* Q2 adjusted profit $2.45/shr vs $2.28 estimate
* Sales $4.45 billion, in line with Street view
* North America sales offset weak international markets
* Company reports record margins
* Shares up 7.5 percent
By Lynn Adler
July 31 U.S. engine maker Cummins Inc
reported adjusted quarterly profit that beat Wall Street
estimates as sales in North America helped offset weakness in
international markets, especially China and Brazil.
The company said on Tuesday that gross margins were at
record highs in the quarter and forecast improved margins for
the full year despite flat revenue, helping drive shares up
nearly 8 percent at midday.
Cummins executives said the company was cutting costs,
including tightening up on travel and looking to freeze hiring
in some parts of the company, with uncertain global economic
conditions pressuring truck sales in emerging markets.
"It's a much more volatile economy than we were looking at
in the first quarter of the year and much harder to predict,"
Chief Executive Tom Linebarger told analysts on a call. However,
"our view still is that developing countries will be growing
faster than developed countries and investing in
Excluding gains from divestitures, Cummins earned $2.45 per
share, topping the average Wall Street forecast of $2.28,
according to Thomson Reuters I/B/E/S.
Revenue declined 4 percent to $4.45 billion, in line with
Wall Street estimates. Excluding the effects of divestitures and
currency fluctuations, revenue was flat.
"Despite lower revenues, Cummins did a good job improving
gross margins on price improvement, mix and manufacturing
efficiencies," S&P Capital IQ equity analyst Jim Corridore wrote
in a note. "We think Cummins is well positioned in the current
environment and should see operating leverage when revenue
Earlier this month, Cummins cut its sales forecast on weaker
orders from truck and power generation customers, a stronger
dollar and softer-than-expected demand in emerging markets.
In the engine segment, sales declined 2 percent. Improved
North American truck and construction market demand was offset
by lower sales to China construction, Brazilian truck and North
American oil and gas markets.
Component sales were unchanged. Higher demand in North
America and Brazil was offset by lower demand in Europe and
China as well as the impact of divestitures completed in 2011.
Power generation sales were also unchanged as higher sales
in North America offset lower demand in Europe, China and Latin
Sales in the distribution segment rose 1 percent, with
higher parts and service growth in several regions more than
offsetting weaker demand in the markets for North American oil
and gas and Middle East power generation.
"Second-quarter gross margins were at record levels as we
continue to drive improvements in productivity and quality,"
Cummins said net earnings were $469 million, or $2.47 per
share, down from $505 million or $2.60 a share a year earlier.
Earnings before interest and taxes (EBIT) were $669 million
or 15.0 percent of sales. Cummins expects full-year revenue of
$18 billion, with EBIT between 14.25 and 14.75 percent of sales.
That suggests full-year earnings anywhere between $9.25 and
$10.00 per share, according to ranges given in various Wall
Street analyst notes on Tuesday.
Shares of Cummins were up 7.5 percent at $97.28 in midday