Slowing global economy stalls Cummins profit engine

Cummins Inc CMSCummins Inc., pinched by a slowing global economy,said Wednesday that fourth quarter earnings dropped 30 percent, with sales declining in most of the engine maker’s core business segments.

Cummins reported net income of $381 million, or $2.02 per diluted share, down from $548 million or $2.86 per diluted share, in the year-ago quarter. Revenue fell 13 percent to $4.29 billion, from $4.92 billion a year ago.

While Cummins’ fourth quarter was far from stellar and its sales prospects remain ambiguous given the uncertain global economy, Wednesday’s results significantly outperformed Wall Street predictions.

Analysts polled by Thomson Reuters had expected Cummins’ fourth quarter earnings of $1.75 per share, on revenue of $4.04 billion.

“We knew what the US economy was doing, but we really had to wait cautiously to see how the global economy would hit them [Cummins],” High-Point Financial analyst Brad Schaffnit said.

The heavy-duty truck engine maker blamed its revenue decline on a weak global economy.

More specifically, it pointed to the economy’s impact on truckengine demand. Cummins is heavily reliant on international construction, power generation, truck and mining engine demands. Compared to the $2.96 billion in total engine sales this time last year, Cummins’ sales slipped 18 percent to $2.51 billion.

“Like every other company in that industry, until the global economy shows signs of growth, Cummins is in wait and see mode,” Schaffnit noted.

While analysts polled by Thomson Reuters have been forecasting a 2 percent rise in 2013 revenue from Cummins, the company on Wednesday said it expects revenue to remain relatively flat, or even decline slightly, in the new year.

“Unlike what we saw in 2012, with a strong first half and weak second half of the year, I expect this year to be the opposite. It would not be unreasonable to expect first half sales to be down 10 percent year over year and first quarter could be tougher than that, but then we expect some recovery in the second half, possibly up 5 percent over last year,” Executive Director of Investor Relations Mark Smith said in a conference call with analysts Wednesday.

Company executives recently outlined cost-saving methods to combat the declining engine demands caused by a weakened global economy.

The Columbus, Ind. company announced Wednesday it has scaled its workforce back 3 percent by cutting 650 employees.

“The work we have undertaken to reduce costs and lower inventory should benefit the company when the global economy improves,” Linebarger said in a conference call with analysts.

Engine demand is not much better at home for Cummins, given the commercial truck sector’s reduction in truck purchases due to the US economic uncertainty, especially as it relates to freight volume.

“There is uncertainty surrounding the timing and pace of improvement in end markets in 2013,” Linebarger added.

Net income for full-year 2012 was $1.66 billion or $8.74 per diluted share, down from $1.85 billion or $9.55 per diluted share last year. Revenues for the full year were $17.3 billion, down 4 percent from 2011.

In New York Stock Exchange trading Wednesday, Cummins shares closed up $2.99, or 2.6 percent, at $120.38.

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