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Will This Manufacturer Keep Producing Profits?

http://www.fool.com/investing/general/2012/08/21/will-this-manufacturer-keep-producing-profits.aspx

Dan Carroll
August 21, 2012

Equipment manufacturer Cummins (NYSE: CMI  ) has rebounded nicely after weathering its stock's decline to 2012 lows in July. With the stock now trading north of $100, however, is this tried-and-true industrial giant worth your investment?

A sparkplug of industry
Cummins operates across four primary business segments: It manufactures engines, components, and power generation systems as well as handles distribution services. The company has forged its brand over nearly 100 years, flourishing with the opening of the U.S. interstate highway system and spreading its manufacturing prowess globally.

Competition always evolves, however, and today's market is as merciless as ever. Cummins faces tough rivals such as major industrial giants Caterpillar (NYSE: CAT  ) and Honeywell (NYSE: HON  ) across all its manufacturing segments.

Cummins has plenty to celebrate, however. The company currently controls more than 40% of North America's heavy truck engine market. That number should only grow thanks to its recent deal with truck maker Navistar (NYSE: NAV  ) to offer Cummins engines in some of Navistar's trucks. Capitalizing on Navistar's position as the third-largest heavy-duty truck seller could reap Cummins a nice profit, even given sluggish demand due to the economy's woes. Whereas more diversified rivals such as Caterpillar reach out to many industrial segments, Cummins excels in locking down the niches it knows best.

International ebb and flow
The company has continued advancing its own products and producing new models, demonstrating commitment to research and development. Cummins has furthermore reached out to secure overseas cooperation, engaging in a joint venture with Indian car manufacturer Tata Motors (NYSE: TTM  ) to construct engines for the auto titan's truck lines. Investors should smile at these sorts of forward-thinking moves: Innovative ideas today will power Cummins' successes of tomorrow -- in the factory and on the balance sheet.

Financial setbacks have hurt the company in 2012, however. Cummins suffered a Q2 letdown when profit declined more than 7.1%, primarily over losses in engine demand in developing markets. China in particular hurt the quarterly report, as the manufacturer lost 25% of Q2 revenue there compared to last year. Updated 2012 forecasts for Chinese revenue paint a grim picture: Cummins predicts sales in the country to drop 13% from 2011. But given expectations of future Chinese economic growth, investors should keep a lo