With some of the industries’ top names ready to suit up with their numbers next week, you could have a hard time keeping up with all of them. But that’s no excuse to not prepare yourself. The impact of surprises or shocks could be easily mitigated if you know what to expect.
Cummins Inc. (NYSE:CMI) is one such company you should watch closely over the next couple of days, not just for numbers but for reasons that could affect every investor, even a non-Cummins one.
Cummins drilled a hole in investors’ optimism last time when it said it will reduce inventory and cut back production further during its fourth quarter like it did in the third. Cummins even laid out a massive cost-cutting plan that included handing over pink slips to 1,000 to 1,500 employees by year end. Interestingly, this was in contrast to PACCAR Inc (NASDAQ:PCAR)’s intentions of raising output by around 2% during its fourth quarter. PACCAR’s numbers are already out, and though it hasn’t mentioned a specific output figure, the company’s truck deliveries came in 2% higher sequentially. PACCAR’s optimism probably stems from the way it is gaining market share despite sluggishness – in the critical Class 8 truck segment in the U.S. and Canada, PACCAR closed 2012 with a record 29% share.
Higher deliveries from PACCAR could raise the bar of expectations from Cummins simply because the former is also its largest customer. But it need not necessarily mean that PACCAR also placed more orders with Cummins. In fact, PACCAR sees softness persisting in the industry and expects its next quarter deliveries to be lower by low single digits.
Little wonder, then, that analysts see Cummins’ fourth-quarter top line slip nearly 18% and earnings per share dip 31%. Ouch, isn’t that being a bit too pessimistic? Is the truck market indeed in such bad shape? Well, the answer could lie abroad.
Same story everywhere
You see, 60% of Cummins’ revenue comes from international markets, out of which 15% revolves around the still-struggling European region. Unfortunately, going by recent statements from peers, that’s hardly something to get excited about.
Caterpillar Inc. (NYSE:CAT) expects “growth in the eurozone to struggle to match 2012” this year, and will lower production in China till excess inventory is sucked up. Cat’s construction business sales from the Asia-Pacific region slumped a whopping 32% in its last quarter, while that from Europe, Africa, and Middle East dried up by 28% from the comparable period last year. PACCAR doesn’t provide a detailed break up of regional revenue, though sales from Europe were down 17% last quarter.
It’s equally bad in India, which is home to Cummins’ 50:50 joint venture with the nation’s leading truck maker Tata Motors Limited (NYSE:TTM). Cummins’ forecast of volumes at the venture dropping 13% for 2012 could hold water if the latest numbers from Tata are anything to go by. Between April and December last year, Tata Motors’ truck sales dipped a substantial 28%, even compelling it to lock production for some weeks.
In short, you better brace up for bad numbers from Cummins.