Cummins Announces First Quarter Results; Raises Outlook for 2017

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  • First quarter revenues of $4.6 billion, GAAP1 Net Income of $396 million
  • EBIT of 12.3 percent of sales, Diluted EPS of $2.36
  • Full year 2017 revenues expected to be up 4 to 7 percent, compared to prior guidance of flat to down 5 percent
  • EBIT expected to be in the range of 11.75 to 12.5 percent, up from 11 to 11.5 percent

COLUMBUS, Ind.--(BUSINESS WIRE)-- Cummins Inc. (NYSE: CMI) today reported results for the first quarter of 2017.

First quarter revenues of $4.6 billion increased 7 percent from the same quarter in 2016. Stronger demand from construction and mining customers and higher sales from a distributor acquisition in the fourth quarter of last year, more than offset the impact of weaker truck production in North America. Currency negatively impacted revenues by approximately 1 percent compared to last year, primarily due to a stronger US dollar. International sales improved by 17 percent primarily due to growth in China and Europe while revenues in North America increased 1 percent.

Net income attributable to Cummins in the first quarter was $396 million ($2.36 per diluted share), compared to $321 million ($1.87 per diluted share). The tax rate in the first quarter of 2017 was 26.1 percent.

Earnings before interest and taxes (EBIT) were $566 million, or 12.3 percent of sales, an increase from $484 million or 11.3 percent of sales a year ago.

“Cummins delivered solid financial results, successfully launched new products and returned $222 million in cash to shareholders in the form of dividends and share repurchases in the first quarter,” said Chairman and CEO Tom Linebarger. “We launched our fully updated range of engines for North American truck and bus markets offering improved performance and better fuel economy for our customers. As recently announced, we also advanced our strategy to be the leading global powertrain supplier through our agreement with Eaton to form the Eaton Cummins Automated Transmission Technologies joint venture. This new venture will design, develop and produce the next generation of Automated Transmissions which will be fully integrated with our engine development to deliver up to an additional 7 percent improvement in fuel economy. The joint venture will benefit from the continuing shift away from fully manual transmissions in commercial vehicles, launch new products that will gain market share, leverage Cummins’ strong presence in international markets for growth and generate aftermarket sales.”

Based on the current forecast, Cummins expects full year 2017 revenues to be up 4 to 7 percent, compared to prior guidance of flat to down 5 percent. EBIT is projected to be in the range of 11.75 to 12.5 percent of sales, up from 11 to 11.5 percent. This forecast excludes the impact of the new joint venture with Eaton, which will be consolidated within Cummins’ financial results and is expected to be operational in the third quarter of this year, subject to regulatory approvals.

First quarter 2017 highlights:

  • The Company returned $222 million to shareholders in the form of dividends and share repurchase, consistent with its plan to return 50 percent of Operating Cash Flow in 2017
  • Cummins was named to Ethisphere’s 2017 list of World’s Most Ethical Companies for a 10th consecutive year by the Ethisphere Institute
  • In March, the Company announced its plans to reach a 50 percent intensity reduction in water use at its facilities by 2020

1 Generally Accepted Accounting Principles

First quarter 2017 detail (all comparisons to same period in 2016)

Engine Segment

  • Sales - $2.0 billion, up 2 percent.
  • Segment EBIT - $229 million, or 11.3 percent of sales, compared to 197 million or 10 percent of sales
  • Off-highway revenues increased 20 percent primarily due to higher engines sales to global construction markets, while on-highway revenues declined by 2 percent

Distribution Segment

  • Sales - $1.6 billion, up 12 percent
  • Segment EBIT - $100 million, or 6.1 percent of sales, compared to $87 million or 5.9 percent of sales
  • Organic sales increased 6 percent, and revenue from the acquisition completed in the fourth quarter of 2016 added 6 percent

Components Segment

  • Sales - $1.3 billion, up 9 percent.
  • Segment EBIT - $179 million , or 13.3 percent of sales, compared to $163 million or 13.2 percent of sales
  • Strong international revenue growth, primarily in China, more than offset sales declines in North America due to lower commercial truck production

Power Systems Segment

  • Sales - $882 million, up 9 percent
  • Segment EBIT - $57 million, or 6.5 percent of sales, compared to $46 million, or 5.7 percent of sales
  • Increased demand for industrial engines sales primarily for mining and oil & gas markets was the primary driver of revenue growth

About Cummins

Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 55,400 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 7,400 dealer locations. Cummins earned $1.39 billion on sales of $17.5 billion in 2016. Press releases can be found on the Web at www.cummins.com. Follow Cummins on Twitter at www.twittter.com/cummins and on YouTube at www.youtube.com/cumminsinc.

