Cummins (CMI) to Report Q4 Earnings: What's in the Cards?

Cummins Inc. CMI is slated to release fourth-quarter 2019 results on Feb 4, before the opening bell. The Zacks Consensus Estimate for the quarter is a profit of $2.42 a share on revenues of $5.37 billion.

The leading global designer of diesel and natural gas engines witnessed weaker-than-expected results in the last reported quarter due to lower revenues in its Engine and Components segments.

The company has a dismal record of missing estimates in three out of the trailing four quarters. This is depicted in the graph below:

Cummins Inc. Price and Consensus

Cummins Inc. Price and Consensus

Cummins Inc. price-consensus-chart | Cummins Inc. Quote

Which Way are the Estimates Headed?

The Zacks Consensus Estimate for the fourth-quarter earnings per share (EPS) has been revised downward by 4 cents in the past 30 days to $2.42. This compares unfavorably with the year-ago quarter’s reported earnings of $3.48 per share. The Zacks Consensus Estimate for revenues is pegged at $5.37 billion, suggesting a decline from the prior-year reported figure of $6.13 billion.

Factors Setting the Tone

In fourth-quarter 2019, Cummins is expected to have benefited from its collaboration with Hyundai to develop an electric-powered mini excavator, and Isuzu Motors to discover opportunity in the powertrain area. Further, the company’s partnership with Russia’s KAMAZ to supply electrified power solutions for its latest line of battery-powered vehicles is anticipated to have fueled top-line growth. Moreover, the Hydrogenic Corp buyout is likely to have boosted Cummins’ ability to innovate hydrogen fuel-cell technologies across commercial markets.

However, a few of Cummins’ end markets are likely to have witnessed lower levels of industry production of trucks amid reduced build rates during this period. Declining demand in China amid economic growth concerns and trade tussle is likely to have marred the company’s quarterly performance. Demand for trucks in the U.K. and India might have dropped as well, dampening Cummins’ quarterly earnings.

Notably, the Zacks Consensus Estimate for the Engine segment’s quarterly net sales is pegged at $2,196 million, lower than the year-ago quarter’s $2,698 million. The EBIT estimate for the segment projects a 29.5% decline to $277 million.

The Zacks Consensus Estimate for its power system segment’s quarterly net sales is pegged at $1,083 million, lower than the prior-year quarter’s $1,199 million. The segment’s EBIT estimate suggests a fall of 21.14% to $97 million in fourth-quarter 2019.

The components segment has a Zacks Consensus Estimate of $1,540 million for its fourth-quarter net sales, lower than the year-ago quarter’s $1,772 million. Sales estimate for the distribution segment is pinned at $2,019 million for the to-be-reported quarter, lower than the year-ago quarter’s $2,050 million. However, the distribution segment’s EBIT estimate suggests an increase from the prior-year's $140 million to $161 million, in the quarter.

Cummins is expected to have countered elevated expenses, due to rising R&D expenses for product development toward commercial launch and high-material costs during the December-end quarter. Further, expenses are anticipated to have flared up due to launch of on-highway products that comply with China’s standard six emission regulation. Additionally, tariff-related commodity costs and fluctuating foreign currencies are likely to have dragged down Cummins’ margins in the quarter.

What the Zacks Model Says?

Our proven model does not conclusively predict an earnings beat for Cummins this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Cummins has an Earnings ESP of -0.83%. This is because the Most Accurate Estimate of $2.40 comes in two cents lower than the Zacks Consensus Estimate.

Zacks Rank: Cummins currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Here are some companies, which according to our model have the right combination of elements to post an earnings beat in the fourth quarter.

LKQ Corporation LKQ is scheduled to report quarterly figures on Feb 20. The stock has an Earnings ESP of +1.49% and carries a Zacks Rank #3, currently.

Visteon Corporation VC is set to release fourth-quarter earnings on Feb 20. The company has an Earnings ESP of +2.63% and carries a Zacks Rank of 3, at present.

Agnico Eagle Mines Limited AEM has an Earnings ESP of +0.47% and is a Zacks #3 Ranked player. The company is slated to release earnings results on Feb 13.

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