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Engine manufacturer Cummins (NYSE:CMI) reported results ahead of analysts' expectations in Q2 CY2024, with revenue up 1.8% year on year to $8.80 billion. It made a GAAP profit of $5.26 per share, improving from its profit of $5.05 per share in the same quarter last year.
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Cummins (CMI) Q2 CY2024 Highlights:
- Revenue: $8.80 billion vs analyst estimates of $8.35 billion (5.3% beat)
- EPS: $5.26 vs analyst estimates of $4.76 (10.5% beat)
- Gross Margin (GAAP): 24.9%, in line with the same quarter last year
- Free Cash Flow was -$1.09 billion, down from $107 million in the previous quarter
- Market Capitalization: $39.91 billion
With more than half of the heavy-duty truck market using its engines at one point, Cummins (NYSE:CMI) offers engines and power systems.
Heavy Transportation EquipmentHeavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Over the last five years, Cummins grew its sales at a mediocre 7.1% compounded annual growth rate. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Cummins's annualized revenue growth of 17.4% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
We can better understand the company's revenue dynamics by analyzing its most important segments, Components and Engine , which are 34.1% and 36.4% of revenue. Over the last two years, Cummins's Components revenue (axles, brakes, drivelines) averaged 36.1% year-on-year growth while its Engine revenue (diesel and gas-powered engines) averaged 6.1% growth.
This quarter, Cummins reported reasonable year-on-year revenue growth of 1.8%, and its $8.80 billion of revenue topped Wall Street's estimates by 5.3%. Looking ahead, Wall Street expects revenue to decline 3.4% over the next 12 months, a deceleration from this quarter.
Operating MarginOperating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Cummins has done a decent job managing its expenses over the last five years. The company has produced an average operating margin of 9.4%, higher than the broader industrials sector.
Looking at the trend in its profitability, Cummins's annual operating margin decreased by 5 percentage points over the last five years. Even though its margin is still high, shareholders will want to see Cummins become more profitable in the future.
In Q2, Cummins generated an operating profit margin of 11.9%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Sadly for Cummins, its EPS declined by 3.3% annually over the last five years while its revenue grew by 7.1%. This tells us the company became less profitable on a per-share basis as it expanded.
Diving into the nuances of Cummins's earnings can give us a better understanding of its performance. As we mentioned earlier, Cummins's operating margin was flat this quarter but declined by 5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Cummins, its two-year annual EPS declines of 1.5% show it's still underperforming. These results were bad no matter how you slice the data.
In Q2, Cummins reported EPS at $5.26, up from $5.05 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Cummins to grow its earnings. Analysts are projecting its EPS of $13.87 in the last year to climb by 41.7% to $19.65.
Key Takeaways from Cummins's Q2 ResultsWe were impressed by how significantly Cummins blew past analysts' revenue expectations this quarter. We were also glad its Engine revenue topped Wall Street's estimates. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock traded up 5.2% to $307 immediately after reporting.
