Cummins Inc. (NYSE:CMI) announced second-quarter 2016 results on Tuesday, and shares were little changed even as the engine, filtration, and power generation products specialist reduced its full-year guidance amid continued softness in its core markets. But before we get there, let's take a closer look at how Cummins capped the first half of the year.
Quarterly revenue fell 9.7% year over year, to $4.53 billion, and translated to a 13.8% decline in net income attributable to Cummins of $406 million. Thanks to repurchases over the past year, including 1.8 million shares bought back in the second quarter alone, net income per diluted share fell a more modest 8.4% year over year, to $2.40. Primarily to blame, according to Cummins, was a combination of lower truck production in North America and weak global demand for off-highway and power generation equipment -- though unfavorable foreign currency translation also reduced reported revenue by around 1%.
All the while, management remains optimistically focused on operational efficiency with a long-term view.
"We made strong progress in our cost reduction initiatives in the second quarter," stated Cummins CEO Tom Linebarger, "while continuing to invest in and launch new products that will drive profitable growth in the future. Benefits from restructuring actions, material cost reduction initiatives, and improvements in product quality helped to mitigate the impact of weak demand in a number of our largest markets and will position the Company for stronger performance when markets improve."
Linebarger elaborated that Cummins has already returned more than $1 billion to shareholders in the form of dividends and repurchases in 2016. And in keeping with its goal of returning 75% of operating cash flow to shareholders this year, Cummins' board just approved a 5.1% increase in the company's quarterly cash dividend, to $1.025 per share.
Digging deeper into Cummins' results, North American revenue fell 13% year over year, while pronounced weakness in the Middle East, Mexico, and Brazil led a 4% decline in international sales.
By product segment, Cummins' engine sales fell 14% year over year, to $2 billion, and resulted in segment earnings before interest and taxes (EBIT) of $206 million, or $10.3% of sales. Components segment sales also fell 8%, to $1.3 billion, generating segment EBIT of $190 million, or 14.9% of sales, while power systems revenue fell 16%, to $921 million, with EBIT of $90 million, or 9.8% of sales. These declines more than offset 3% revenue growth from Cummins' distribution segment, to $1.5 billion, which resulted in segment EBIT of $87 million, or 5.6% of sales.
All told, between Cummins' top-line declines and its current visibility, the company now expects full-year consolidated revenue to decline between 8% and 10% from 2015, marking a reduction from guidance provided last quarter which called for a full-year decline of 5% to 9%. Similar to this quarter's weakness, Cummins CFO Patrick Ward explained during the subsequent conference call the main culprits for this decline are falling production in the North American truck markets, and weak demand worldwide for off-highway and power generation equipment.
Even so, investors can take some solace knowing Cummins' aforementioned cost reduction initiatives will help keep its profitability levels in check; Cummins continues to anticipate EBIT margin for the year between 11.6% and 12.2% of sales.
In the end, though Cummins' results certainly weren't overwhelmingly positive, more than anything the report seems to represent more of the same from the company as it does its best to weather industry headwinds largely out of its control. So when the markets in which Cummins participates inevitably improve, investors can look forward to watching it emerge a stronger company for it.
Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.