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Cummins Temporarily Closes Indiana Plant, Withdraws '20 View

Zacks Equity Research

Cummins Inc. CMI has temporarily shut down its Indiana plant as well as withdrew the 2020 guidance amid lower commercial truck production in North America and plant shutdowns by various OEMs in Europe.

The engine maker suspended production at the Indiana plant for two weeks in response to the decision by its customer Fiat Chrysler FCAU to shutdown all U.S. factories at least until Mar 30 to contain the spread of coronavirus.

While the company did not announce any further suspension of production or plant shutdowns, it is unsure whether or not further suspensions or shutdowns will emerge.

Moreover, such adjustments in customer-production plans are likely to affect Cummins' first-quarter results. However, a more pressing issue is the rising demand-related uncertainty for the remainder of 2020.

As a result, the firm withdrew its 2020 guidance, which did not factor in the impact of the COVID-19 crisis. Cummins will discuss its current-year outlook during the first-quarter 2020 earnings call, scheduled for Apr 28.

Notably, the number of confirmed coronavirus cases in the United States has crossed 35,000. Acknowledging the gravity of the crisis, President Trump issued new guidelines to contain the spread of the pandemic. The pandemic is likely to take a severe toll on sales and earnings of automakers in the days to come.

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

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The coronavirus pandemic has become a concern for other global auto biggies as well, including Tesla TSLA, Honda Motor HMC, Toyota Motor, Volkswagen AG, Goodyear Tire, Nissan, Harley-Davidson and Hyundai Motor. Several automakers have closed their factories and suspended production, while the others plan to change manufacturing processes and cut production levels in their plants, in line with the nation-wide campaign addressing the crisis. The pandemic has not only dented consumer sentiment and thwarted vehicle demand but also distorted the global supply-chain balance.

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