Cummins Inc.’s (CMI - Analyst Report) earnings per share increased 7.8% to $2.62 in the second quarter of 2015 from $2.43 a year ago. Earnings also surpassed the Zacks Consensus Estimate of $2.55. Meanwhile, net income improved 5.6% to $471 million from $446 million in the second quarter of 2014. The upside was buoyed by better performance at the manufacturing and supply chain organizations and effective cost reduction initiatives.

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Revenues in the reported quarter rose 3.7% year over year to $5.02 billion. The revenue figure also surpassed the Zacks Consensus Estimate of $4.98 billion. The year-over-year improvement can be attributed to higher demand in on-highway markets and distributor acquisitions in North America, partially offset by currency headwinds mainly because of a strengthening U.S. dollar.

Operating income increased 18.1% to $723 million from $612 million a year ago. Earnings before interest and taxes (“EBIT”) improved to $721 million (14.4% of sales) from $657 million (13.6% of sales) a year ago.

Segment Performance

Sales in the Engine segment rose 2% to $2.8 billion on increased demand of trucks and buses in North America, partially offset by sluggish demand in the global industrial markets and the truck market in Brazil. The segment’s EBIT increased to $341 million (12.2% of sales) from $311 million (11.3% of sales) a year ago.

Sales at the Components segment grew 9% to $1.4 billion on the back of strong on-highway demand in China, Europe and North America, partially marred by sluggish demand in Brazil. This segment’s EBIT surged to $223 million (16% of sales) from $185 million (14.5% of sales) in the prior-year quarter.

Sales at the Power Generation segment inched up 1% to $747 million on improved international sales in Asia Pacific, India and the Middle East, offset by poor sales in North America and adverse impacts of currency translation. The segment’s EBIT declined to $57 million (7.6% of sales) in second-quarter 2015 from $61 million (8.2% of sales) in second-quarter 2014.

Sales at the Distribution segment surged 21% to $1.5 billion. Revenues were partially offset by adverse currency movements. The segment’s EBIT fell to $113 million (7.6% of sales) from $126 million (10.2% of sales) a year ago.

Financial Position

Cummins’ cash and cash equivalents decreased to $1.8 billion as of Jun 28, 2015, from $2.3 billion as of Dec 31, 2014. Long-term debt totaled $1.61 billion as of Jun 28, 2015, in line with the figure recorded on Dec 31, 2014.

In the first half of 2015, Cummins’ net operating cash flow decreased to $569 million from $701 million in the same period a year ago. Capital expenditures went up to $247 million from $245 million in the prior-year period.

Capital Deployment

Cummins is focused on enhancing shareholders value by pursuing aggressive share repurchases and increasing dividend payouts. On Jul 14, 2015, the board of directors of Cummins approved a 25% increase in quarterly dividend to 97.5 cents per share, higher than the previous dividend payout of 78 cents. The dividend is payable on Sep 1, 2015, to shareholders of record as on Aug 21, 2015.

Cummins returned $517 million to shareholders in the reported quarter through dividends and share repurchase. This strategy is consistent with the company’s plan to return 38% of its full-year operating cash flow to shareholders in 2015.

2015 Guidance

For 2015, Cummins expects revenue growth of 2%–4%. EBIT is expected in the range of 13.5%–14%.

Currently, Cummins carries a Zacks Rank #4 (Sell). Better-ranked automobile stocks include O'Reilly Automotive Inc. (ORLY - Analyst Report), Tesla Motors, Inc. (TSLA - Analyst Report) and PACCAR Inc. (PCAR - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).