Cummins CEO: High Machinery Inventories Holding Back China Engine Sales

www.chinatrucks.com: A strong spring buying season for construction machinery in China likely won't be enough to revive demand for Cummins Inc.'s (CMI) engines used by Chinese equipment manufacturers, Cummins Chief Executive Tim Linebarger said Wednesday.
 

Mr. Linebarger said the China's construction machinery market is bogged down by large volumes of unsold machinery that will have to be eliminated before machinery production can return to normal levels. Following a steep decline in machinery sales last year, industry observers anticipate an increase in 2013, beginning after the weeklong Lunar New Year holiday in China that starts this week.
 

Mr. Linebarger said a pickup in machinery sales would be "awesome" but played down the immediate impacts on Cummins' engines sales to the Chinese equipment industry, where sales of construction excavators last year sank 35% from 2011.
 

"It's not going to do enough to change engine demand because you've got to get rid of inventory in the field" first, he said during remarks to analysts Wednesday. "There is still a significant overhang of inventory that will dampen new equipment production in 2013, even after the end markets begin to recover."
 

The Columbus, Ind., company is a major supplier of engines across multiple industrial sectors in China, including mining, power generation and commercial trucks. Cummins' engine sales to the Chinese truck industry dropped 21% last year.
 

China accounted for 15% of Cummins' total sales last year. Cummins expects its 2013 sales in China to increase 5% over 2012, when revenue from China dropped 20% to $2.6 billion.
 

Sluggish demand for Cummins' engines in China undermined the reliability of the company's forecasts last year, causing it to lower its profit guidance twice.
 

"We were consistently disappointed especially by China," Mr. Linebarger said. "We thought as the new government got seated we'd see some improvement, and we did not see that. It was a pretty rough year for every one of our major markets in China."
 

Cummins' fourth-quarter earnings sank 30% amid falling sales of truck engines in North America and lower demand in China and other international markets.
 

Sales of Cummins' engines for commercial trucks and off-road equipment during the fourth quarter fell 18% from a year earlier to $2.5 billion. Earnings before taxes and interest on engines decreased 26% to $272 million. Sales of heavy-duty truck engines plunged 30%. Sales of engines for off-road machinery dropped 27% from a year ago.
 

Cummins' executives said they have limited visibility on engine demand in 2013, predicting that sales in the first half of the year would be off 10% from a year earlier before resuming growth in the second half.
 

For 2013, the company forecast revenue to be flat to down 5% from 2012, implying a range of $16.5 billion to $17.3 billion. The company expects earnings before taxes and interest in a range of 13% to 14% of sales, which translates to about $8 to $9 a share. Analysts had expected the company to earn $9 a share from revenue of $17.6 billion.
 

For the fourth quarter, Cummins reported a profit of $381 million, or $2.02 a share, down from $548 million, or $2.86 a share, a year earlier. Revenue dropped 13% to $4.29 billion.

Views:0