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http://investor.cummins.com/phoenix.zhtml?c=112916&p=iro...

Cummins Announces First Quarter Results; Raises Outlook for 2018
First quarter revenues of $5.6 billion and EBITDA of 12.6 percent of sales
GAAP1 Net Income of $325 million and Diluted EPS of $1.96
Full year revenues expected to increase 10 to 14 percent
EBITDA is expected to be in the range of 15.4 to 15.8 percent of sales
First quarter Diluted EPS negatively impacted by $0.87 reflecting the cost of a product campaign
First quarter Diluted EPS negatively impacted by $0.47 as a result of discrete tax charges


A big miss on EPS outright (which explains the stock reaction), but if you take adjusted, it's a big beat of $3.30 vs expected $2.91, which I assume explains the raised outlook. Here are some details summarized:

-North America revs up 22%; International up 20%.
-$187M charge for a 'product campaign', which sounds like what they now think the quality issues previously reported on will be. This is likely what's hitting the stock, but this shouldn't come as a big surprise to anyone watching the last year of reports.
-Business fundamentals sound strong. It's a little wonky with the charge and previous guidance must have been very conservative because of the unknowns related to it. Based on the current forecast, Cummins expects full year 2018 revenues to be up 10 to 14 percent, compared to prior guidance of up 4 to 8 percent. EBITDA is projected to be in the range of 15.4 to 15.8 percent of sales, down from 15.8 to 16.2 percent of sales. Excluding the impact of the first quarter charge for the product campaign, full year EBITDA is expected to be in the range of 16.2 to 16.6 percent, reflecting strong incremental EBITDA of 28 percent at the midpoint, compared to 2017.

-Engine segment sales up 21%
-Distribution segment sales up 13%
-Components segment sales up 30%
-Power Systems sales up 22%
-New Electrified Power segment sales at $2M

I will listen to the cc and report back with any more info.

Howard
CMI Coverage Fool. See profile for holdings
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This is a followup to the previous earnings release post, and includes the conference call transcript, here:
https://seekingalpha.com/article/4168181-cummins-cmi-q1-2018......

From the release, I mentioned this concerning the quality issue that was discussed in releases last year:
-$187M charge for a 'product campaign', which sounds like what they now think the quality issues previously reported on will be. This is likely what's hitting the stock, but this shouldn't come as a big surprise to anyone watching the last year of reports.

So while it was no big surprise, they did give some more detail and potential costs in the call prepared remarks:
The charge of $187 million reflects our best estimate of the cost of implementing our proposed plan. We have also estimated range of additional costs should the regulatory agencies ask us to replace more aftertreatment hardware than our proposed plan which we believe to be between $0 or $400 million in the worst case. It's important to note that this issue does not affect our current products, which are performing very well, and our market share remains strong.

So there's still a good amount of financial uncertainty here regarding the final outcome, pending regulatory agency agreements. I tend to look at a drop based on this uncertainty as a longer term opportunity. But to each his own, regarding the unknowns here. To me, the fact that it is a 'past' issue is the main point regarding the investment decision. But you never know what might surprise from here, I suppose...They did say that it is an emissions issue as component degrades, so not a productivity issue for customers. Expect it to be resolved completely within 2 quarters. I like their approach to this. Here's a comment from the CEO. Again, we are very – we think our plan is a good one. That's why we're proposing it and we intend to take care of customers as well as take care of the environment. That's kind of our commitment to both. So, we're acting proactively on that both. Again, just to try to make sure everyone had a box to put it in, and again we are working really aggressively and we expect to be through these discussions relatively quickly in the six months or less. So hopefully, we'll have it – we'll have all of it behind us.


Fundamentals were very strong. Due to 'improved outlook' in most markets, increased sales growth forecast to 10-14% over 2017, from 4-8%.

Not sure if the stock reaction over the past couple days is directly related to the quality issue or what. But at a near 52 week low, and a dividend approaching 3%, I find this an appealing entry point, based on the fundamentals and outlook, personally.

One more thing to keep an eye on is out at the end of 2019. Their electrified powertrain from the new electrification segment (which are now going into small uses like forklifts) gets launched into buses.

Howard
CMI Coverage Fool. See profile for holdings.
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