Cummins Shares Slip On Missing Q2 Profit Estimates, Warning On Slow Economic Momentum

Cummins Inc CMI reported second-quarter FY23 sales growth of 31.2% year-over-year to $8.64 billion, beating the consensus of $8.24 billion.

The Columbus, Indiana-based company stated that sales in North America increased 31% and international revenues increased 32% due to the addition of Meritor and strong demand across most global markets.

Adjusted EPS of $5.18 missed the consensus of $5.19.

Sales by segments: Components $3.4 billion (76% Y/Y), Engine $3 billion (+8% Y/Y), Distribution $2.6 billion (+15% Y/Y), Power Systems $1.5 billion (+21% Y/Y), and Accelera $85 million (+102% Y/Y).

Gross profit increased 24.5% Y/Y to $2.15 billion, and the margin contracted by 134 bps to 24.9%; Operating income increased 11.2% Y/Y to $997 million, with a margin of 11.5%, down 208 bps. 

Cummins's operating cash flow for Q2 totaled $483 million, compared to $599 million a year ago. CMI held cash and equivalents of $2.3 billion as of June 30, 2023.

Q2 EBITDA as a percentage of net sales fell to 15.1% from 16% in 2Q22.

"While we see demand remaining strong through 2023 and we are maintaining our guidance on revenue and profitability, we continue to closely monitor global economic indicators. Should economic momentum slow, Cummins will remain in a strong position to keep investing in future growth, bringing new technologies to customers as we advance our Destination Zero strategy, and returning cash to shareholders," commented Jennifer Rumsey, Chair and CEO.

FY23 Outlook, reaffirmed: Cummins expects revenue growth of 15%-20% and EBITDA margin in the range of 15%-15.7%.

The company plans to continue to generate strong operating cash flow and returns for shareholders.

Price Action: CMI shares are trading lower by 9.08% at $238.40 at the last check Thursday.