By Timothy Aeppel 
   Of THE WALL STREET JOURNAL 
 

Cummins Inc. (CMI) reported better-than-expected third quarter results but warned that 2010 would remain a difficult year for the diesel-engine maker, especially in the advanced economies of North America and Europe.

"We expect next year, especially the first six months, to be even more challenging than this year," Chief Executive Tim Solso said.

(This story and related background material will be available on The Wall Street Journal Web site, wsj.com.)

Cummins expects strong growth in developing markets such as China, India and Brazil, but this will not be enough to offset headwinds it faces in those big developed markets. Cummins is a major producer of truck engines, a market where the company said it expects to see U.S. demand fall 75% in the first half of next year, compared with the second half of 2009.

U.S. truck sales are being impacted by new clean-air rules, which are causing a rush of sales this year by buyers trying to avoid the higher-priced cleaner engines that go on the market at the start of next year.

The company said it believes the third quarter marked the low point for its power-generation business, which makes generators used in applications such as construction sites and in recreational vehicles. That business fell sharply this year as customers used inventories rather than buying new machines. Order rates going up in India and China in particular, the company said.

"But we don't think Q1 or Q2 (2010) will be great for power generation, because the U.S. and Europe will be down year over year," said Tim Linebarger, the company's chief operating officer.

-By Timothy Aeppel, The Wall Street Journal; 212-416-2821; timothy.aeppel@wsj.com