Forward-looking disclosure statement

Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward looking statements include, without limitation, statements relating to our plans and expectations for our revenues for the full year of 2017. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: the adoption and implementation of global emission standards; the price and availability of energy; the pace of infrastructure development; increasing global competition among our customers; general economic, business and financing conditions; governmental action; changes in our customers’ business strategies; competitor pricing activity; expense volatility; labor relations; and other risks detailed from time to time in our Securities and Exchange Commission filings, including particularly in the Risk Factors section of our 2016 Annual Report on Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information

EBIT is a non-GAAP measure used in this release, and is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBIT is a measure used internally to assess the performance of the operating units.

Webcast information

Cummins management will host a teleconference to discuss these results today at 10 a.m. EDT. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.

 
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
 
Three months ended
April 2,   April 3,
In millions, except per share amounts 2017 2016
NET SALES $ 4,589 $ 4,291
Cost of sales 3,461   3,235  
GROSS MARGIN 1,128 1,056
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 537 490
Research, development and engineering expenses 158 166
Equity, royalty and interest income from investees 108 72
Other operating income (expense), net 5   (2 )
OPERATING INCOME 546 470
Interest income 2 6
Interest expense 18 19
Other income (expense), net 18   8  
INCOME BEFORE INCOME TAXES 548 465
Income tax expense 143   132  
CONSOLIDATED NET INCOME 405 333
Less: Net income attributable to noncontrolling interests 9   12  
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 396   $ 321  
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic $ 2.36 $ 1.87
Diluted $ 2.36 $ 1.87
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 167.5 171.8
Diluted 168.0 172.0
 
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 1.025 $ 0.975
 
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
 
   
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
 
April 2, December 31,
In millions, except par value 2017 2016
ASSETS
Current assets
Cash and cash equivalents $ 1,322 $ 1,120
Marketable securities 145   260  
Total cash, cash equivalents and marketable securities 1,467 1,380
Accounts and notes receivable, net 3,247 3,025
Inventories 2,894 2,675
Prepaid expenses and other current assets 551   627  
Total current assets 8,159   7,707  
Long-term assets
Property, plant and equipment 7,746 7,635
Accumulated depreciation (3,944 ) (3,835 )

Property, plant and equipment, net

3,802 3,800
Investments and advances related to equity method investees 1,059 946
Goodwill 482 480
Other intangible assets, net 345 332
Pension assets 785 731
Other assets 1,002   1,015  
Total assets $ 15,634   $ 15,011  
 
LIABILITIES
Current liabilities
Accounts payable (principally trade) $ 2,168 $ 1,854
Loans payable 48 41
Commercial paper 274 212
Accrued compensation, benefits and retirement costs 334 412
Current portion of accrued product warranty 352 333
Current portion of deferred revenue 498 468
Other accrued expenses 941 970
Current maturities of long-term debt 47   35  
Total current liabilities 4,662   4,325  
Long-term liabilities
Long-term debt 1,576 1,568
Postretirement benefits other than pensions 317 329
Pensions 325 326
Other liabilities and deferred revenue 1,278   1,289  
Total liabilities $ 8,158   $ 7,837  
 
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.4 shares issued $ 2,163 $ 2,153
Retained earnings 11,265 11,040
Treasury stock, at cost, 54.4 and 54.2 shares (4,524 ) (4,489 )
Common stock held by employee benefits trust, at cost, 0.6 and 0.7 shares (7 ) (8 )
Accumulated other comprehensive loss (1,732 ) (1,821 )
Total Cummins Inc. shareholders’ equity 7,165 6,875
Noncontrolling interests 311   299  
Total equity $ 7,476   $ 7,174  
Total liabilities and equity $ 15,634   $ 15,011  
 
