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Cummins’ second-quarter profit rises

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Cummins Inc. on Monday reported second-quarter revenue of $4.8 billion, representing a 6.9 percent year-over-year increase.

The Columbus-based engine maker also reported a 7.7 percent increase in quarterly net income, to $446 million from $414 million in the second quarter of last year.

For the quarter, earnings before interest and taxes (EBIT) were $657 million, or 13.6 percent of sales. That’s compared with $621 million, or 13.7 percent of sales, over the same period a year earlier.

Cummins attributed the financial improvements to several factors.

“Demand is growing in on-highway markets in North America this year as the economy improves, and we have gained market share in medium-duty truck and bus markets,” Chairman and CEO Tom Linebarger said. “Our components business delivered very strong results in the second quarter, generating record sales and profits.”

Linebarger said distributor acquisitions in North America also paid off.

Cummins increased its full-year revenue forecast for growth of 8 to 11 percent from the previous forecast of 6 to 10 percent sales growth due to the stronger demand for the company’s North American products.

Based on the current forecast, earnings before interest and taxes for 2014 were projected to be in the range of 12.75 to 13.25 percent of sales.

Among the company’s four business segments, the components division showed a 14.6 percent increase in sales, to $1.3 billion.

The engine segment, its biggest division with sales of $2.7 billion, had sales growth of 3.3 percent over the same period a year ago.

Sales in the distribution segment increased 29.8 percent overall to $1.2 billion. Excluding acquisitions, however, the quarterly revenue increase would have been 2 percent.

Sales in the power generation segment were down 8.7 percent year over year at $743 million. The decrease was attributed to lower revenues in most markets, including North America, the Asian Pacific and the Middle East, which overshadowed stronger demand in China and Africa.

Craig Kessler, chief investment officer for Columbus-based Kessler Investment Group, said Monday’s earnings report indicates Cummins is “hitting on all cylinders.”

“The takeaway is generally very positive,” Kessler said. “It was a better- than-expected earnings release and a better-than-expected revenue release.”

Kessler Investment Group is a Cummins shareholder.

Kessler said that while Cummins stock has been trading lower, that was likely attributed to a slight reduction in the EBIT margin and is not a cause for concern.

“From my perspective, that is splitting hairs,” Kessler said. “The real focus should be on the expanding revenue and the fact that North American trucks came back very strong and they saw growth in market share from that division of the company.”

Cummins’ closing stock price Monday was $145.35, down $4.80, or 3.2 percent, from Friday’s close.

Linebarger pointed out that Cummins raised its quarterly dividend by 25 percent this month, and its board of directors approved a new $1 billion share repurchase program. The purchase is consistent with the company’s commitment to return 50 percent of operating cash flow to shareholders.

Analysts said at the time the repurchase program was an indication of the company’s long-term confidence in its future.

Scott DeDominic, a senior vice president and analyst with Hilliard Lyons in Columbus, said that, while the headline numbers look good, some analysts saw the report as a slight earnings miss.

“It was a good report. It just missed some Wall Street expectations,” DeDomenic said.

DeDominic said Credit Suisse, the financial services company Hilliard Lyons uses, pointed to a one-time, $13 million gain from the acquisition of remaining interests in a distribution group.

It interpreted that as an actual overall earnings miss of about 4 cents per share.

He said another takeaway is that Cummins has increased its sales forecast twice this year but hasn’t increased its bottom line number, which Credit Suisse described as “somewhat disappointing.”

“It’s still a very good quarter,” DeDomenic said.

Cummins employs about 7,500 workers in southern Indiana, the largest employer in the region.

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