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Cummins cuts outlook on mining, India weakness
The Columbus, Indiana-based company said sales of all its products had also contracted sharply in India in the most recent quarter as a result of declining business confidence and manufacturing activity there.
Like many emerging markets, India has seen an exodus of foreign investment in recent months as expectations have grown that the U.S. Federal Reserve will begin to taper its massive stimulus program.
“Of all of our markets, India is currently the most challenging,” Cummins CEO Tom Linebarger told analysts during a conference call to discuss this results.
“Customers cut orders to lower working capital and preserve cash as business confidence declined in the face of weak industrial activity and rising inflation.” Truck production alone tumbled 33 percent in the third quarter in India, Linebarger said, and September’s production numbers were the lowest in a decade.
Cummins now expects full-year revenue to fall 3 percent versus its previous forecast of revenue being flat in 2013.
The company also cut its forecast for profit before interest and taxes to a range of 12.5 to 13 percent of total sales, down from 13 to 14 percent of sales.
Cummins, which supplies the engines that run hauler trucks, loaders and excavators used in mines all over the world, said lower capital equipment spending by resource companies also caused earnings to fall short of expectations and prompted the cut in its forecast.
Cummins was the latest U.S. company to blame the mining sector’s weakness for its financial woes, joining heavy-equipment maker Caterpillar Inc and steelmaker Timken Co.
Miners, facing investor backlash over unpopular takeovers and budget overruns and suffering from falling metal prices, have slashed spending on new equipment and have even begun to cannibalize components from old mining equipment in order to avoid spending money on new spare parts.
Cummins posted third-quarter net income of $355 million, or $1.90 a share, up from $352 million, or $1.86 a share, last year.
Analysts, on average, expected a profit of $2.11, according to Thomson Reuters I/B/E/S.
Sales in the quarter fell 1 percent to $2.5 billion. (Reuters)
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