Cummins beats on top and bottom lines; may spin off filtration unit

Engine maker and power distribution company Cummins Inc. reported a widespread recovery in Q2 sales and income across the board as it topped analyst estimates for revenue and income.

“The strength of the order board reflects robust underlying demand in many of our markets which is remarkable considering the challenges and uncertainty we faced during this same period last year,” Chairman and CEO Tom Linebarger said in a press release.

That uncertainty may return in the second half, CFRA analyst Elizabeth Vermillion wrote in an investor note.

“We see rising costs and inefficiencies due to global supply chain constraints as a drag on margins,” she said. “We expect supply chain headwinds to weigh more heavily on margin in the second half of 2021.”

Filtering out filtration?

Cummins (NYSE: CMI) also disclosed in its financials that it is looking into spinning off its filtration business unit as a separate company. The business had sales of about $1.2 billion in 2020. Its global markets include North America, India and China.

Founded in 1958, Cummins Filtration offers products used in on-highway, heavy-, medium- and light-duty trucks, off-highway industrial equipment, and power generation systems.

“Cummins Filtration has grown consistently, and as an independent company, would have the opportunity to accelerate growth as it further diversifies into new products and end markets,” the press release said.

“The Cummins board, along with management, believes a separation could realize value for Cummins and its stakeholders by, among other things, unlocking value for shareholders,” the company said.

During the first wave of the COVID pandemic last year, Cummins repurposed filtration material to make N-95 masks.

“Cummins Filtration is a technology leader with global presence and significant runway for continued growth,” Linebarger said, adding the business and market conditions will determine the timing for a move.

By the numbers

Revenues of $6.1 billion increased 59% from the year-ago pandemic-impacted quarter. Sales in North America increased 74%. International revenues increased 42%. Cummins expects full-year revenue to be 20%-24% above a year ago.

Net income was $600 million compared to $276 million, or $1.86 per share a year ago. Diluted earnings per share were $4.10 compared to the consensus estimate of $4.03.

Earnings before interest, taxes, depreciation and amortization in the second quarter were $974 million, or 15.9% of sales, compared to $549 million, or 14.3% of sales a year ago. The company expects EBITDA to range from 15.5% to 16% for the year, consistent with prior guidance.

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