Cummins Engine 2Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“Revenues for the engine business declined by 7% compared to the second quarter last year due to lower demand in the North American heavy-duty truck market. We saw a 38% decline in shipments of high horsepower units driven by global weakness in mining and other highway markets.”

“Performance for the Power Generation business has been below our expectations in recent quarters.”

“Demand continues to recover moderately after a period of very weak industry orders in the second half of 2012, but OEMs remain cautious in raising build rates.”

“For the full year, we are adjusting our forecast for the market size to 229,000 units, down from our previous forecast of 233,000 units, with third quarter production likely to be close to second quarter levels.”

“We shipped 15,000 units to the U.S. medium-duty truck market this quarter, an increase of 18% year-over-year. We continue to expect a full year market size of approximately 109,000 units in 2013, an increase of 2%”

“Power Generation revenues in China, including joint ventures, were flat year-over-year in the second quarter, consistent with the overall weak economy.”

“For the full year, we still expect that our total revenues in China will be up 5%, with strong growth in light-duty engine and modest growth in medium- and heavy-duty trucks, offsetting weakness in off-highway markets.”

“Moving to India. Business conditions remain weak”

“As Tom mentioned, for the company, we have adjusted revenue guidance to the top of a previously announced range. We now project total Cummins’ revenues to be flat in 2013 when compared with 2012 levels. ”

“You remember, in the past, when things peaked out, we had capacity limitations on the insides of the aftertreatment system, both coatings, as well as bricks. And so we’ve done a lot of planning on that to make sure we have adequate capacity, not just for the start but for when things get stronger.”

“there is lots of interest [in natural gas engines]. As you know, the products are really just now getting in the market. The feedback on them is terrific. And so there’s a lot of excitement for it. I think just putting it in perspective, we still see over the next couple of years, that’s 2% to 3% of the total truck market. And longer term, we’re thinking 5% to 10% over a 5- to 10-year period.”

“Nobody really knows what final percent natural gas will be of the truck market. Some of it will depend on fuel prices and some of it will depend on other factors about buildout of availability and things like that. But this is where it kind of gets people kind of lose track of things. If you’re very invested in natural gas business, you’ll be thinking that because there’s a lot of interest, there’ll be hundreds of thousands of units in no time. Most of us that have been watching all of the units don’t really think that’s very likely. It doesn’t mean it’s not of great interest. There are some customers who think that this is the answer to their problems. In fact, as though, if you look at all the orders and all of the buys in total, most people are buying a few now to try them, as opposed to replacing their whole fleet. And we’ll see what happens after they try them, at what rate people change. But I think Rich has kind of given you sort of the middle-of-the-road consensus feel that maybe gets to 10% or 5% or something like that over some period of time. But we’re prepared for all of those eventual outcomes. But it’s just kind of what we see right now and we are working very actively to get that 12-liter in as many people’s hands, who want to try it, as we can, while still making sure we’re doing our normal quality launch. So we perform — with every launch of a new product, we make sure we have good infant care, we know every customer who’s got it, we’re tracking everything really closely and that’s really important in this market just like every other. So we’re doing that as we go.”

” I think longer term, we think all the fundamentals are pretty good but you look at — yet no one is expanding their fleet size. So we’re kind of in a replacement mode right now.”

“we do believe based on talking to customers in things that there is — there will be a point when people will buy more trucks than they’re retiring for some period of time in order to kind of restock to some level. We just don’t know when it’s going to be.”

“I think Latin America is a notable exception. When you go — when I go to Latin America, I was there not too long ago, things are definitely moving in the positive direction. Brazil, we had talked about that, it’s true really and Spanish-speaking Latin America too. Mexico is pretty good. I mean, this quarter, the size generally speaking, has been pretty good. But I would say in India, the trend is not good. It’s not only is it not bottoming, it’s hard to say kind of what’s — when it’s going to bottom, but I don’t think it’s bottomed yet. I don’t think it’s going to get a lot weaker, but it’s not strong. China is the most perplexing. It really is flattish. It’s not getting a lot worse, but it’s not getting a lot better either. There’s clarity, a lot of pent-up demand. When you visit there, you will definitely hear all the reasons why next week it’s going to be taking off and doing great. It just turns out that, that’s not been true for some time. So my own view is that China is the one where if it got going, a lot of other things would get going. But right now, I just don’t see that in the near term. The one with the most positive potential short term is the U.S. I think if we can get some confidence in the U.S., we would see turn at least in our businesses in the U.S. pretty quickly. We talked about the truck, but it would be true in Power Gen and other things as well. And that would be a pretty good boost to demand for a whole bunch of companies like us, and we’d be ready to respond with capacity. And again, whether that’s going to happen or not is another question. But right now, I think the flattish view is about right. It doesn’t seem like it would take a whole bunch to change the fortunes of the U.S. and China in the market to at least get a little bit better and that would make a big difference. I don’t think India is going to turn so quickly. But I think China and the U.S. could, but when? I don’t know. We’re just kind of planning for that flattish.”

“I think we’re close to bottom, but I think there’s still some pressures to take that down. I mean, all the mining houses have balance sheet problems now. They’ve turned over their leadership. They’re trying to get — they’re driving to take capital down and so I think we’re close to the bottom, but there could be another small step there down.”

“I mean, overall Brazil it’s definitely showing some signs of slowing again. The government lowered their forecast for GDP. Orders have weakened for trucks.”

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