During the company’s July 26 post-second-quarter-earnings conference call, a Wall Street analyst asked management at Cummins (CMI) the big question: How can business be so strong for Cummins when the global economy has so many problems and when Cummins’ competitors are lowering their forecasts for future growth? (Cummins is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

The company said that it sees stronger than expected growth in North America and huge momentum in China even with recent deceleration in the Chinese economy. And that it has managed its inventories of parts and components to avoid the shortages that have dinged competitors such as Paccar (PCAR).

And saying that the company raised its full-year sales outlook to $18 billion from an April forecast of $17 billion and raised projected EBIT (earnings before interest and taxes) margins to 14.5% from 14%. That works out to $8.70 a share in earnings for 2011 against a current Wall Street consensus of $8.14 a share and April guidance of $7.75.

Why should investors believe these guys? Read more

Update Cummins (CMI)

When you get right down to it, yesterday’s (April 26) first quarter earnings report for Cummins (CMI) is very simple, The company raised its guidance for 2011 revenue to $17 billion, up from the earlier guidance of $16 billion, and increased its projected EBIT (earnings before interest and taxes) to 14% from 13.5%. That works out to an increase in projected 2011 earnings to $7.75 a share. That’s an increase from the $7.24 a share that was the Wall Street consensus before the company reported.

To figure out what the stock is worth, you now have to answer just two questions. First, do you think this quarter represents the top of the cycle for this maker of truck engines and backup power systems or is it more like the middle of the cycle with lots of sweet spot still ahead? Second, do you believe the company’s projections?

I think both are easy questions to answer after this quarter. Read more

Update Cummins (CMI)

Just goes to show you that Wall Street can find a problem in any earnings report—if analysts really want to.

Before the market opened yesterday, February 1, Cummins (CMI) reported fourth quarter 2010 earnings of $1.84 a share (12 cents a share above an analyst projections), revenue of $4.14 billion (above the $3.92 billion analyst projection), and raised guidance for 2011 to $16 billion (above the $15.94 billion consensus).

For the quarter, the company’s engine, components, and distribution segments all reported record sales. For 2011 Cummins forecast a 25% increase in sales for its engine and component units and a 15% increase in its power generation and distribution units. Demand from Brazil, China, and India was a key part in setting sales records with 37% growth in India and 70% growth in China and Brazil. (International sales now account of 64% of total sales, up from 40% in 2000.)

But was Wall Street totally happy? No way. Analysts nitpicked the company’s margins. Read more

Update Cummins (CMI)

The heavy truck replacement cycle continues to play out exactly as Cummins (CMI) has outlined it over the last year.

The pent-up demand created during the Great Recession when truck owners put off replacing aging trucks will turn into new orders as the economy recovers with the big pickup in orders due for the first half of 2011, the company has repeatedly said.

If there’s indeed any problem with Cummins’ projections, it may be that the company underestimated the increase in orders and was conservative on timing. Read more

I’m starting to see a new pattern in third quarter earnings reports.  Now to see if it continues through the end of earnings season.

What’s the potential pattern? Companies that announce great earnings but that still don’t measure up to Wall Street expectations. The stocks take a beating after the report even though nothing is wrong with the company except that it didn’t meet inflated expectations.

If this pattern holds up, it would be yet another piece of evidence suggesting that the market is looking for a breather.

Tuesday’s Exhibit A is Cummins (CMI).

Cummins did indeed miss analyst earnings projections for the quarter. The company reported third quarter earnings of $1.33 a share and that was 8 cents a share below the Wall Street consensus.

It was also roughly a 140% earnings increase from the third quarter of 2009. So shoot them. Read more