By Robert Hauver
Cummins, (CMI), is an Industrial dividend stock that just reported Q3 2010 earnings that blew away their Q3 2009 numbers, and also increased its credit rating during the quarter:
The results were favorably impacted by $32 million due to a legal ruling in Brazil involving tax on imports from 2004 through 2008. (Adjusted net income excludes the Brazilian tax gain.)
All 4 of CMI’s market segments had strong Q3 Sales and Earnings Growth:
Cummins COO said, “Many of our U.S. markets remained weak as a result of the slow recovery in the U.S. economy,”, and added, that the company doesn’t “expect to see any meaningful improvement until 2011” in the U.S., BUT, business in emerging markets “has come back much faster than we had forecast.”
CEO Tim Solso stated, “Our strength in large international markets provided significant benefits to the company, and we continue to see productivity improvements in our manufacturing operations.”
Overseas sales increased 69% in the third quarter, led by India, Latin America, South Pacific and the U.K., and now account for 63% of CMI’s consolidated revenues. North American sales declined 3%.
In response to its third-quarter profit tripling from a year ago, CMI is raising its quarterly dividend by 50%, to $.265/share, a yield of 1.19%, AND raised its full-year financial EBIT guidance to 12.5% of sales on revenues of $13 billion. CMI also bought back $79 million of its shares in Q3 2010, bringing total shares repurchased to $389 million under its current $500 million authorization.
Apparently, increasing revenue by 34%, tripling its profit, substantially raising the dividend, AND increasing their guidance, still wasn’t good enough for some analysts, who had pumped up expectations for CMI even further, (Hmm, do we sense “irrational exuberance” in the wind?), and the stock got hammered, falling nearly 8%, from $94.49 to a low of $87.00 after reporting earnings.
Fortunately for contrarians and value investors, such hysteria creates opportunities. This big fall has inflated CMI’s call options and put options, which now offer double-digit yields for covered calls and cash secured puts:
There are further details on these options trading strategies in our Covered Calls table and in our Cash Secured Puts table.
Cummins designs, manufactures, distributes and services engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, Cummins serves customers in approximately 190 countries and territories through a network of more than 500 company-owned and independent distributor locations and approximately 5,200 dealer locations. Cummins reported net income of $428 million on sales of $10.8 billion in 2009. (Source: Cummins website)
If you’re looking for dividend paying stocks with strong international sales and earnings, Cummins is worth researching further.
Disclosure: Author is short puts of CMI.
Disclaimer: This article is written for informational purposes only.