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
 
 
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
 
Three months ended
In millions April 2, 2017   April 3, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 405 $ 333
Adjustments to reconcile consolidated net income to net cash provided by operating activities

Depreciation and amortization

139 128
Deferred income taxes 10 (2 )
Equity in income of investees, net of dividends (83 ) (48 )
Pension contributions in excess of expense (23 ) (50 )
Other post-retirement benefits payments in excess of expense (10 ) (8 )
Stock-based compensation expense 7 5
Restructuring charges and other actions, net of cash payments — (25 )
Translation and hedging activities 11 (14 )
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable (205 ) (98 )
Inventories (202 ) (54 )
Other current assets 73 188
Accounts payable 296 107
Accrued expenses (90 ) (283 )
Changes in other liabilities and deferred revenue 48 78
Other, net 3   10  
Net cash provided by operating activities 379   267  
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (81 ) (71 )
Investments in internal use software (27 ) (13 )
Investments in and advances to equity investees (20 ) (25 )
Investments in marketable securities—acquisitions (26 ) (291 )
Investments in marketable securities—liquidations 147 35
Cash flows from derivatives not designated as hedges (24 ) (26 )
Other, net 4   3  
Net cash used in investing activities (27 ) (388 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings — 105
Net borrowings of commercial paper 62 50
Payments on borrowings and capital lease obligations (11 ) (15 )
Distributions to noncontrolling interests (10 ) (10 )
Dividend payments on common stock (171 ) (170 )
Repurchases of common stock (51 ) (575 )
Other, net 17   (21 )
Net cash used in financing activities (164 ) (636 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 14   (39 )
Net increase (decrease) in cash and cash equivalents 202 (796 )
Cash and cash equivalents at beginning of year 1,120   1,711  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,322   $ 915  
 
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
 
             
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
 
Power Intersegment
In millions Engine Distribution Components Systems

Eliminations (1)

Total
Three months ended April 2, 2017
External sales $ 1,457 $ 1,637 $ 980 $ 515 $ — $ 4,589
Intersegment sales 566   8   364   367   (1,305 ) —  
Total sales 2,023 1,645 1,344 882 (1,305 ) 4,589
Depreciation and amortization (2) 44 30 37 28 — 139
Research, development and engineering expenses 54 4 50 50 — 158
Equity, royalty and interest income from investees 72 11 13 12 — 108
Interest income 1 1 — — — 2
Segment EBIT 229 100 179 57 1 566
 
Segment EBIT as a percentage of total sales 11.3 % 6.1 % 13.3 % 6.5 % 12.3 %
 
Three months ended April 3, 2016
External sales $ 1,489 $ 1,458 $ 897 $ 447 $ — $ 4,291
Intersegment sales 487   5   340   361   (1,193 ) —  
Total sales 1,976 1,463 1,237 808 (1,193 ) 4,291
Depreciation and amortization (2) 39 28 31 29 — 127
Research, development and engineering expenses 57 4 56 49 — 166
Equity, royalty and interest income from investees 36 18 8 10 — 72
Interest income 2 1 1 2 — 6
Segment EBIT 197 87 163 46 (9 ) 484
 
Segment EBIT as a percentage of total sales 10.0 % 5.9 % 13.2 % 5.7 % 11.3 %
                           

(1)

 

Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended April 2, 2017 and April 3, 2016.

(2)

 

Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Income as "Interest expense." The amortization of debt discount and deferred costs were less than $1 million and $1 million for the three months ended April 2, 2017 and April 3, 2016, respectively.

