Cummins Inc. has reported higher-than-expected quarterly revenue aided by strong demand in international markets and raised its outlook for the year as the global economy continues to rebound from the COVID-19 pandemic.
The Columbus-based company said Tuesday its first-quarter revenue rose to $6.1 billion from $5 billion a year ago—a 22% increase — and reported earnings of around $4.07 per share. Analysts on average had expected $5.34 billion in revenue and $3.44 in earnings per share.
International revenue increased 45% driven by strong demand in all global markets, including new product sales in China and India. Sales in North America rose 7%.
Cummins also increased its forecast for company-wide revenue this year to 20% to 24%, up from 8% to 12%, with a stronger outlook in most regions and markets — including the heavy-duty truck market in North America, among others.
“Demand accelerated in the first quarter as the global economy continued to improve, driving strong sales growth across most businesses and regions and resulting in solid profitability,” said Cummins Chairman and CEO Tom Linebarger during the earnings conference call. “The strength and breadth of the rebound in demand has surpassed our original expectations, and we’ve raised our full-year outlook.”
Last year, Cummins reported a 17% decrease during the January-to-March quarter compared to 2019 and was preparing for a challenging year as companies around the world started to feel the impact of the pandemic.
Many of the coronavirus-related shutdowns last year — besides China — occurred in the latter half of the first quarter.
“We were optimistic that continued vaccination distribution globally will reduce the impact of the virus in the second half of the year, but there is still a risk of an increase in cases somewhere in the world that could result in lower customer demand, additional facility shutdowns or additional supply chain constraints in the future,” Linebarger said.
Segment performances
Engine: Sales of $2.5 billion represented a 14% increase. On-highway revenues saw a 15% increase due to strong demand in the North American truck and pickup markets. Off-highway revenues climbed 9% driven by strong demand in international construction markets. Sales increased 10% in North America and 24% in international markets.
Distribution: Sales of $1.8 billion were up 1%. Revenues in North America were down 6% but international sales increased 17%. An increase in demand in power generation and engine markets was offset by declines in parts and service due to supply chain constraints.
Components: Sales increased 43% to $2.2 billion. Higher demand in China and India markets drove up international sales by 82%. Revenues in North America were up 15%.
Power systems: Sales of $1 billion represented a 16% increase. Power generation revenues increased 18% largely due to growth in recreational vehicle and data center markets. Industrial revenues were up 9% due to stronger demand in mining markets
New power: Sales of $35 million were up 250% largely due to greater demand in transit and school bus markets, as well as the commissioning of electrolyzer projects and shipments of fuel cell systems to the rail market.
China and India
Cummins officials are anticipating that demand in China will taper off from what they said was a “record year” in 2020 and expressed concern about employees in India, where COVID-19 infections and deaths are mounting with alarming speed.
“Demand in China remained very strong in the first quarter, but we do anticipate a weaker second half of the year driven in part by the transition to (new emissions standards) beginning in July,” Linebarger said.
In India, Cummins is “monitoring events on the ground closely” as COVID-19 cases in the country continue to surge, nearly doubling since February, The Associated Press reported.
The country has witnessed scenes of people dying outside overwhelmed hospitals and funeral pyres lighting up the night sky, according to wire reports.
Cummins has several offices and manufacturing facilities in India, including Maharashtra, the hardest hit state in the country. Currently, all of the manufacturing facilities are operating “with robust safety measures in place,” Linebarger said.
“Given the rapid increase in COVID cases in India, we are very concerned about the health and safety of our employees and those of our suppliers and partners,” Linebarger said. “We are continuing to operate all of our manufacturing facilities, but with robust safety measures in place.”
Analysts react
Local analysts agreed that Cummins delivered a strong quarter.
Craig Kessler, president and chief investment officer with Columbus-based Kessler Investment Group, said Cummins had “a good, solid performance” in the first quarter.
“We have kind of grown familiar with how strong much of corporate America was — surprisingly so — in 2020, and that’s something that I think comes through in this (earnings) report,” Kessler said. “…There’s no surprise that (Cummins) executed well because this is just a very solid management team that has navigated difficult waters in the past.”
However, Cummins has the potential to experience some headwinds in China and India at some point this year, Kessler said.
“They’ve probably got a little bit of a headwind coming from China and potentially one from India given India’s difficulty with COVID at the moment,” Kessler said.
Roger Lee, a senior research analyst with Columbus-based Kirr, Marbach and Co., said that the most impressive part of the earnings report was the increase in the company’s revenue outlook for the year to 20% to 24%, which he said was “shockingly higher” than he had anticipated.
“The guidance for the year was the most impressive part of this (earnings report),” Lee said. “…On the quarter itself, everything was firing on all cylinders.”
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“Demand accelerated in the first quarter as the global economy continued to improve, driving strong sales growth across most businesses and regions and resulting in solid profitability. The strength and breadth of the rebound in demand has surpassed our original expectations, and we’ve raised our full-year outlook.”
— Cummins Chairman and CEO Tom Linebarger during the earnings conference call.
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Cummins stock closed at $255.61 Tuesday, up from its Monday close of $253.62.
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