Here's a Company That's Zooming Ahead
Now, this is interesting. In September, a company sets a big annual sales target for mid-decade, and expects 2011 to be a record year in spite of the economic uncertainty. In October, the same company softens its full-year revenue guidance keeping the current economic situation in some developing countries in mind.
The company I am talking about is Cummins (NYS: CMI) . It reported solid third-quarter numbers but is a little cautious for the full year. If you are wondering what to make of all this, I'll dig deeper into the engine maker's numbers to see what's going on.
What worked for Cummins
Cummins' third-quarter revenue was up by a solid 36% from last year. All four segments reported double-digit sales growth, with sales in Cummins' largest segment, engines, climbing the most by 43%.
What pushed up revenues were a recovering North American on-highway market, strong mining sector, and construction boom in developing markets. These factors seem to be playing out well for most equipment makers. Caterpillar's (NYS: CAT) third-quarter revenue surged 41% to touch record highs, all thanks to these factors.
As the top line grew, Cummins emerged a winner with a whopping 60% surge in its bottom line to $452 million.
Tapping the emerging opportunities
Cummins is keen on gaining traction in the fast-growing markets. It is expanding its footprint and product offerings in places like Africa, Russia, Indonesia, and Turkey. Cummins has also joined hands with a China-based company recently to build engines to tap the strong demand in Chinese markets.
Cummins' moves seem to be in line with the industry trend. Most industry players are looking at these markets to ramp up revenues. NavistarInternational's (NYS: NAV) eyes are firmly set on emerging markets, and it is expanding in China, India, and Brazil. PACCAR (NAS: PCAR) also is building a truck plant in Brazil, and we all know that Caterpillar is deeply in love with the emerging markets.
Are these big concerns?
China and India are important markets for Cummins. Currently, both these countries are witnessing high inflation, something their respective governments are trying to tackle. This has put a little pressure on the demand for Cummins' products, forcing the company to revise its full-year guidance. To top that, significant appreciation of the dollar against the Indian rupee is also likely to affect demand.
But from a longer term view, higher construction activity and power requirements should continue to keep demand active in these markets. Also, a recovering trucking market in the U.S. should boost Cummins' engine segment revenues, helping offset softening of demand elsewhere.
Other factors such as a very strong customer base also work pretty well for Cummins. Its joint venture businesses, like the one with Westport Innovations (NAS: WPRT) , are going strong. This is evident from the fact that the joint venture, Cummins Westport, reported a 31.7% jump in its first-quarter revenues. Clearly, Cummins' strong business line and global presence are its strengths.
The Foolish bottom line
So what if Cummins has softened its outlook? The company still expects 2011 to be a record year. Strong global mining and construction activities, and a recovering trucking market should be the triggers that will keep pushing Cummins ahead. Keep watching, Fools.
To help you track of how these factors shape up Cummins' future, make sure you add Cummins to our free, personalized stock-tracking service, My Watchlist.
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At the time this article was published Neha Chamaria does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Westport Innovations, PACCAR, and Cummins. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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