Cummins Inc. Earnings: 3 Key Numbers You Can’t Miss

Cummins will release its first-quarter numbers on May 3. While

expectations are muted, investors must look beyond the headlines and keep an eye on

three key numbers in the earnings report to understand where the company is headed in

the near future.

Market share#1

The backdrop

Cummins’ share of the North American heavy-duty engines market slipped two percentage points to 33% in 2015.

Heavy-duty is the largest end market for Cummins’ engines business.

What to watchOutlook: In Q4, Cummins projected its North

American heavy-duty market share to be 30%-33% in 2016.

Concern: How will Cummins maintain its market share amidst deteriorating end markets and stiff competition? For instance, CMI’s largest customer Paccar powered 46% of its fleet with own engines in Q1 compared to 42% in Q4. That’s cutting into Cummins’ sales.

Margins#2

The backdrop

In Q4, Cummins lowered its selling, general, and administrative expenses by 11% year over year. Its SG&A remained flat for 2015.

Cummins expects to lower its costs further through aggressive restructuring this year.

What to watch2016 outlook: Operating margin range of 11.6%-

12.2% excluding restructuring and impairment charges. Including the charges, CMI’s operating margin was 10.9% in 2015.

Can Cummins maintain its operating margin above 10% at a time when Caterpillar’s margin dropped nearly two percentage points to 5% in Q1?

Where is Cummins’ margin headed?

International sales#3

The backdropIn 2015, Cummins’

international sales dropped 11%, offsetting a 7% increase in its sales from North America.

Markets outside the U.S./Canada make up nearly 40% of Cummins’ revenues.

Source: Cummins Q4 Earnings Presentation.

What to watchCaterpillar’s sales from Latin America and Asia/Pacific slumped 23% and 41%,

respectively, in Q1.Paccar’s Q1 North American truck deliveries slipped 24% year over year. A slowdown in domestic as well as key international markets could send

Cummins’ profits tumbling, and compel it to lower its outlook.

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