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Cummins Inc.’s Bumper Quarter: 5 Things You Need to Know
1 Weak international markets holding back growth
Brazil a dampener
Revenue from North America grew 12% while international sales slipped 6% year over year.
For 2015, Cummins targeting 34%-35% and 76% market share in the North American heavy-and-medium-duty truck markets, respectively.
Weakest link: Brazil. Industry production of heavy-and-medium-duty trucks projected to slump 50% this year.
Weakness to continue
Markets outside the U.S./Canada contribute more than 40% to sales.
Full-year revenue guidance of 2%-4% growth muted because of slowdown in international markets. Source: Cummins Q2 Earnings Presentation
2 Key business under pressure
Engine segment
Q2 sales improved only 2% year over year.
Slowdown in industrial markets like marine, mining, and construction offsetting strength in North American trucking market.
Full-year outlook remains positive: Operating
margin guidance range of 11%-12% on flat to 2% growth in revenue.
3 Top performing segment: Components
Components: filtration, fuel systems, emission solutions
Q2 sales and operating profit up 9% and 21%, respectively, year over year.
Strong aftermarket demand from North America and China.
Full-year EBIT margin guidance raised to 14.5%-15.5% versus 13.4% reported last year. Revenue projected to rise 4%-8%.
4 Income from joint ventures down, but not a concern
Acquisitions boosting distribution segment
Q2 earnings from joint ventures down 11% year over year as Cummins acquired North American distributors previously held as JV.
On the positive side, distribution segment sales jumped 21% year on year.
Full-year outlook: JV income down 15%, distribution segment revenue growth of 20%-24% and EBIT margin between 7%-8%.
5 Full-year guidance unchanged
On the growth trackCummins kept its full-year guidance unchanged despite a stronger-than-expected quarter.
Source: Cummins Q2 Earnings Presentation
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