When Cummins Inc. releases its second-quarter earnings today and conducts a morning conference call with analysts, the impact of government tariffs is expected to receive attention.
Analysts will be eager to see how the Columbus-based global power company’s sales fared after a good first quarter prompted its leaders to increase its full-year revenue forecast, despite incurring a $187 million charge to fix an aftertreatment component problem.
They already have a feel for where the company stands on tariffs. Chairman and CEO Tom Linebarger has stated concerns for months, but has shared them again recently.
Troubling tariffs
Linebarger expressed worry about the impact of tariffs imposed by the Trump administration and retaliatory tariffs levied by other countries, and potential job losses, in a July 22 Washington Post story.
Linebarger expressed worry about the impact of tariffs imposed by the Trump administration and retaliatory tariffs levied by other countries, and potential job losses, in a July 22 Washington Post story.
In particular, the high-horsepower plant in Seymour, which produces a 95-liter engine big enough to power hospitals and sports stadiums, according to the Post, is among the company’s most vulnerable, since nearly 80 percent of the engines are sold abroad. That Cummins plant employs 1,000 of the more than 8,000 workers in southern Indiana, where Cummins is the region’s largest employer. It has 58,600 employees worldwide.
In fact, foreign trade is the reason Cummins built the Seymour Engine Plant, where the company’s largest and most powerful high-speed engine — the QSK95 — is built, the chairman and CEO said in May.
Linebarger repeated that tariffs hurt American companies in a July 25 opinion page column in the New York Times.
President Donald Trump levied a 25 percent tariff on steel and 10 percent tariff on aluminum from the European Union, Canada and Mexico, which went into effect June 1. In response, Canada has imposed tariffs on $12.6 billion of U.S. goods, the European Union on more than $3 billion of U.S. goods and Mexico on about $3 billion worth.
The U.S. and China have each imposed $34 billion in tariffs on each other, and Trump is threatening tariffs on all $500 billion of Chinese goods shipped to the U.S.
Trump also is threatening tariffs as high as 25 percent on imported cars and auto parts.
On Thursday, Linebarger sent an internal message to Cummins employees explaining his recent public comments.
“I’m vocal about trade issues and spend a lot of time advocating for open and fair trade agreements because trade has been the single most significant contributor to growth for Cummins for more than a decade. That growth allows us to attract and retain our greatest asset, our world-class employees, while also improving the communities in which we live and work,” Linebarger said.
The ability to export goods to countries such as China, India and Mexico has had a huge, positive impact on the company — and its many suppliers worldwide, Linebarger said in May. The company set quarterly sales records of $5.476 billion in the fourth quarter of 2017, and then $5.570 in the first quarter this year.
“For our company to continue to be successful, we must be able to access global consumers with high-quality and competitively-priced products,” Linebarger wrote in Thursday’s message.
The chairman and CEO also noted that only 5 percent of consumers worldwide live in the U.S., and that number is decreasing.
“Half of our business is outside of the U.S., and if our ability to ship globally is impaired, it impacts our business across the board,” he said in the company message.
Cummins’ success also is tied to its 2,500 direct suppliers, Linebarger said.
“Not only does trade benefit Cummins, but the hundreds of businesses we work with and supply us critical parts and services. It’s all interconnected, and in a trade war, there are no winners, only losers,” Linebarger wrote in the message.
Awaiting results
One thing Cummins has been losing this year is the value of its stock. Since closing at a record $192.50 on Jan. 26, the stock has dropped into the $130s this month.
The cost to fix the aftertreatment problem and rising costs for raw materials were likely negative impacts on Cummins’ stock price, analysts said after first-quarter results were released.
Nonetheless, analysts also said the company was performing well, as demonstrated by its increased full-year revenue forecast. Cummins said in May that it expects sales to be 10 to 14 percent better than 2017, a bump up from its prior estimate of a 4 to 8 percent increase.
Roger Lee, a senior research analyst for Columbus-based Kirr, Marbach & Co., said more positive results could be in store for Cummins.
He said that Deerfield, Illinois-based Caterpillar, a Cummins rival, announced Monday that it achieved a second-quarter record for profits per share, demand for its products is strong and that it has increased its full-year profit forecast.
Lee said that’s notable because performance of the two companies’ stock prices have followed similar long-term trends in the past, benefiting from adjacent end markets around the world. Recently, they have been facing the same issues with ongoing trade discussions impacting sentiment and also raising raw material prices, he said.
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A look at how Cummins Inc.’s stock has performed this year:
Jan. 26: Record closing price of $192.50
Jan. 29: Hit all-time trading peak of $194.18
Feb. 6: Closed at $174.83, the day fourth-quarter and year-end 2017 earnings announced
May 1: Closed at $153.28, the day first quarter 2018 earnings released
July 3: Closed at $131.05
Friday: Closed at $138.96
Monday: Closed at 137.21
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Cummins Inc. is expected announce its 2018 second-quarter financial results at about 7:30 a.m. today. Go to therepublic.com for the latest results this morning.
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