It has been about a month since the last earnings report for Cummins (CMI). Shares have added about 6.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cummins due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Cummins Q3 Earnings Beat Estimates
Cummins reported third-quarter 2024 earnings of $5.60 per share, which increased from $4.73 recorded in the corresponding quarter of 2023. The bottom line also surpassed the Zacks Consensus Estimate of $4.89 per share. The outperformance was driven by higher-than-expected revenues from the Power Systems and Distribution segments. Cummins’ revenues totaled $8.46 billion, up from $8.43 billion recorded in the year-ago quarter. The top line beat the Zacks Consensus Estimate of $8.28 billion.
Key Takeaways
In the reported quarter, sales in the Engine segment were down 1% year over year to $2.91 billion. The metric also missed our estimate of $2.94 billion. Sales in North America decreased 2% due to a weaker demand in the North American heavy-duty truck market. International sales increased 4% year over year, driven by strength in global medium-duty truck markets. The segment’s EBITDA rose to $427 million (accounting for 14.7% of sales) from $395 million (13.5% of sales) in the year-ago period and beat our estimate of $399.6 million.
Sales in the Distribution segment totaled $3 billion, which rose 16% year over year and topped our projection of $2.6 billion. Sales in North America increased 13%, while international sales rose 25% due to increased demand for power generation products. The segment’s EBITDA came in at $370 million (12.5% of sales), which increased from the year-ago quarter’s $306 million (12.1% of sales) and surpassed our estimate of $303.4 million.
Sales in the Components segment totaled $2.7 billion, down 16% from the prior-year quarter. Sales also missed our estimate of $2.92 billion. Revenues in North America fell 14% and international sales contracted 18% on the separation of the Atmus business and lower demand in heavy-duty truck. The segment’s EBITDA was $351 million (12.9% of sales), lower than the year-ago figure of $441 million (13.6% of sales). The metric missed our estimate of $410.2 million.
Sales in the Power Systems segment rose 17% from the year-ago quarter to $1.7 billion and beat our estimate of $1.51 billion. While power generation revenues rose 24% on the back of higher global demand (especially for the data center market), industrial revenues were up 7%, thanks to strong mining demand. The segment’s EBITDA rose to $328 million (19.4% of sales) from $234 million (16.2% of sales) and breezed past our estimate of $275.6 million.
Sales in the Accelera segment came in at $110 million, up 7% from the year-ago level but lagged our estimate of $125.3 million. The segment incurred a pretax loss of $115 million, wider than our estimate of $104.7 million. Costs related to the development of electric powertrains, fuel cells and electrolyzers, as well as products to support battery electric vehicles, resulted in EBITDA losses.
Financials & Outlook
Cummins’ cash and cash equivalents were $1.73 billion as of Sept. 30, 2024, down from $2.18 billion on Dec. 31, 2023. Long-term debt totaled $4.86 billion, up from $4.8 billion as of Dec. 31, 2023.
Cummins expects full-year 2024 revenues to be down 3% to flat. EBITDA is now anticipated to be 15.5% compared with the prior guided range of 15-15.5% due to continued improvements in the Power Systems and Distribution segments. Cummins continues to stick to its plan of returning nearly 50% of its operating cash flow to shareholders.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, Cummins has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cummins has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
