Cummins Cuts Fourth-Quarter Profit in Half

Columbus, Ind. -- Truck engine maker Cummins (CMI Quote) on Wednesday said its fourth-quarter earnings were less than half what it originally reported due to higher-than-expected warranty repair costs.

Cummins revised its fourth-quarter profit down to $43 million, or 22 cents a share, from the $89 million, or 45 cents per share, it reported on Feb. 3. Analysts had expected a profit of 42 cents per share for the fourth quarter, according a poll by Thomson Reuters.

For the full year, Cummins said it earned $755 million, or $3.84 per share. Previously, it said it earned $801 million, or $4.08 per share.

Shares of Cummins dropped $1.49, or 6.8%, to $20.46 in morning trading following the announcement.

The company said the revision was due to higher warranty liabilities for mid-range engine products launched in 2007, which have required higher-than-expected repair costs. It said an analysis of the costs in late February showed that a revision to its original warranty liability estimate was needed.

"The company is aggressively addressing the product issues and has made modifications that have reduced the failure rate of these products," Cummins said in a statement.

Cummins also reiterated its 2009 sales guidance, saying it continues to expect sales to fall 20% from 2008. That implies 2009 sales of $11.47 billion compared with $14.34 billion in 2008.

The revision is the latest trouble for the company. On Tuesday, Cummins said it would cut 985 employees worldwide by the end of this week, including 460 in Indiana. The company has been hit with lower profits recently due to the drop-off in truck and construction demand.