Cummins 3Q16 Earnings Call Notes

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Cummins’ (CMI) CEO Tom Linebarger on Q3 2016 Results

Assume weakness

“I don’t mean to imply that there won’t be recovery in some markets, we’ve seen decent recovery in the Chinese truck market this year. I just mean to say that in broadly speaking, our view is that markets are across Cummins markets broadly that they continue to be weak and while we may see some bottoming, we don’t have an instigator for a significant growth directly in front of us. So our view is, given that we get in this for a couple of years now, the right posture for the company to take is to assume relatively weak markets, set our cost structure accordingly, find opportunities for cost savings, productivity gains, and then continuing to invest in those opportunities where we think markets could improve and we will be able to gain share and gain business accordingly.”

China market has improved, our stock is inexpensive

“In the China truck market, we’ve seen improvements already this year, I would give a forecast for the China truck market, what that means for 2017, we just don’t know yet. We have not seen much of an uptake in Brazil yet. Whether or not we will be there next year, I just don’t know. My view is that evaluation of the Cummins stock is really a good deal, really inexpensive. So I think it would be a good buy for anybody for any of those reasons, but again, my view is that we’ll have a better view in February about what the individual markets are.”

It feels like we’ve been in a downcycle in powergen for a decade

” I’ll share this one, but ha it only been five years, because it feels like a decade. So it does seem like we’ve been in the downcycle for a while to your point, and frankly longer than we’ve seen in the past, which is frustrating. So obviously we’re kind of to the discussion earlier from David, we’d like to see some of the things turn back. We just haven’t seen yet signs that they’re turning back and, of course, power generation, reflects a couple of things. One, in emerging markets, it reflects infrastructure building and general economic growth where the margins start to get under threat and things like that. And then it reflects non-res capital spending in some of the more mature markets where we’re selling standby. And again, while our non-res capital spending is in a disaster in the US and our business is in a disaster, both of those statistic broadly across the world are still quite there. So our view is that where we start to see turnaround in power-gen is when we start to see infrastructure spending starting to come back in some of these emerging markets across the world and then we see non-res capital spending coming back more aggressively in some of the more advanced countries and we just, right now, that’s just not obvious when that happens. ”

Rich Freeland

There are some green shoots in oil and gas and mining

Yes. I’d come on mining and oil and gas, no one is calling a turnaround. Certainly, we are not and production orders. There are, I’d say there is a couple of positive signs out there anyway. Commodity prices up is one, but what we are seeing is some more enquiries and some more business, both on rebuilds of products and aftermarket parts, which is generally the precursor to actual orders going up. So it’s a greenshoot, but we’ve seen just little bit of that to give some optimism there. We are down 7% in mining this year and again, no one is really calling for that to turn around this time other than the aftermarket at least.