Cummins has consistently tried to support its stock with buyback programs over the past five years, and that strategy will continue with this week’s announcement that the company is launching another $1 billion share repurchase plan.
Craig Kessler, a Columbus-based stock analyst who follows Cummins closely, sees the announcement as a positive sign.
“It tells me that the company’s management and board specifically sees value in their own stock,” Kessler said. “It’s not that they see things all rosy for 2013, but it does suggest they see opportunities ... as opposed to us slipping further into the morass.”
“This new repurchase program reinforces our commitment to returning value to shareholders and follows a 25 percent increase in the dividend announced in July,” said Cummins Chairman and Chief Executive Officer Tom Linebarger.
Buyback at a glance
How the plan works: Cummins intends to buy back $1 billion worth of its stock on the New York Stock Exchange.
Authorized: $1 billion
Estimated number of shares: 9.3 million shares
Percent of outstanding stock: Less than 5 percent
Note: Cummins will buy stock on Wall Street just like any other investor. The number of shares that can be bought for $1 billion will vary as the stock price fluctuates in the coming months.
Cummins has raised its dividend twice in the past 18 months, most recently boosting its quarterly payout by a dime to 50 cents per share this summer.
The company has had a stock buyback program as part of its fiscal arsenal at least since late 2007 when its board authorized $500 million in share repurchases. That program was completed in early 2011.
In February 2011, Cummins’ board approved a follow-up $1 billion share buyback plan; and through Sept. 30, 2012, the engine maker had repurchased $749 million worth of its stock under that initiative, the company’s quarterly and annual reports show.
This week’s announcement of another $1 billion buyback program indicates the February 2011 program has moved closer to completion in the fourth quarter.
Cummins’ stock price has bounced back from a recent low point of $86.05 per share as of Oct. 11 to its close of $105.88 on Wednesday on the New York Stock Exchange.
“They have managed their finances exceptionally well,” Kessler said Wednesday. “A stock moving in the industrial sector back to the low $100s doesn’t happen by accident.”
Cummins warned earlier this fall of weaker global sales, particularly in China, India and Brazil, and it moved to lay off 1,000 to 1,500 people worldwide by year’s end, including cutting up to 150 jobs in southern Indiana.
But Kessler said a company with less skillful management would have taken a much harder hit, and next year’s sales prospects may brighten.
Carole Casto, a Cummins spokeswoman, said: “The stock repurchase program is part of our capital allocation strategy for shareholders. We expect 65 percent of our operating cash flow to be reinvested in the business and to maintain pension funding, and the balance gets returned to shareholders through increasing the dividend and share repurchases. The current share purchase program is nearing completion, and this ($1 billion) purchase program will ultimately replace it.”