First, truck manufacturer Cummins (CMI) issued dismal earnings and guidance on Tuesday.
It's stock was hammered and fell from its July 9 closing price of $95.55 to an intraday low of $85.08 on July 10. CMI recovered that day to close at $86.91, a 9% closing price correction from the previous day's closing price. But Wednesday saw CMI move down another 3.9% on over triple the average daily volume.
That's nearly a 13% implosion in two trading sessions. Why did such a massacre occur?For starters, Cummins and its CEO took the market by surprise midway through a trading session. The stock market doesn't take kindly to negative surprises. What the CEO of Cummins told investors was chilling. In essence, he blamed the strong dollar and weaker demand in emerging markets for hurting demand for its products. He also said that U.S. orders for the company's trucks and power generation business had soured, and that expected growth in China, India and Brazil was lower than anticipated. For the remainder of 2012, CMI said it expects full-year revenue to be flat compared to 2011. So the slaughter of CMI shares came as a direct result of not only poor quarterly performance, but drastically reduced guidance going forward. Earlier this year, Cummins had predicted full-year revenue growth of 10% versus 2011 annual revenues of $18 billion. Second-quarter revenue was guided downward to $4.45 billion. That's a full 10% below what analysts had been expecting. Even raising the dividend couldn't stop the CMI rout. Cummins' board announced a whopping 25% hike in its quarterly dividend to 50 cents a share. This brings the annual dividend yield, based on a price of $83.45, up to around 2.5%. From a technical point of view, CMI may be on the way to testing its October 4, 2011 low of $79.53 (the current 52-week low), unless of course the Federal Reserve sprinkles the stock market with unexpected glad tidings that will undoubtedly fuel an inevitable rally ahead.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV