DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON
TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. U.S. Disclosure:
Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be
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02 February 2010
Cummins Inc. (CMI)
Earnings First Blush
■ Crushing The Consensus. CMI reported GAAP Q4 EPS of $1.36, or $1.24
adjusted for restructuring and a favorable tax rate. CMI crushed the street est. of
$0.76 on better sales ($3.4B beat the street est. by $568M) and operating
margins (11.3%, or 11.4% excluding restructuring vs. our estimate of 7.2%).
Overall, operating margins grew 440 bps sequentially and have improved each
quarter since 4Q08. All segments posted strong sequential margin improvement.
Specifically, Engines margins of 9.7% increased 550bps q/q while Components
margins of 10.0% grew 480bps sequentially on only 8% top line growth.
Additionally, Power Generation (5.7%) and Distribution (13.8%) both exhibited
modest margin improvements, increasing 150 and 80bps q/q, respectively.
■ 2010 Outlook Encouraging; Ahead Of Street. For 2010, CMI is guiding to
sales, margins, and earnings similar to 2009 levels (implies revenues of $11B
and EBIT margins of about 7%). This suggests EPS of $2.49 using 2009’s lower
tax rate or $2.35 when using a more normalized tax rate of 30%. As expected,
the North American truck and bus Engine business is expected to decline 80% in
1H10 versus 2H09 reflecting the pre-buy. This translates into a total heavy-
duty/medium-duty/bus decline of 50% in 1H10 vs. 2H09. However, this was
widely publicized and expected by the street. Capex is forecasted to rise 30%
from 2009 levels