Cummins 2Q15 Earnings Call Notes

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International revenues declined due to stronger dollar and weakness in Brazil

“Cummins International revenues declined by 6% year-over-year mainly due to the negative impact of appreciating U.S. dollar and weakness in all end markets in Brazil”

Heavy and medium duty truck demand in china down 30% as economic confidence weakened

Industry demands were heavy and medium duty trucks in China declined by 28% in the second quarter and is down by 30% year-to-date as the industrial economy continues to soften.We have lowered our full year forecast for the truck market to decline 30%, it’s down from our previous forecast of down 15% as confidence in the economy has weakened”

Demand for construction equipment remains suppressed in China

“Demand for construction equipment remains suppressed in China due to the slowdown in real-estate development and infrastructure spending. Industry demand for excavators in China declined 34% in the second quarter and is down 42% year-to-date with no visible sign of near-term improvement.”

India’s economy showing improvement

“Industry demand in the truck market increased 20% compared to the second quarter a year ago as the economy continues to show signs of improvement. We now expect industry truck production to increase 22% for the year, up from our prior forecast of 15% growth.”

Expect Brazil to be down 50%

“Second quarter revenues in Brazil were $110 million, down 43% from the second quarter last year due to the severe slowdown in the economy and near 40% depreciation of the real against the U.S. dollar. Industry truck production declined by 40% year-over-year and our shipments declined 38%. We have lowered our full year projection for industry production and now expect to decline of as much as 50% worse than our previous guidance of down 27% due to deteriorating business and consumer confidence. We expect our engine shipments to decline by 45%.”

Chinese freight numbers aren’t down as much as our 30% down forecast would suggest

“The potential macro market which was more your question, you see the uncertainty there the freight numbers are actually up a little bit so the freight numbers aren’t down to the level that demonstrate a 30%, so our view is there is still some kind of shake out would be going on here were a bit optimistic with the positive sign we see as in the freight numbers.”

Chinese moving to higher emission standards

“emission standards if anything are tightening they’ve got a date now Euro 5 implementation, they’ve got cities like Beijing, Shanghai talking about implementing Euro 6. There is a lot of support from local and federal governments about pushing ahead with emissions standards can all that just drive people towards better technology, more focused on fuel efficiency and the quality of emissions equipments”

It’s obvious that the government is serious about making changes in China

“I would add it’s obvious I think that the Chinese economy is going through a change and their governments are very serious about making this change. So, I don’t I’m not optimistic that we are going to see a big pump up in any of our end markets in a hurry because I think that Chinese government is going to try to keep going on this change of their focused in the government not so much on infrastructure and not so much on build and export a little bit more on consumer and a little bit more disciplined in the provinces”

There is some stabilization in the markets though

“I also think there is some stabilization going on in the markets. So they’re pretty low now and they definitely seem to be bottoming up and stabilizing as Rich was indicating, so we don’t see a further fall and we’ve indicated but we also don’t see necessarily a major turnaround in the near-term.’