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.

Constellation Brands ride trading roller coaster Wednesday

Constellation Brands, whose portfolio includes Mondavi Wines and Svedka Vodka brands, reported stronger than expected fiscal third-quarter earnings Wednesday, helped by a sharply lower tax bill. Shares of Constellation Brands Inc. rose in morning trading then fell to close lower.

The company boosted advertising for Modelo, a Mexican beer that Constellation distributes. It was the first ever English-language campaign for Modelo, company executives said.

“We are gaining market-share and have strong marketplace momentum,” CEO Rob Sands told analysts in a conference call. “We are well on our way to reaching our financial goals for the year.”

In the quarter ended Nov. 30, Constellation earned $109.5 million, or 58 cents per diluted share, a 4.5 percent increase from $104.8 million, or 47 cents per diluted share, in the year-ago period. Sales rose 9.4 percent to $766.9 million from $700.7 million last year.

Excluding one-time items, Constellation would have earned 63 cents per diluted share. Analysts surveyed by Yahoo Finance were expecting to earn 55 cents on an adjusted basis.

Although sales were up 5 percent to $2.86 billion from $2.73 billion in 2011, income was down 7 percent to $415.6 billion from $446.8 million last year. According to Constellation executives, the depressed income was a result of large investments in beer marketing and the impact of an increase in bulk wine purchases as a result of poor raw grape harvests in 2012.

Sands also pointed to the affects the fiscal cliff had on the holiday selling period, more specifically the drop in the number of retail shoppers. But, while the overall bottom line was down from a year ago, Constellation executives remain optimistic about the upward trend in wine sales, which Sands said he expects to continue.

“Wines premium and super premium are still up 3 percent and our business performed on par with our holiday season expectations,” Sands said in a conference call with analysts.

Third quarter sales were up 9 percent according to Sands, in large part due to the continued performance of the Mark West brand, which makes the top-selling Pinot noir and had volume growth of 30 percent.

According to Sands, the Mark West brand was acquired with no hard assets, just the brand and its established grape contracts.

“The returns can be better because it gets plugged into an existing winery and it leverages current fixed costs,” Sands said.

Mark West Wines was acquired from Benham’s Purple Wine Co. in late June for $160 million.

Also contributing to the rise in wine sales is the excellent performance of the Opus One brand, particularly in Asia and Europe. According to Constellation executives, Opus One usually sells out of its vintage stock and this year the California based winery experienced a strong harvest, yielding more raw grapes, resulting in more salable product.

For the first nine months, Constellation earned $306.1 million, or $1.62 per diluted share, down 10.5 percent from $342 million, or $1.62 per diluted share, the nine-month period last year. Sales rose 3.7 percent to $2.1 billion from $2 billion last year.

Constellation closed down $1.43, trading at $35.82 per share. Despite a clumsy day of trading, possibly due to poor holiday sales, Constellation is still up 51 percent from a 52-week low of $18.50.

What is the hold up

no-child-left-behindWhy are we holding up? Life doesn’t (and it shouldn’t) hold up when you are falling behind. Our work doesn’t hold up when we take a break and our bodies don’t hold up to wait for our maturity.

Since elementary school, I have experienced this theory of “holding up” so that those that fell behind, can catch up.

We slow the curriculum in schools so that those that will likely never comprehend the material, can catch up.

We even financially support those that haven’t properly prepared for a viable career, thus allowing them the same quality of life as those that did.

Am I mistaken? Did I need to be held up in history? Or was Columbus on a leisurely journey? It wasn’t the California gold walk. It was called rush for a reason.

America wasn’t in an arms race because we were waiting around for Russian scientists.

Carl Lewis didn’t tie nine Olympic gold medals.

And, graduate students aren’t spending precious dollars in order to get the same job as anyone else.

For some reason, this country likes to forget its history and the history of mankind, for that matter.

Since when did it become fashionable to hold up?

Just look around, turn the TV on. The media has to write for 7th graders, they have to publish for what they now call, “the common man”. Why? Yeah, I know, money. Which suggests that the majority of people are mentally inadequate.

Perhaps so, but, in order for that to be true, it would defy human history. Which suggests the rule of 80. That as a general trend, 80 percent of the population falls within the average intelligence.

Based on that, the money argument doesn’t fully explain this. What happened? We held up. Now, people that would otherwise be fully capable of understanding complicated matters, don’t.

Society no longer makes complicated demands of the average citizens, therefore, people have regressed, or worse yet, they have lost interest in challenging one another.

And why shouldn’t they? Society will just hold up.

Crab cakes and football

Hold your criticism Big Ten fans. This week when Big Ten Commissioner Jim Delany announced the addition of Rutgers and Maryland to the conference, there was an immediate backlash across the Twitter universe.

The general sentiment being that while conferences such as the SEC are adding championship caliber teams like Texas A&M to their conference roster, the Big Ten doesn’t seem to be adding much with their recent additions.

The fact is, most Big Ten fans were hoping for a Notre Dame-like team, if any, was to be added to the conference.

There is no question that the Big Ten Conference is feeling a pinch as the top tier teams are defecting for the SEC. Delany is doing everything he can to avoid falling into the same traps that the Big East Conference did.

That means strategically selecting teams to bolster the conference roster and not just grabbing defectors on the cheap, as the Big East has done.

