Cummins Reports Strong Second Quarter
Trending
Cummins Inc.'s stock price took a small hit during early trading Thursday after company officials announced lower-than-expected profits for the second quarter.
The slight hit on to the stock price was about the only bad news in the company's second quarter financial results released Thursday prior to a conference call with investor analysts. Cummins owns and operates the Jamestown Engine Plant, the largest private employer in Chautauqua County. The Busti plant employs more than 1,500 people.
Second quarter revenues of $8.6 billion increased 31% from the same quarter in 2022. Sales in North America increased 31% and international revenues increased 32% due to the addition of Meritor and strong demand across most global markets. Net income attributable to Cummins in the second quarter was $720 million, $18 million more than the second quarter of 2022. Earnings before interest, taxes, depreciation and amortization in the second quarter were $1.3 billion, or 15.1% of sales, compared to $1.1 billion, or 16% of sales, a year ago.
Based on its current forecast, Cummins officials are maintaining its full year 2023 revenue guidance to be up between 15% and 20% due to strong demand across most markets, especially North America. Earnings before interest, taxes, depreciation and amortization, an indication of a company's ability to generate cash, is still expected to be in the range of 15 to 15.7% of sales.
And, while the stock market didn't take kindly to missing profit projections in the second quarter, company officials said Cummins plans to continue to generate strong operating cash flow and returns for shareholders and is committed to the company's long-term strategic goal of returning 50% of operating cash flow back to shareholders. In the near term, the company will focus on reinvesting for profitable growth, advancing dividends and reducing debt.
"While we see demand remaining strong through 2023 and we are maintaining our guidance on revenue and profitability, we continue to closely monitor global economic indicators. Should economic momentum slow, Cummins will remain in a strong position to keep investing in future growth, bringing new technologies to customers as we advance our Destination Zero strategy, and returning cash to shareholders," said Jennifer Rumsey, Cummins president and CEO.
That doesn't mean there aren't potential issues to be handled in the coming months.
The Chinese market for excavators has decreased from 2022 levels due to less activity and construction while sales of power generation equipment in China decreased 8% in the second quarter because of a decline in the data center market. The truck market in Brazil is expected to decrease 30% to 40%, a hit from prior guidance projecting declines between 10% and 20%. Closer to home, costs are increasing in the Accelera business Cummins launched earlier this year. Accelera is expected to lose between $420 and $440 million this year, more than the originally projected $370 million to $390 million losses. Supply chain constraints are still an issue across the industry with lower truck production projected in the fourth quarter of this year.
"Our guidance for the full-year implies weaker revenue in the second half of the year," Rumsey said. "While demand remained strong in several markets, a weaker outlook in China versus the first half, an expected decrease in the North American heavy-duty truck production in the fourth quarter and the previously mentioned North America construction and Brazil truck decrease are some of the factors driving the lower second half run rate. In view of the lowered forecasted revenues in the second half of the year, we expect to manage our operating expenses below the second quarter levels. During the second quarter, we returned $223 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to our shareholders."