Engine Maker Cummins Hit by Slowing Truck Sales
February 05 2016 - 2:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 2/5/16)
By Bob Tita
Engine maker Cummins Inc. said its fourth-quarter profit plunged
64%, becoming the latest U.S. equipment maker pulled down by
sliding demand for trucks in North America, anemic commodity prices
and slower growth in developing markets.
Cummins, which supplies diesel engines for commercial trucks,
construction and mining machinery, and power generators, said it
now forecasts an up-to-9% revenue decline this year, from an
earlier outlook for a 5% drop. Caterpillar Inc., Eaton Corp.,
Meritor Inc. and other commercial truck, machinery and parts
suppliers also expect lower 2016 sales.
"Due to weak or slowing demand in many our major markets, 2016
will be another challenging year," Chairman and Chief Executive Tom
Linebarger said during a conference call on Thursday.
The Columbus, Ind., company's new outlook implies 2016 revenue
of between $17.3 billion and $18 billion, with earnings per share
of about $7.90, according to analysts. Cummins's revenue for 2015
was about flat with 2014 at $19.1 billion. Profit for the year
declined 15% to $1.4 billion, or $7.84 a share.
Its stock rose 7.6% to $97.57 at 4 p.m. in New York trading as
part of a broad advance by industrial stocks.
Fourth-quarter profit was lower than expected, reflecting weaker
demand for Cummins's commercial trucks in North America. Truck
buyers dialed back purchases late in the year as U.S. industrial
activity weakened.
The leading supplier of engines for heavy-duty commercial trucks
said its fourth-quarter sales of heavy-duty truck engines fell 11%
from a year earlier to $700 million.
A flurry of truck orders early in 2015 pushed North American
truck sales to their highest level since 2006. With most trucking
fleets already well-stocked with new equipment, Cummins expects
industry heavy-duty truck output will fall 25% this year. The
decline is in line with forecasts offered this week by truck
-transmission maker Eaton and truck-axle manufacturer Meritor.
Cummins expects its revenue from heavy-duty truck engines to
fall 20% this year from 2015 because of declining truck volumes in
North America.
It recorded a fourth-quarter impairment charge of $211 million
to reflect the diminished value of its light-duty truck engine
business. Cummins, which supplies diesel engines for Ram and Nissan
Motor Co. pickup trucks, expanded production capacity for V-8
engines in the U.S. in anticipation of additional customers.
"In light of the current economic situations [that expansion] is
less likely in the short-term," said Rich Freeland, chief operating
officer. "We'll add some non-pickup truck customers in 2016."
Cummins is facing tough business conditions in once-highflying
engine markets in China and Brazil. The company said revenue from
Brazil plunged 48% last year under the weight an economic
recession.
Overall for the fourth quarter, Cummins reported a profit of
$161 million, or 92 cents a share, down from $444 million, or $2.44
a share, a year earlier. Excluding one-time items, per-share
earnings fell to $2.02 from $2.56 a year ago. Revenue declined 6%
to $4.77 billion.
(END) Dow Jones Newswires
February 05, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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