Cummins To Gain From Innovative Products & Higher Shipment

On May 23, 2016, we issued an updated research report on Cummins Inc. (NYSE:CMI) . The company continues to gain from increased use of its engines by a number of original equipment manufacturers (OEMs), share buybacks, innovative products and benefits from acquisitions in North America. However, weakness in the operating markets and a highly competitive environment are considerably affecting the company’s results.

Cummins’ adjusted earnings per share decreased 8.3% to $1.87 in the first quarter of 2016 from $2.04 earned in the year-ago quarter. The bottom line, however, surpassed the Zacks Consensus Estimate of $1.77.

Revenues went down 9% year over year to $4.29 billion in the reported quarter. The figure also missed the Zacks Consensus Estimate of $4.33 billion. The year-over-year decline in the top line was due to currency headwinds, mainly stemming from a stronger U.S. dollar.

Cummins is poised to benefit from its innovative products. The transition to new emission standards in various economies will boost the results of the company. In Apr 2016, Cummins announced that it will develop a Class 6 commercial plug-in hybrid electric vehicle that will reduce fuel consumption by 50% compared to conventional Class 6 vehicles.

Cummins has the potential to benefit from higher use of its engines by a number of OEMs, including Nissan Motor Co. Ltd. (OTC:NSANY) and Navistar International Corporation (NYSE:NAV) . In first-quarter 2016, shipments to Fiat Chrysler Automobiles (NYSE:FCAU) N.V. (NYSE:FCAU) increased 9% to 34,000 units. This was the highest volume recorded in the last 10 years. Shipments to Nissan also increased due to the launch of the 5-liter V8 engine in fourth-quarter 2015.

Additionally, the company is focused on reducing costs and enhancing operational efficiency. Further, Cummins will make disciplined investments in organic growth opportunities and adopt strategies such as partnerships and acquisitions in order to record high returns.

However, for 2016, Cummins anticipates revenues to decrease 5%–9%. The decline is expected due to lower levels of production in the North American on-highway markets, reduced demand globally for off-highway and power generation equipment, and the negative impact of currency. Cummins expects EBIT for 2016 in the range of 11.6%–12.2%, down from 12.5% recorded in 2015.

Moreover, most of Cummins’ businesses are expected to be under pressure in 2016 due to soft global demand. High competition and supplier concentration are other concerns.

Cummins currently carries a Zacks Rank #3 (Hold).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

NISSAN ADR (NSANY): Free Stock Analysis Report

FIAT CHRYSLER (FCAU): Free Stock Analysis Report

NAVISTAR INTL (NAV): Free Stock Analysis Report

CUMMINS INC (CMI): Free Stock Analysis Report

Original post

Zacks Investment Research