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Cummins (CMI) Lags Q3 Earnings Estimates, Trims '21 View

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Cummins Inc. (CMI - Free Report) reported third-quarter 2021 earnings of $3.61 per share, increasing from $3.57 recorded in the year-ago period but lagging the Zacks Consensus Estimate of $3.99. Weaker-than-expected contribution from Components and New Power segments led to this underperformance. Cummins’ revenues increased 16.6% year over year to $5,968 million. The reported figure, however, fell short of the Zacks Consensus Estimate of $5,999 million.

Cummins Inc. Price, Consensus and EPS Surprise

Cummins Inc. Price, Consensus and EPS Surprise

Cummins Inc. price-consensus-eps-surprise-chart | Cummins Inc. Quote

Key Takeaways

For the reported quarter, sales for the Engine segment were up 22% year over year to $2,578 million. The segment’s EBITDA increased to $391 million (accounting for 15.2% of sales) from the prior year’s $382 million (18.1% of sales). The metric also topped the Zacks Consensus Estimate of $377 million. On-highway revenues climbed 22% from the prior-year quarter on robust demand in the North America truck market. Off-highway revenues also grew 21% from the prior-year quarter backed by high demand in North America, Asia-Pacific and Europe construction markets. Sales rose 23% and 19% in North America and international markets, respectively, on a year-over-year basis.

Sales for the Distribution segment totaled $1,959 million, up 14% year over year. Revenues from North America edged up 10% and international sales soared 21% from the year-ago quarter. The segment’s EBITDA came in at $192 million (9.8% of sales), up from the previous year’s $182 million (10.6% of sales). The metric also outpaced the consensus mark of $175 million. This was on account of increased demand in power generation and engine markets.

Sales for the Components segment were up 16% from the prior-year quarter to $1,793 million. Sales in North America and international markets increased 21% and 11%, respectively, on a year-over-year basis. The segment’s EBITDA was $253 million (14.1% of sales) compared with the year-ago figure of $261 million (16.9% of sales). The metric, however, fell short of the Zacks Consensus Estimate of $315 million.

Sales for the Power Systems segment rose 19% from the year-ago quarter to $1,164 million. The segment’s EBITDA increased to $134 million (11.5% of sales) from $101 million (10.3% of sales) registered in the year-ago period and topped the consensus mark of $117 million. Power generation revenues rose 10% year over year, courtesy of solid demand from recreation vehicle and datacenter markets. Industrial revenues also surged 33% owing to stronger demand in mining markets.

Sales for the New Power segment came in at $23 million, marking an uptick of 28% year on year. This was chiefly driven by surging demand in transit and school bus markets along with the commissioning of electrolyzer projects. The segment incurred a pretax loss of $58 million amid high product and technology-related expenses. The loss was wider than the consensus mark of $44.6 million.

Cummins’ cash and cash equivalents were $2,588 million as of Oct 3, 2021, down from $3,401 million on Dec 31, 2020. Long-term debt totaled $3,602 million, down from $3,610 million on Dec 31, 2020.

Revised 2021 View

Amid persistent supply chain disruptions and cost headwinds, Cummins has downwardly revised its full-year 2021 guidance. The top line is now expected to witness year-over-year growth of 20% versus the prior guided range of 20-24%. EBITDA is envisioned at 15% of sales, down from the previous forecast of 15.5-16% of sales. Nonetheless, the company has maintained its target to return 75% of operating cash flow to shareholders in the form of dividends and share repurchases in 2021.

Zacks Rank & Key Picks

Cummins currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the auto space include Genuine Parts (GPC - Free Report) , Standard MotorProducts (SMP - Free Report) and LKQ Corporation (LKQ - Free Report) . While Genuine Parts and Standard Motor sport a Zacks Rank #1 (Strong Buy), LKQ Corp. carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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