Cummins reports record Q1 sales but misses on earnings

Red Cummins engines on production line

Cummins Inc. posted record Q1 sales, extending a yearlong streak of outperforming analyst forecasts. It missed on income in part because of a $158 million write-off for indefinitely suspending business in Russia.

Cummins, rapidly transforming to multiple forms of alternative power production, said business in North America improved by 12%. That was partly due to higher prices charged to offset the increased costs of materials. Overseas revenue declined 3%. The decline was confined to China, where Cummins (NYSE: CMI) has a large presence.

“The ongoing impact of COVID-19, especially in China, and the effect of the conflict in Ukraine continue to present challenges to our global operations,” Jennifer Rumsey, Cummins president and chief operating officer, said in a press release.

Q1 revenues were $6.4 billion. Net income was $418 million, or $2.92 per fully diluted share. That compared to $603 million, or $4.07, in the first quarter a year ago. Earnings before interest, taxes, depreciation and amortization were $755 million, or 11.8% of sales. They were a record record $980 million, or 16.1%, a year ago.

Supply chain constraints impact earnings

“Supply chain constraints continue to be a challenge and are limiting growth in our industry,” said Tom Linebarger, Cummins CEO and chairman.

A consensus of analysts surveyed by investor site Seeking Alpha called for $3.55 earnings per share and revenue of $6.06 billion.

The company raised full-year revenue guidance to be up 8% versus an earlier estimate of up 6%. It maintained full-year EBITDA guidance at 15.5% of sales.

In addition to the Russia hit, which amounted to $1.09 a share, Cummins took a $17 million, or 9 cents, write-off for the separation of its filtration unit. The company last week filed confidentially with the Securities and Exchange Commission for an initial public offering to spin off filtration into a stand-alone business.

Company stock buybacks and dividends 50% of operating income

Cummins, which has seen mostly downgrades to estimates for EPS and revenue in recent months, said it plans to return approximately 50% of operating cash flow to shareholders through dividends and share repurchases.

Also in the quarter, Cummins closed its $325 million acquisition of Jacobs Vehicle Systems. JVS is a supplier of engine braking, cylinder deactivation, start and stop and thermal management technologies key to meeting current and future emissions regulations.

It also announced the $3.7 billion purchase of Meritor Inc., a leader in drivetrain, mobility, braking, aftermarket and electric powertrain solutions for commercial vehicle and industrial markets. Cummins will be one of few companies capable of providing integrated powertrain solutions in combustion, electric and fuel cell applications.