Cummins at Barclays Conference Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

We were pretty disappointed with how we did last year

“So on one side of the ledger there was a whole bunch of stuff that we’re fairly happy about, but being quite honest, speaking for myself, speaking for Tom and the Management Team there was a sense of disappointment about the year. Sales were flat year-over-year but profits were down, and I think everyone who’s followed the stock over the past year or two, you’re familiar with the slowdown in some very important markets to us.”

Some high margin product lines were slow

“So where we sell high horsepower engines and gen sets into oil & gas, into power generation, into mining we make very good margins. So if there’s a really bad mix to get we got it last year, and that’s really hurt the performance from a profitability standpoint. Secondly, the performance of the power gen business wasn’t very good. I think we talked about that on the call last week, the earnings call last week. It was disappointing. Demand kept falling and we never got ahead of it, so that’s one area.”

North America great, China is turning the corner

“North America is definitely feeling more positive than I think any other region of the world just now. China is turning the corner. China I think over the last year and a half we were maybe a little bit flat on it. We had a good year last year – some of that was artificial with the pre-buy ahead of NS4. This year we’re projecting record revenues in China including our joint ventures”

India not so good

“India is not so good. India, I think we’re looking at flat revenues year-over-year. The economy as you’ve been following has been going through some difficult times. They’ve got elections coming up. I think nothing’s really going to happen before the elections and if I’m pessimistic more about India just now because I don’t see that coming out immediately. I’m very confident about the long-term outlook for India but I think the truck market will stay flat year-over-year”

Mining still a headwind, but not as bad as it was in 2013

“mining continues to be a headwind although not as much of a headwind as it was in 2013.”

Washington stuff was a turning point for customers

“As people get more confidence that there’s not going to be a stalemate in Washington that’s going to slow down the economy then I think they’ll start to feel better about making investments, that they’re going to feel they can get utilization on these investments.”

Local engines have the market share in China

“It’s not the global OEMs who have large market shares in China – they’re all investing and wanting more access to that market. But with our partner, with Foton for example in the light-duty we’ve displaced locally-made engines with the new 10 liter and 12 liter engine; we’re displacing local medium engines.”

Chinese don’t expect their engines to run as long as Americans

“So a vehicle in China, and this is not a negative comment but might last 300,000 km or 400,000 km. In the US our customers want engine warranty or expect the engine to run up to 500,000 miles under extended warranty – they actually expect the vehicle to last over 1 million miles. So one of the challenges we’ve got is to design things that have everyday reliability that don’t last 2x the life of the vehicle, so that’s some of the challenges in getting our cost structure right and what we’re focused on.”

Market not that excited about natural gas engines

“The market wasn’t feeling it, and I think it’s going to come eventually but I don’t think it’s going to be this kind of light switch event that some people are going to want to promote. But we continue to make investments both on-highway and off-highway for natural gas products and we’ll continue to do so. We think it’s a good market over time. I would just caution that it’s going to explode and be a terrific market tomorrow or early next year, 2016.”