Delany is very attuned to the conference building process. After having seen the Big East crumble, despite having numerous championship level basketball teams and great mid-level talent across the conference, it wasn’t enough.

To be a competitive college conference in the future, you must have strong football teams with at least two powerhouse teams, like Southern Cal and Oregon or Alabama and Louisiana State.

Undoubtedly, the Big Ten will always hang its collective hat on the University of Michigan, one of the most profitable athletic programs in the country.

Ohio State, Wisconsin and Michigan State also contribute a lot to the conference but more is needed if the conference wants to continue to compete for titles and media dollars.

Conference commissioner Delany is not going to admit that the major contributing factor to adding Rutgers is the East Coast media shares. Obviously, football and basketball championships aren’t exactly selling points for Rutgers.

College fans do not want to hear about media shares when it comes to conference expansion. In fact, it is probably the worst part of college sports, the inevitable eclipse of sport and business.

That said, I believe the Big Ten may have acquired the next gem of college sports, in Maryland.

Say what? Maryland? Yes. Maryland.

Maryland developed NCAA championship credibility in basketball under coach Gary Williams and as the Wedding Crashers movie-line goes, “Crab cakes and football. That’s what Maryland does.”

Over the next decade, I believe that we will be talking about Maryland football as a perennial power.

How? Think Oregon. Oregon since the mid 1990’s has become a true football powerhouse in addition to five Pac 8/10/12 Conference titles in basketball.

Ever since Oregon alumnus and Nike founder, Phil Knight, established Nike as the premier sports brand and began to funnel millions of dollars into Oregon athletics with the Knight Labs, Oregon has been a recruiters dream.

Between the state-of-the-art facilities and Nike’s brand identity, Oregon has been able to recruit blue chip talent that has translated into record success.

When I see Maryland, I see a budding Oregon. Maryland is the alma mater of Under Armour founder, Kevin Plank.

According to Forbes as of August 2012, Under Armour is a $10 billion corporation. They actually have gained on Nike in the North American market over the past four years.

Now, comparatively, Nike is a $50 billion corporation. However, Nike earns two-thirds of its revenue overseas, whereas Under Armour earns 95-percent of its revenue in the United States and Canada.

This might not matter to sports fans, but to those in the know, this is a huge deal. Market analysts at Market Watch, are predicting that if Under Armour can increase its global market-share by just 15-percent, you could be looking at an honest competition for Nike.

For the Big Ten, this means big games and big money. There is no secret that Nike and Oregon capitalize on the brand’s recognition when it comes to recruiting.

Under Armour is rapidly becoming the biggest equipment brand in college athletics and professional football. Under Armour has spent millions of dollars establishing athletic camps around North America, including hosting the premier high school football preseason camps.

Under Armour founder Kevin Plank currently sits on the Board of Trustees at the University of Maryland and has already committed millions of dollars to their business and athletic funds.

Between the improved facilities and brand identity, Under Armour is setting Maryland up for similar success to that of Oregon.

And, if things play out the way many market analysts predict, I think the future of the Big Ten Conference rests on Michigan and Maryland.

Bucktown West

The Bucktown neighborhood located on Chicago’s Northwest Side is home to many working professionals that share a love for competitive sports.

Bucktown is located just along highway 290, which is the main artery for reverse commuters that work in the suburbs.

“It can be difficult. I live downtown, I play downtown, but I work in Glen Ellyn. It makes for a long day.” Bucktown resident, Connor Leamy said.

Like Leamy, many Bucktown residents make that daily 20-mile trek along 290 towards the Western Suburbs.

Within eyesight of highway 290, in Glen Ellyn, is a private club called Health Track Sports Wellness. Health Track is situated between numerous office buildings and an off campus Central DuPage Hospital.

Ordinarily, Health Track is filled with local members that live within about five miles from the gym.

Scott Kitun/The Medillian

However, this isn’t the case during the weekday noon-hour.

“For the last 15 years I have come here to HT during my lunch hour to play basketball,” Bucktown resident, Mark Wilson said. “Over the years, we commuters have been dubbed the Bucktown West League.”

For about two hours each day the basketball court becomes an intensely competitive environment, made up of doctors, lawyers and financial analysts.

Add then that many of these guys have played sports competitively since they were in elementary school. The roster of guys includes three All-American football players, two former Major League Baseball players and a host of other collegiate athletes, most of which reside in the Bucktown neighborhood.

“I think it is really funny. I mean, I have been playing here for a few years and see these guys every weekend downtown at bars and stuff. Then I have to see them here too.” Emmet Carrier said.

Carrier, of the 1600 block of North Avenue, actually plays here with his brother Riley, who works in Glen Ellyn, but lives in nearby Wheaton.

“Lunch ball is awesome, man. It is a great midday workout, it allows me to see my brother and it’s tremendous competition.” Riley Carrier said.
The Bucktown West League, as they call it, exists mostly due to commonality.

“I work 70 hours a week and spend probably two hours per day commuting. Most of these guys spend their week like this,” Leamy said. “It’s like we can all relate and there is just this understanding that games will be rough. I guess we are all just wired the same.”

Over the past 15 years, numerous players from the Bucktown West League moved to Glen Ellyn once they began to have families.

“Guys like Brad Rosley, who moved here from Bucktown, keep our group connected,” Riley Carrier said.