It looks like truck engine maker Cummins (NYSE:CMI) is back to its old ways by posting eye-popping growth and handily surpassing estimates. As the global truck market continues to grow, it looks like Cummins should have plenty of opportunities to continue to grow its already impressive business.

Tutorial: The Industry Handbook

Better Results Down the Line at Cummins
Cummins seems to be one of the relatively few industrial companies not seeing any real margin pressures in the final results. Sales jumped 56% from last year's first quarter (though declined 7% sequentially), led by 68% growth in the engines business. Growth was strong across the board, though, as power generating was up 54%, components were up 47% and distribution sales rose 35%. (For more, see Truck-Makers Still Hauling In Profits.)

As mentioned, margins were not problematic. Gross margin rose 50 basis points from the year-ago quarter, while operating income doubled and those margins grew more than three full basis points. Also encouraging is that those margins grew sequentially - gross margin rose a full point on that basis, while operating margin grew about 70 basis points. (For more, see The Bottom Line On Margins.)

A Truly Global Company
Plenty of industrial companies position themselves as "global" stories, but relatively few actually get less than half of their revenue from the United States like Cummins. In that regard, Cummins really is an impressive way to play growth in India and China. The company expects to derive nearly $2 billion in revenue from India this year, with double that amount coming from China. While partnerships with major local companies like Tata Motors (NYSE:TTM), Dongfeng and Komatsu (OTCBB:KMTUY), which has a large emerging Asia business, is clearly an important part of that growth, investors shouldn't underestimate what the company has done outside of these joint ventures.

The emerging growth trend will not be without volatility, but it's a legitimate driver. Brazil, China and India are building more roads, businesses are moving more goods - and that is feeding a strong demand for trucks. Data from companies like PACCAR (Nasdaq:PCAR), Navistar (NYSE:NAV) and Daimler Trucks all corroborate this strong market for commercial trucks.

Not the Only Play ... But a Good Play
Clearly Cummins is not the only way to play this secular trend. Large conglomerates like Eaton (NYSE:ETN) and Illinois Tool Works (NYSE:ITW) have a stake, as well as more focused parts companies like Tenneco (NYSE:TEN) and Federal-Mogul (Nasdaq:FDML). Investors wanting more esoteric plays can also look at names like Ingersoll-Rand (NYSE:IR), with its Thermo King business (which provides refrigeration units for trailers); and Wabash National (NYSE:WNC), which makes those truck trailers.

Where Cummins stands out, though, is in its quality - both its products and as a public company. What's more, Cummins is a good play on the off-highway growth being seen by machinery manufacturers like Joy Global (Nasdaq:JOYG) and Terex (NYSE:TEX).

The Bottom Line
Even with the growth kicker from emerging markets, this cycle in commercial trucks is likely to resemble past cycles in one important way - it won't last forever. That said, it could last a while, and Cummins stock could continue to outperform in the meantime. Missing Cummins below $100 in March feels like one of those "shoulda coulda woulda" moments, and investors looking to add a high-quality industrial name should definitely keep an eye on this one if it sells off again soon. (For more, see Cyclical Versus Non-Cyclical Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing Basics

    Explaining Trade Liberalization

    Trade liberalization is the process of removing or reducing obstacles that impede the exchange of goods and services between nations.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  6. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  7. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  10. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  5. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  6. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!