Wednesday, August 2, 2017

Earnings - Cummins, Emerson Electric, HCP

We received earnings from 3 companies on Tuesday - Cummins(CMI), Emerson Electric(EMR), & HCP(HCP)

Cummins(CMI) reported Q2 EPS of $2.53 per share on revenues up 12% from a year ago to $5.1 billion. The company credited the quarter to stronger demand for trucks and construction equipment in North America and China, and stronger sales to mining, and oil & gas customers.  The company also announced during the quarter the Eaton Cummins Automated Transmission Technologies joint venture. Cummin's and Eaton each own 50 percent of the global joint venture which will design, manufacture, sell and support all future medium-duty and heavy-duty automated transmissions for the commercial vehicle market.

Shares hit the deck after the announcement falling from a 52-week high near $170 to below $160.  The company did raise guidance for the remainder of the year. Cummins expects full year 2017 revenues to be up 9 to 11 percent, higher than the prior forecast of up 4 to 7 percent. EBIT is expected to be in the range of 11.75 to 12.5 percent of sales, unchanged from prior guidance. Why? That's just how it is sometimes in the market.  Good quarters get punished, and bad quarters get rewarded. Here is what management had to say:

“We delivered strong revenue growth in all four operating segments in the second quarter due to improving conditions in a number of important markets where we also have leading share. Earnings increased due to solid operational performance, partially offset by higher warranty costs that resulted in second quarter EBIT that was below our expectations” said Chairman and CEO Tom Linebarger. “As a result of stronger than expected orders in truck and construction markets in North America andChina, and improving demand from global mining customers we have raised our 2017 full year outlook.”

Emerson Electric(EMR) reported Q3 EPS of $0.64 on revenues up 10% to $4.03 billion.  I'm happy to see revenues growing, but EPS growth has been lukewarm, although management has been happy to focus on adjusted numbers. Furthermore net income fell $66 million to $413 million during the quarter. The company saw stronger sales mainly in the US in China, and mostly within the Commercial & Residential Solutions business. The company claimed to be upping their adjusted EPS guidance to $2.58-$2.62 from a previous $2.55-$2.65. Ummm that's called narrowing your guidance in my opinion. I don't like it when companies mince and dice things like Emerson does, but the company is well managed with a lot of good brands and technology so I let it slide for the most part. Here is what management had to say.

“As we enter the fourth quarter, we expect to see demand and economic conditions improve, enabling our business platforms to continue growing their industry leadership positions. We are also delivering on our promise to aggressively integrate Valves & Controls into our Final Control business. We expect to realize the benefits of the acquisition as we execute these plans and anticipate the business to be earnings accretive in 2018 and to contribute meaningfully to operating cash flow,” said Farr. “Due to our success in the first nine months of fiscal 2017, a continued focus on improving our financial performance and the opportunities we see on the horizon, we are increasing our earnings per share guidance range to $2.58 to $2.62 including the impact of Valves & Controls operations.”

HCP(HCP) reported Q2 EPS of $0.04, FFO of $0.35, and revenues of $458.9 million.  The company continues to pay down debt with $881 million in debt payments for the quarter.  I'm a champion of lowering debt, but considering how low interest rates still are for buying properties I wish the company would leverage itself up on good opportunities just a bit.  But long term I know it's better for the company to have a lower debt load. The stock took a nosedive on the quarter, and I wasn't pleased to see vacancies tick down in 3 out of 4 areas.  Shares fell over 5% on the announcement and didn't pick up any steam on Wednesday. Ugh sometimes patience wears thin but I have to think long term.

Tomorrow we get earnings from Church & Dwight, Cognizant, Global Payments, and Universal Corp.

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