said.
Revenue from the company's components segment increased 9% to
$1.4 billion, while sales in the power-generation business edged 1%
higher to $747 million.
Gross margin improved to 26.6% from 24.9% a year earlier, aided
by lower material costs.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
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