If you want an idea of where the economy is headed to this year, Cummins Inc. (NYSE:CMI) is one stock you need to keep on your radar over the next few days. As a company that caters largely to the critical North American trucking industry, Cummins can tell us a good deal about how things are shaping up for the economy.
The engine maker is set to report its first-quarter numbers on April 30. Expectations are low, and the stock has lost 8% in the past one month. Should investors gear up for another plunge in prices?
No trucks on the road
Cummins dampened spirits last time when it forecast 2013 revenue ‘to be flat to down 5%’ from last year. Needless to say, investors should be prepared for lower revenue figures from the company. But why do analysts see a big 11% fall in Cummins’ first-quarter sales? Does that suggest that the first quarter will also be the weakest for the company?
Analysts have lowered their earnings per share estimates for the company by $0.10 in the past three months, finally pegging it to be 22% lower from the year-ago quarter. That comes on the back of continued sluggishness in the truck, mining, and power generation markets. WardsAuto data revealed 2.2% and 3.9% slumps in sales of medium and heavy-duty trucks in the U.S. in the months of January and February, respectively, year-on-year. Truck maker PACCAR Inc (NASDAQ:PCAR) expects its first-quarter production, as well as truck deliveries to be 1% to 2% lower sequentially. That’s not good news for Cummins Inc. (NYSE:CMI) because PACCAR is also its largest customer, contributing around 12% to sales.
Who’ll dig for Cummins?
It is as bleak in Cummins’ other critical end market, mining equipment. Cummins reported a 30% plunge in mining engine shipments during the fourth quarter. Its order book was very weak as it entered the first quarter, suggesting the downward trajectory to continue. Caterpillar Inc. (NYSE:CAT) has already confirmed it. The world’s biggest construction and mining equipment maker reported a 13% decline in sales to its dealers for the quarter ended February. Worse, the Asia-Pacific region led the fall with 26% lower sales. The region is among Cummins’ key markets. With Caterpillar expecting most or even all of its projected $2 billion fall in full-year revenue to come in the first quarter, Cummins has little to cheer about. It already projected its full-year revenue from the mining market to slip 25% this year. I won’t be surprised if Cummins pulls it down a bit more.
It’s a global meltdown
Lower income from Cummins Inc. (NYSE:CMI)’ joint ventures, which otherwise make up a good chunk of revenue, could put a wrench in its results. Tata Motors Limited (ADR) (NYSE:TTM), India’s leading truck maker that has a 50:50 joint venture Cummins, reported a 28% slump in sales for March. Medium and heavy commercial vehicles took the biggest hit with a 32% slump in sales. With inventory piling up, Tata Motors is now offering heavy discounts to boost sales while slowing down production. Some news reports say its main plant is operating at just about 40% capacity currently. With global markets accounting for 60% of Cummins’ revenue, investors should make sure they note down what Cummins has to say about these markets in the upcoming earnings call.