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Cummins Inc. Stock Hits a 52-Week Low: Could It Fall Further?


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Cummins has come under a lot of selling pressure lately, but the worst may not be over yet.

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Cummins Inc. Stock Hits a 52-Week Low: Could It Fall Further?

  1. 1. Cummins Inc. Stock Hits a 52- Week Low: Could It Fall Further? Source: Cummins
  2. 2. Cummins faces three big challenges right now
  3. 3. Worsening international markets
  4. 4. What management said in Q3 “Industry orders in key end markets in Brazil and China are at multi-year lows and showing no signs of improvement in the near- term.” Tom Linebarger, Chairman and CEO
  5. 5. The two weakest markets right now Brazil: Industry truck production slumped 53% year over year in Q3, with production hitting its lowest since 2004. China: Industry demand for medium-and- heavy-duty trucks slipped 24% year over year in Q3. Cummins expects full-year industry sales to decline 30%.
  6. 6. Why it hurts Cummins Markets outside the U.S./Canada contribute 40% to its revenue. Thanks to the slowdown in global markets, Cummins now expects 2015 revenue to be flat to down 2% versus 2% to 4% growth projected earlier. Source: Cummins Q3 Earnings Presentation
  7. 7. Key business losing steam
  8. 8. Engines sales under pressure Cummins’ engines revenue slipped 10% year- over-year in Q3, with shipments of high- horsepower engines hitting lows not seen since Q3 2009. Key factors were: Sluggish off-highway markets: Caterpillar slashed its outlook primarily because of lower demand from construction, mining, energy, and power sectors. A challenging truck market in Brazil.
  9. 9. Why it hurts Cummins Engines: Account for more than 40% of its revenue The U.S./Canada: Cummins’ largest engine market, contributing nearly 70% to its revenue in Q3 Off-highway markets: Make up nearly one-third of Cummins’ engines revenue High-horsepower engines: Constitute more than 10% of its engines revenue
  10. 10. These charts say it all Source: Cummins Q3 Earnings Presentation
  11. 11. Currency headwinds
  12. 12. The problem For a company with a global footprint, a stronger U.S. dollar is a significant headwind as international sales translate into lower revenue when converted to U.S. dollars. Image Credit: M4D Group via Flickr
  13. 13. Why it hurts Cummins Cummins gets nearly 40% of its total revenue from international markets. The company’s revenue was down 6% year over year in Q3, 4% of which was the result of currency fluctuations. Continued strengthening of the U.S. dollar = lower revenue for Cummins.
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