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Cummins 4th-quarter rally not enough

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Cummins Engine Plant, pictured Monday, Oct. 8, 2012. Cummins lowered its full year revenue and EBIT guidance for 2012 and also announced actions to respond to the weakening global economy.
Cummins Engine Plant, pictured Monday, Oct. 8, 2012. Cummins lowered its full year revenue and EBIT guidance for 2012 and also announced actions to respond to the weakening global economy.

Cummins Inc. offered investors a conservative revenue forecast for 2014 on Thursday, saying sales in the first half of the year may slow a little compared to a solid fourth quarter.

By midyear, however, sales are expected to forge ahead again.

“Most of our markets have bottomed out. Some may slip further,” Cummins CEO Tom Linebarger said in a conference call with stock analysts after an early-morning earnings release.

Linebarger said the Columbus-based engine maker expects sales to increase between a broad range of 4 percent and 8 percent in 2014, while earnings for the year should beat that pace.

Cummins employed 536 workers at its Seymour Engine Plant as of Dec. 13, according to Jackson County Industrial Development Corp., up from 495 reported in January 2013.

A $219 million expansion project at the East Third Street plant continues to move forward.

The project is expected to net 290 new workers, mostly higher-paying engineers, once the new QSK95 heavy-duty engine hits full production levels in 2015.

Cummins’ latest forecast came after it had reported fourth-quarter and full-year financial results for 2013, a report that offered investors a mixed bag of global sales results.

Revenue hit $4.6 billion for the final three months last year, up 7 percent from the same period a year earlier.

Cummins’ strongest markets geographically were North America, China and Brazil, although Cummins said that each of those faces rough spots going forward.

Chief weak spots internationally were Mexico, Australia and especially India, the company said.

Full-year revenue was $17.3 billion, a decline of $33 million, or 0.02 percent, from 2012.

North American sales were up 3 percent for the year, but international sales declined 4 percent overall, the company said.

For the year ahead, Cummins officials said they expect to continue to face strong headwinds overseas, especially in India, where the economy is suffering and there seems to be little energy to fuel a turnaround. Currency depreciation with a declining rupee versus the dollar also hurt the company’s profitability there.

In North America, though, Cummins is forecasting improved sales in heavy-duty and medium-duty truck engines among a broad range

of market segments. New products and the acquisition of remaining ownership stakes by Cummins in its North American distributors will aid the revenue picture, the company said.

“We faced weak demand in important regions and end markets in 2013,” Linebarger said. “Revenues for the year ended flat with 2012 as strong growth in the components business, market share gains in the North American medium-duty truck market and distributor acquisitions offset weakness in global mining markets, international power generation and the North American heavy-duty truck market.”

The company indicated it will maintain a strong dividend for shareholders this year, saying that it intends to return at least 50 percent of cash from operations to shareholders via dividends and stock buybacks.

On a conference call with stock analysts Thursday morning, Cummins officials said that could amount to a total of $1 billion in benefits, or about 25 percent more than in 2013.

Mark Foster, fund manager with the Kirr Marbach mutual fund based in Columbus, said Cummins’ forecast of 4 percent to 8 percent overall revenue growth leaves room for upward revisions as 2014 unfolds.

“They’re giving conservative guidance in revenues and margins at this point, and they can adjust as time goes on,” Foster said.

One bright spot has been improved truck orders in North America the past few months, which could boost Cummins’ on-highway engine sales if the trend holds.

The prospect of tougher emission standards in Europe also might lead to more orders for Cummins’ products, which have been developed for fuel efficiency and to meet evolving air quality rules globally.

Fourth-quarter earnings and revenues were better than most stock market analysts had expected, but the company’s guidance for how well it will do in 2014 fell short of what most stock analysts had expected. Most analysts were anticipating a forecast of 11 percent revenue growth for this year.

In early trading on Wall Street on Thursday, Cummins’ stock dipped but then rebounded to $129.70, up 2.4 percent, on the New York Stock Exchange by midafternoon. At day’s end, the stock closed at $130.78, up $4.11, or 3.24 percent.

Excluding restructuring charges, the company reported fourth-quarter earnings of $432 million, or $2.32 a share, up from $404 million, or $2.14 a share, for the comparable period the prior year.

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