Cummins authorizes $2 billion share repurchase program

Tom Linebarger

Cummins Inc. has announced that its board of directors has authorized the company to repurchase up to $2 billion of its own shares in what local analysts said was a sign that Columbus’ largest employer is generating a lot of cash and finds its stock attractive.

Cummins, which is headquartered in Columbus and employs about 8,000 people in the area, said Wednesday that its board had given the repurchase plan the green light after the company completes a $2 billion repurchase plan authorized in 2019.

“The latest share repurchase program reinforces our commitment to delivering strong returns to shareholders and reflects our confidence in our long-term performance,” said Cummins Chairman and CEO Tom Linebarger in a statement.

Local analysts said share repurchases are a common practice and characterized Cummins’ announcement as “good news.”

Stock repurchases occur when a company buys back its own stock, which reduces the number of outstanding shares and is an effort to “re-slice the pie of profits into fewer slices, giving more to remaining investors,” according to Bankrate.com.

When companies generate excess cash, investors generally want it to be put to use, said Roger Lee, senior research analyst with Columbus-based Kirr, Marbach and Co.

Companies can do that in a variety of ways, including investing in new machinery, research and development or acquiring another company, Lee said. But if officials opt not to spend the cash in one of those areas, they may consider increasing dividends for shareholders or — if they think their stock is undervalued — they might buy back shares.

“(Cummins) is doing very well, they’re generating a lot of cash and they think the best use of cash at this time is buying back their own stock, and it’s a good indicator that they think the stock is attractive otherwise they wouldn’t be buying back stock,” Lee told The Republic.

Cummins has regularly repurchased its own shares in recent years, according to filings with the U.S. Securities and Exchange Commission.

In December 2019, Cummins’ board authorized the company to repurchase up to $2 billion in stock after completing another $2 billion stock buy back plan authorized in October 2018, according to the company’s 2020 annual report.

From October to December last year, Cummins repurchased $85 million of its own shares under the 2018 plan and $6 million under the 2019 plan.

During the first nine months of this year, Cummins repurchased 5 million of its own shares totaling nearly $1.23 billion, according to the company’s third-quarter report. That left about $766 million of the $2 billion plan authorized in 2019 heading into the fourth quarter.

“We intend to repurchase outstanding shares from time to time during 2021 to enhance shareholder value,” the company stated in its third quarter report.

Cummins stock was trading at $218.34 shortly after noon on Wednesday, up $1.76, or 0.81%, from the previous day’s closing price.