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Cummins (CMI) to Post Q2 Earnings: Is a Beat in the Cards?

Zacks Equity Research

Cummins Inc. CMI is scheduled to release second-quarter 2019 earnings on Jul 30, before market open. In the last reported quarter, the company delivered positive earnings surprise of 19.66%. In fact, the company’s earnings surpassed estimates in three of the trailing four quarters, at an average beat of 7.89%.

In the past three months, shares of Cummins have outperformed the industry it belongs to. The stock has gained 7.4% compared with the industry’s 6.1% growth.

Let’s discuss the factors that are likely to make an impact on the upcoming quarterly announcement.

What Does the Model Indicate?

Per our proven model, Cummins is likely to beat estimates in the quarter to be reported. This is because a stock needs to have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. This is the case here as you will see below:

Earnings ESP: Cummins has an Earnings ESP of +3.49%. The Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at $4.54 and $4.38, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3, which along with a positive Earnings ESP makes surprise prediction possible.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Factors Likely to Influence Q2

Cummins is gaining from acquisitions. The company recently announced its definite agreement to acquire the outstanding shares of fuel cell systems provider, Hydrogenics Corporation. This is expected to position the company as a leader in electric power. Further, Cummins’ focus on introducing innovative products and strategies, such as the recent partnership with Isuzu to develop diesel-based powertrains, is expected to drive revenues in the quarter to be reported.

The company is witnessing improvement in manufacturing supply chain performance, courtesy of reduction in material costs and lower tariff. This is likely to offset higher variable compensation expenses and drive EBITDA margin. For 2019, EBITDA margin is expected in the range of 16.25-16.75% compared with previous year’s guidance of 16%.

The company focuses on improving cycle-over-cycle earnings, increasing operating cash flow, delivering first quartile ROIC, returning cash to shareholders as well as investing in products and services to deliver growth. These factors are makes likely to enable the company to post earnings beat in the upcoming quarterly results.

In all its segments, Cummins has been enjoying growth in the North American market. Improved power generated equipment, higher truck production and rising sales have encouraged the company to raise the industry outlook for 2019. In the medium-duty truck market, industry production is expected to witness an increase of 6% year over year to 140,000 units. Further, the market share is expected in the range of 74-76%.

However, higher expenses stemming from rising R&D and material costs are a concern. In the second quarter, the expenses are expected to increase, thanks to the launch of on-highway products that comply with emission regulation standard.

Cummins Inc. Price and EPS Surprise


Cummins Inc. Price and EPS Surprise

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


Other Stocks to Consider

Here are some other auto stocks worth considering, which also have the right combination of elements to deliver an earnings beat this time around:

Dana Incorporated DAN has an Earnings ESP of +0.45% and carries a Zacks Rank #3. It is slated to release second-quarter 2019 results on Jul 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Goodyear Tire & Rubber Company GT has an Earnings ESP of +1.09% and currently carries a Zacks Rank of 3. It is slated to release second-quarter 2019 results on Jul 26.

Penske Automotive Group, Inc PAG has an Earnings ESP of +0.42% and currently carries a Zacks Rank of 3. The company is slated to release second-quarter 2019 results on Jul 30.

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