Cummins Engine Roars on International Sales

I restarted Cummins Engine (CMI) in the fund 2 weeks ago as a "weak dollar" play - one thing that attracted me to this name in the fall was it's large (and very early) exposure to Chindia. Once I started seeing company after company make up all their US losses with major currency benefits from international sales (along with booming volume sales overseas) this seemed like a good time to re-enter this name. [Apr 18: Restarting Cummins Engine as Rest of the World Moves on Without USA]

So far so good; earnings booming on overseas sales. If not for a nasty gap in the chart which I would like to see "filled," I'd be adding to this position today. Instead I will add when the stock falls and fills this gap (in low $56 range). My hope right now is the stock runs to mid $60s, where I'd lighten up and then refill the position as it eventually falls back to fill that gap in the chart - ambitious plan, but it would be a dream scenario. This stock remains dirt cheap.

I do want to stress that inflation is real and just by the 2 reports I am highlighting, you can see despite government's insistence it does not exist, it is squeezing corporate profit margins - look for this to be a theme in the next year in many earnings reports. We are just seeing the first edge of this in this season's earnings reports and I don't hear anyone talking about it.

• Cummins Inc. said Wednesday that first-quarter earnings jumped 33 percent as the diesel engine maker's international growth helped offset increased commodity prices and weakness in some U.S. markets.
• For the period ended March 31, earnings rose to $190 million, or 97 cents per share, from $143 million, or 71 cents per share, in the prior year. Analysts surveyed by Thomson Financial forecast earnings of 89 cents per share on revenue of $3.33 billion.
• Quarterly sales grew 23 percent to $3.47 billion, from $2.82 billion in the first quarter of 2007.
• Cummins said strong performance in international markets helped offset rising commodity prices and weakness in some U.S. consumer-related markets, such as pickup truck engines, recreational vehicle products and recreational marine engines.
• The company said sales growth was driven by its engine business, which is its largest segment. Demand was strong for medium-duty truck engines in the U.S. and for commercial generator sets in India, Great Britain, Asia and the Middle East. Demand also increased for turbochargers and exhaust aftertreatment products in North America and Europe.
• Cummins' distribution business reported strong growth in Europe, the Middle East and Asia Pacific.
• Also, the company's joint venture earnings jumped 86 percent, boosted by emerging markets such as China and India, and by the company's North American distributors.

Again, let me say, the rest of the world cannot decouple from the US; their growth will slow to some degree - but in a relative world, they are booming (if China's growth falls in half from peak we are still talking 6%+ growth) and many of these multinationals really could give a damn about the pathetic state of domestic affairs here.

The rest of the world does move on, with or without us. Each year that passes we become less and less a share of global GDP. However, the global inflation our central bank is helping to stoke will be an issue for the entire globe (how much is to be determined but I fear it could be a serious blow)... I guess it's our way to payback the world - first we try to sink their banks with our toxic mortgage debt sales (risk free!!), and then when that doesn't work, we help exaggerate global inflation with 'easy money policies'... we are a mean bunch. But the rest of the world is observing these self serving actions, and it will be remembered.

Disclosure: Long Cummins Engine in fund; no personal position