Analyst Note| Dawit Woldemariam |
Narrow-moat-rated Cummins reported solid first-quarter results despite a challenging supply chain environment. The company’s top line grew nearly 5% year on year to $6.3 billion in the quarter, largely due to strong new engine and aftermarket sales. Management highlighted that freight demand remains strong globally, except for China, which is trending lower due to declining on-highway and construction sales. Excluding China, global demand looks healthy, as retailer restocking is strong and industrial activity continues to improve. While the trucking industry continues to be constrained by the components shortage, we think there is pent-up demand in the market, given high truck utilization rates and elevated fleet ages. As the supply chain environment improves throughout 2022, we think Cummins will be ready to meet customer demand.