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Can Cummins Earnings Stop Its Stock's Long Slide?

By Dan Caplinger - Jul 24, 2015 at 2:02PM

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The engine maker has remained under pressure for much of the year. Can Cummins bounce back?

Source: Cummins.

From 2009 to 2014, Cummins (CMI 0.72%) used its prowess in the engine design and manufacturing field to cash in on the huge opportunity in the industrial sector. With everything from conventional-fuel engines to innovative natural gas-powered solutions, Cummins has remained on the cutting edge of the industry. Yet since late last year, its stock has taken a dive, and with the company announcing its second-quarter earnings on Tuesday, investors want to see if Cummins' latest financial results will put a stop to the slide in its share price. Let's take a closer look at Cummins and whether it's likely to give its shareholders what they want to see.

Stats on Cummins

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$4.94 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

How will Cummins earnings fare this quarter?
Investors continue to remain cautious about the prospects for growth in Cummins earnings, having cut their second-quarter projections by a nickel per share and making somewhat larger reductions to their full-year 2015 and 2016 expectations. The stock has continued to decline, with a drop of more than 8% since late April.

Cummins' first-quarter results showed some the crosswinds that the engine maker has had to deal with recently. The company reported that sales climbed by 7%, which was slightly faster growth than most of those following the stock had expected to see. Net income climbed by 14%, but much of the gain came from a one-time tax benefit, and earnings failed to beat the consensus estimate for the first time in more than a year.

Yet Cummins investors have reason to be optimistic about the company's prospects. Last month, the U.S. Department of Transportation and the Environment Protection Agency proposed new fuel-efficiency standards that would apply to the heavy-duty truck industry. Some of Cummins' rivals had wanted to get rid of engine-specific standards, instead focusing on less costly measures like weight reduction and improved aerodynamic performance. Yet with standards that will specifically target engine efficiency, Cummins should see substantial benefit as freight carriers and other trucking companies race to meet the new standards. Cummins CEO Tom Linebarger hailed the proposal, saying that "it will help our industry grow in a more sustainable way, which is a win for our customers and a win for the environment."

Moreover, Cummins itself has taken a bullish stance on its future by making a substantial increase in its quarterly dividend. Earlier this month, it boosted its quarterly payout by 25% to $0.975 per share, sending its dividend yield above the 3% mark. Linebarger said that the move "reinforces our commitment to increasing returns to shareholders and reflects our confidence in our performance over the long term." The move marked the 10th consecutive year that Cummins has made a dividend increase, and while other companies have longer track records of dividend performance, the 13-fold jump that its quarterly payout has made over the past decade stands out as particularly impressive even among top dividend stocks.

In the Cummins earnings report, look to see what other steps the company decides to take in order to try to support its share price. If its results are good, then no further action would be necessary, but Cummins might nevertheless decide to take further steps to demonstrate its commitment toward shareholders. If results continue to be tepid and it takes no further action, however, Cummins might further discourage long-term shareholders who don't want to see a further cyclical slowdown in its business.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of 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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