Tuesday, February 02, 2010

Cummins Capex Program Needs Detail

Cummins (CMI) reported record Q4 results to cap off a turbulent 2009. They say 2010 will be like 2009. But growth is expected in China, India and Brazil. Mature markets such as North America and Europe are not expected to grow. They source a lot of cash which in today’s environment looks good. They have not increased their dividend which to me is a “tell”. They are planning to increase 2010 Capex by 30% to fund long term projects. So says the earnings release. Maybe they will elaborate in the conference call but a general explanation in the earnings release would not have hurt.

The company is hoarding cash and is caught in a classic financial conflict. Reward investors now with dividends and stock buy backs or spend significantly and reward investors later with significant results. Maybe if they explained the Capex program with some degree of certainty investors could reach informed decisions.