Cummins raises 2017 forecasts on strong China construction demand

 

Engine maker Cummins Inc (CMI.N) on Tuesday raised its 2017 forecasts for revenue and earnings before interest and tax, on stronger-than-expected demand from the construction industry in China.

Shares of Cummins, which makes diesel and natural gas engines for heavy-duty trucks as well as industrial engines for construction and mining industries, rose as much as 8 percent to hit a record high of $163.36 in morning trading.

The Columbus, Indiana-based company is benefiting from increased spending in the construction industry in China – a market that accounted for about 8 percent of its annual sales in 2016.

The company’s revenues in China jumped 49 percent to $1.1 billion in the first-quarter ended April 2, partly as number of engines used in the construction industry rose more than 300 percent due to a ramp in production of excavators, Cummins said.

“We were even surprised by the size of the growth in the truck market (in China)…as we were with the excavators. So we have some work to do to understand how well that’s going to hold up,” Cummins Chief Executive Tom Linebarger said on a conference call with analysts.

The Chinese economy grew at 6.9 percent in the first quarter, recording its fastest growth in six quarters, helped by higher government infrastructure spending.

Total revenue in Cummins’ engine business, its biggest, rose 2.4 percent to $2.02 billion, as unit sales, after falling in the previous six quarters, increased 4.2 percent to 142,600.

Cummins said it now expects 2017 revenues to be up 4 to 7 percent, compared with flat to down 5 percent previously, and earnings before interest and tax to be in the range of 11.75-12.5 percent of sales, up from 11.0-11.5 percent.

Analysts on average were expecting 2017 revenue to be down 1.2 percent, and earnings before interest and tax of 11.3 percent, according to Thomson Reuters I/B/E/S.

Net income attributable to the company rose 26.2 percent to $2.36 per share, in the quarter, beating analysts’ estimates of $1.81 per share.

Net sales rose about 7 percent to $4.59 billion. Analysts on average had expected first-quarter revenue of $4.15 billion.

Cummins, which gets about 46 percent of its revenue from outside the United States, said its international sales jumped 17 percent in the quarter, led by growth in China and Europe.

The company’s revenues in North America, its biggest market, rose 1 percent.

(Reporting by Ankit Ajmera in Bengaluru; Editing by Arun Koyyur)

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