Cummins Kicks Into High Gear

Shares climbed Friday after the truck-engine maker posted a stronger quarterly profit and offered an upbeat forecast

Cummins Inc. (CMI) managed to post a stronger profit and forecast better times ahead on Apr. 27. While the company had to weather tough conditions selling its truck engines in the U.S., it countered that setback by moving business elsewhere.

The Columbus (Ind.) company's net income rose to $143 milllion during the three months ended April 1, up 5.9% compared to the same period last year. "Despite the predicted decline in the North American heavy-duty truck market, we achieved outstanding results in the first quarter," said CEO Tim Solso in a press release Apr. 27.

Truck engine makers have had to deal with challenges recently like industry price wars and the glut of supply in their market. Not helping matters for these companies, changes in U.S. emissions standards took effect during recent months.

Diesel engine making accounted for 67% of Cummins's sales in 2005, while power generation products made up 20%, according to Standard & Poor's. But since then Cummins has been trying to expand its business overseas and into other markets, such as power generation equipment and industrial filter arenas. For example, it's planning to start new light-duty diesel engine manufacturing in the U.S. and China in the coming months or years. The company also expanded its turbocharger manufacturing capacity in the U.S., China and India during recent months.

Thanks to such efforts, Cummins reported that its total sales rose 5.2% year over year to $2.82 billion during the first quarter. While engine sales fell 3% year over year to $1.76 billion, power generator sales rose a whopping 26% year over year to an all-time high of $675 million.

"We view positive Q1 results as evidence that CMI is making progress toward its operational improvement goals," Standard & Poor's Corp. analyst Anthony M. Fiore, CFA said in a research note. (S&P, like, is owned by The McGraw-Hill Companies.) Citing the strong quarter, Fiore hiked his 2007 earnings per share estimate on the stock to $6.35 from $5.50. Giving factors such as the company's improved earnings outlook, he moved his target price on the stock up to $104 from $70 per share.

Cummins says its full-year profit guidance will range between $6.00 and $6.50 a share, up from previous guidance of $5.50 to $5.75 a share. The earnings per share amounts reflect a two-for-one stock split distributed on April 9.

After the news investors bid up the company's stock 12.6% to $96.84 per share in afternoon trading Apr. 27 on the New York Stock Exchange.

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