Company predicts revenues for year to be flat as stock plummets nearly 9%
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Cummins’ sales will be about 9 percent lower this year than it expected because of a weakening North American market and because sales in China, India and Brazil are increasing more slowly than anticipated.
Cummins said Tuesday that revenues for this year essentially will be flat compared to 2011.
A local analyst said Cummins could slow its hiring in the short term, though the outlook remains robust for the long term.
A company spokeswoman said people should remember that revenues are expected to be essentially the same as last year, which was a record year with $18 billion in sales.
Cummins’ stock got hammered Tuesday, falling nearly 9 percent in one of the stock’s worst days since the market plunged in September 2008.
“We have seen demand in some markets weaken recently as growth in the global economy has slowed,” Cummins Chairman and Chief Executive Officer Tom Linebarger said in a press release. “Order trends in the U.S. for trucks and power generation equipment have softened, and demand in Brazil, China and India is not improving as we had previously expected.”
The company also said revenues have been pulled down because the dollar has strengthened against other currencies.
“We are making adjustments within our business to manage costs, while continuing to fund our critical growth programs and will continue to focus on execution and improving operating margins,” Linebarger said.
Carole Casto, executive director of corporate communications, said the company remains confident in its investments, such as the 95-liter engine in Seymour.
At the moment, she said the company does not foresee any layoffs. She could not say by how much expected hiring would be reduced as a result of the global economic slowdown.
“We are still very bullish on our plan. You will continue to see us hire,” she said, “but we’re going to be really judicious.”
That means hiring could be delayed in some areas not deemed critical for growth.
And much like during the slowdown in 2008, the company will reduce travel and find other ways to cut costs, Casto said.
Cummins still will have a great year, Casto said, but it cannot ignore changing economic conditions.
Mark Foster, chief investment officer of Columbus-based Kirr, Marbach & Co., said the announcement shouldn’t come as much of a surprise.
The global economy has been slowing, and companies are beginning to feel the results.
Besides, Foster said, companies never grow in a straight line.
“There will be bumps along the way,” he said.
The slowdown probably will require the company to cut production and might moderate the hiring pace, Foster said.
“I don’t think (this) has a major impact in the long term,” he said.
Cleveland-based equity research firm Northcoast Research said in a report that is was lowering its estimates for Cummins’ earnings by 12.2 percent for this year and nearly 12.8 percent for 2013.
“Trepidation surrounding a number of (the) world’s economies has caused a slowing of demand, relative to earlier in the year, across the majority of Cummins’ reported segments,” Northcoast wrote. “As a result, we do not anticipate material top-line growth for Cummins, although we believe that the company will effectively manage its cost structure and continue to return value to shareholders.”
Cummins shares closed at $86.90, down 8.94 percent. The Dow Jones industrial average lost 0.65 percent, while the S&P 500 fell 0.81 percent. Cummins’ rivals, including Caterpillar and Navistar, also saw significant declines. Cat was down 3.45 percent Tuesday, while Navistar plunged 7.27 percent.
Cummins on Tuesday also announced it was increasing its quarterly dividend from 40 cents per share to 50 cents. The dividend will be paid Sept. 1 to shareholders of record Aug. 22.
“Today’s announcement of a dividend increase reinforces our confidence in the long-term prospects for the company and continues our trend of increasing returns to shareholders,” Linebarger said. “With strong cash flow and low levels of debt we are able to fund investments in our future growth.”
Cummins will announce second-quarter earnings July 31.
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