Cummins shares fall on missed sales

The engine maker reports disappointing third-quarter results, largely due to underperformance in its components unit.

By Kim Peterson Oct 26, 2010 11:14AM
Cummins (CMI) would have had a great quarter, if it weren't for that pesky components unit.

But alas, that unit dragged down third-quarter results and caused Cummins to miss sales expectations. Cummins shares were down some 5% in morning trading Tuesday.

Profit in the quarter came in at $283 million, or $1.44 a share -- triple the year-ago profit of $95 million, or 48 cents a share. Analysts were expecting $1.41 a share in profit.

Take this grain of salt with that profit picture, however: The company got an extra 11 cents in EPS from a tax refund in Brazil.

Revenue rose 34% to $3.4 billion from $2.53 billion in the year-ago quarter, but Wall Street was looking for $3.6 million.

The components unit had a sales increase of 30% and income (before taxes and interest) that more than doubled. But margins were the killer, Dow Jones reported, and ate into the unit's profit. Sales in the unit were 12% below what Wall Street wanted to see.

"Components looked like a bit of a disappointment," an analyst at JPMorgan Chase told Reuters.

Other parts of the company performed better. The engine and power-generation units each saw a 44% sales increase, while the distribution business reported a 36% increase.

The engine unit had one of its best quarters ever, the company said, despite a slow U.S. economic recovery and continued weakness in North American truck engine markets. Cummins said it has sold nearly 37,000 medium- and heavy-duty engines in North America this year.

The quarterly results were enough to help Cummins boost its full-year guidance. The company says that earnings before interest and taxes should be about 12.5% of sales estimated at $13 billion. Previously, the forecast was only 12%.
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