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. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  2. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  3. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  4. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Mutual Funds & ETFs

    Top 4 Investment Grade Corporate Bonds ETFs

    Discover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
  9. Investing

    A Look at 6 Leading Female Value Investors

    In an industry still largely predominated by men, we look at 6 leading female value investors working today.
  10. Term

    What Is Financial Performance?

    Financial performance measures a firm’s ability to generate profits through the use of its assets.
  1. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  2. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

You May Also Like

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!