What's in the Offing for Cummins (CMI) This Earnings Season?

Cummins Inc. CMI is slated to release third-quarter 2019 results on Oct 29, before the opening bell. The current Zacks Consensus Estimate for the quarter to be reported is a profit of $3.84 a share on revenues of $5.84 billion.

The leading global designer of diesel and natural gas engines recorded weaker-than-expected results in the last reported quarter due to lower-than-anticipated revenues from all its segments.

As far as earnings surprises are concerned, the company has a dismal record of missing estimates in two out of the trailing four quarters, the average being 4.06%. This is depicted in the graph below:

Cummins Inc. Price and EPS Surprise

 

Cummins Inc. Price and EPS Surprise

Cummins Inc. price-eps-surprise | Cummins Inc. Quote

Which Way are Top- and Bottom-Line Estimates Headed?

The Zacks Consensus Estimate for the third-quarter earnings per share (EPS) has been revised upward by 2 cents in the past 30 days to $3.84. This compares unfavorably with the year-ago quarter’s reported earnings of $4.05 per share. The Zacks Consensus Estimate for revenues is pegged at $5.84 billion, suggesting a decline from the prior-year reported figure of $5.94 billion.

Factors Setting the Tone

High demand for medium-duty and pick-up truck in North America is expected to have aided Cummins’ performance in the quarter. However, a few of Cummins’ end markets are likely to have experienced 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 impacted the company’s quarterly performance. Demand for trucks in the U.K. and India might have dropped as well, dampening Cummins’ third-quarter earnings. 

Notably, the Zacks Consensus Estimate for Cummins’ Engine segment’s quarterly net sales is pegged at $2,671 million, lower than the year-ago quarter’s $2726 million. EBIT for the segment is estimated be down 0.49% to $403 million. While this segment’s net sales estimate disappoints, Cummins is anticipated to have gained on higher sales from its power, components and distribution units.

The Zacks Consensus Estimate for its power system segment’s quarterly net sales is pegged at $1131 million, higher than the prior-year quarter’s $1107 million. The segment is likely to have benefited from the Hydrogenic Corporation acquisition.

The company’s components segment has a Zacks Consensus Estimate of $1,712 million for its third-quarter net sales, higher than the year-ago quarter’s $1,754 million. Sales estimate for the distribution segment is pinned at $1967 million for the to-be-reported quarter, higher than the year-earlier quarter’s $1931 million.

Nonetheless, Cummins is expected to have countered elevated expenses, due to rising R&D expenses for product development toward commercial launch and high material costs in third-quarter 2019. 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 hampered 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 -0.45%. This is because the Most Accurate Estimate of $3.82 is 2 cents lower than the Zacks Consensus Estimate.

Zacks Rank: Cummins currently sports 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 to-be-reported quarter.

The Allstate Corporation ALL is scheduled to report quarterly figures on Oct 29. The stock has an Earnings ESP of +6.41% and sports a Zacks Rank #1, currently.

CF Industries Holdings, Inc. CF is set to release third-quarter earnings on Oct 30. The company has an Earnings ESP of +7.56% and carries a Zacks Rank of 2, at present.

Garrett Motion Inc. GTX has an Earnings ESP of +7.66% and is a Zacks #3 Ranked player. The company is slated to release earnings results on Oct 29.

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Cummins Inc. (CMI) : Free Stock Analysis Report
 
CF Industries Holdings, Inc. (CF) : Free Stock Analysis Report
 
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