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Cummins (CMI) Down 0.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Cummins (CMI). Shares have lost about 0.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cummins due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Cummins Delivers Comprehensive Beat in Q1

Cummins reported first-quarter 2021 earnings of $4.04 per share, surpassing the Zacks Consensus Estimate of $3.46. Higher-than-expected contributions from Engine, Components and Power Systems segments led to this outperformance. The EBITDA from the said segments came in at $354 million, $421 million and $126 million, which topped the consensus mark of $345 million, $265 million and $85 million, respectively.

The bottom line, moreover, compares favorably with the first-quarter 2020 earnings of $3.18 a share. Cummins’ revenues also increased 22% year over year to $6,092 million. The reported figure also handily beat the Zacks Consensus Estimate of $5,303 million.

Key Takeaways

For the reported quarter, sales for the Engine segment went up 20% year over year to $1,895 million. The reported figure, however, missed the consensus mark of $2,235 million. The segment’s EBITDA dropped to $354 million (accounting for 14.4% of sales) from the prior year’s $365 million (16.9% of sales). On-highway revenues climbed 15%, and off-highway revenues increased 9%. Sales jumped 10% and 24% in North America and international markets, respectively.

Sales for the Distribution segment totaled $1,827 million, up from the $1,807 million reported in the prior-year quarter. The reported figure, nonetheless, missed the consensus mark of $1,883 million. Revenues from North America declined 6% but international sales increased 17% from the year-ago quarter. The segment’s EBITDA came in at $160 million (8.7% of sales), marginally up from the previous year’s $158 million (8.7% of sales). This was on account of increased demand in the power generation and engine markets, offset by declines in parts and service. The reported EBITDA figure, however, lagged the consensus mark of $180 million.

Sales for the Components segment jumped 54.6% from the prior-year quarter to $1,724 million. The reported figure, nevertheless, marginally lagged the consensus mark of $1,725 million. The segment’s EBITDA was $421 million (19.6% of sales) compared with the year-ago figure of $279 million (18.6% of sales). Sales in the North America markets increased 15%, while international sales climbed 82% year over year amid higher demand in China and India.  

Sales for the Power Systems segment rose 22.4% from the year-ago quarter to $612 million. The reported figure, however, trailed the consensus mark of $920 million. The segment’s EBITDA increased to $126 million (12.3% of sales) from the $77 million (8.7% of sales) registered in the year-ago period. Power generation and industrial revenues rose 18% and 9%, respectively, from the prior year. Stronger demand in mining markets aided the segment’s sales.

Sales for the New Power segment came in at $34 million, marking a whopping 240% rise year on year. This was chiefly driven by the surging demand in the transit and school bus markets, along with the commissioning of electrolyzer projects. The reported figure also beat the consensus mark of $24.5 million. The segment recorded EBITDA of negative $51 million amid high product and technology-related expenses.

Cummins’ cash and cash equivalents were $2,958 million as of Apr 4, 2021, up from $1,691 million on Mar 29, 2020. Long-term debt totaled $3,620 million, up from $1,580 million on Mar 29, 2020.

2021 Outlook

Cummins projects full-year 2021 revenues to be up 20-24% and EBITDA in the range of 15.5-16% of sales, up from the previous guidance of 8-12% and 15-15.5%, respectively. In fact, the company anticipates returning 75% of operating cash flow to shareholders in the form of dividends and share repurchases in 2021.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 14.66% due to these changes.

VGM Scores

Currently, Cummins has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cummins has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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