 

A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Income is shown in the table below:

      Three months ended
In millions April 2,
2017 		      April 3,
2016
Total segment EBIT $ 566 $ 484
Less: Interest expense 18   19
Income before income taxes $ 548   $ 465
 

CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)

EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the reporting periods was as follows:

      Three months ended
In millions

April 2,
2017

     

April 3,
2016

Distribution entities
Komatsu Cummins Chile, Ltda. $ 7 $ 10
North American distributors — 5
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd. 33 18
Dongfeng Cummins Engine Company, Ltd. 22 7
Chongqing Cummins Engine Company, Ltd. 9 8
All other manufacturers 24   16
Cummins share of net income 95 64
Royalty and interest income 13   8
Equity, royalty and interest income from investees $ 108   $ 72
 

Earnings before interest, income taxes and noncontrolling interests

We define EBIT as earnings before interest expense, income tax expense and noncontrolling interests in income of consolidated subsidiaries. We use EBIT to assess and measure the performance of our operating segments and also as a component in measuring our variable compensation programs. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States and may not be consistent with measures used by other companies. It should be considered supplemental data. Below is a reconciliation of “Net income attributable to Cummins Inc.” to EBIT for each of the applicable periods:

      Three months ended
In millions April 2, 2017       April 3, 2016
Net income attributable to Cummins Inc. $ 396 $ 321
 
Net income attributable to Cummins Inc. as a percentage of net sales 8.6 % 7.5 %
 
Add
Net income attributable to noncontrolling interests 9   12  
Consolidated net income 405   333  
 
Add
Interest expense 18 19
Income tax expense 143   132  
Earnings before interest expense and income taxes 566   484  
 
EBIT as a percentage of net sales 12.3 % 11.3 %
 

CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)

Engine Segment Sales by Market and Unit Shipments by Engine Classification

Sales for our Engine segment by market were as follows:

2017            
In millions Q1 Q2 Q3 Q4 YTD
Heavy-duty truck $ 620 $ — $ — $ — $ 620
Medium-duty truck and bus 544 — — — 544
Light-duty automotive 423 — — — 423
Off-highway 436   —   —   —   436
Total sales $ 2,023   $ —   $ —   $ —   $ 2,023
 
2016
In millions Q1 Q2 Q3 Q4 YTD
Heavy-duty truck $ 631 $ 622 $ 625 $ 565 $ 2,443
Medium-duty truck and bus 549 600 517 606 2,272
Light-duty automotive 433 394 345 409 1,581
Off-highway 363   386   372   387   1,508
Total sales $ 1,976   $ 2,002   $ 1,859   $ 1,967   $ 7,804
 

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:

2017            
Units Q1 Q2 Q3 Q4 YTD
Heavy-duty 19,200 — —

—

19,200
Medium-duty 60,300 — —

—

60,300
Light-duty 63,100   —   —  

—

  63,100
Total units 142,600   —   —  

—

  142,600
 
2016
Units Q1 Q2 Q3 Q4 YTD
Heavy-duty 19,700 20,700 20,100 18,500 79,000
Medium-duty 55,400 62,300 53,400 58,000 229,100
Light-duty 61,700   57,100   49,800   60,000   228,600
Total units 136,800   140,100   123,300   136,500   536,700
 

Distribution Segment Sales by Product Line

2017            
In millions Q1 Q2 Q3 Q4 YTD
Parts $ 745 $ — $ — $ — $ 745
Service 319 — — — 319
Power generation 306 — — — 306
Engines 275   —   —   —   275
Total sales $ 1,645   $ —   $ —   $ —   $ 1,645
 
2016
In millions Q1 Q2 Q3 Q4 YTD
Parts $ 648 $ 642 $ 643 $ 694 $ 2,627
Service 299 297 299 320 1,215
Power generation 275 326 291 347 1,239
Engines 241   279   271   309   1,100
Total sales $ 1,463   $ 1,544   $ 1,504   $ 1,670   $ 6,181
 

Component Segment Sales by Business

In the first quarter of 2017, our Components segment reorganized its reporting structure to move a small piece of the emission solutions business to the fuel systems business to enhance operational, administrative and product development efficiencies. Prior year balances were reclassified to conform with this change.

2017            
In millions Q1 Q2 Q3 Q4 YTD
Emission solutions $ 616 $ — $ — $ — $ 616
Turbo technologies 287 — — — 287
Filtration 277 — — — 277
Fuel systems 164   —   —   —   164
Total sales $ 1,344   $ —   $ —   $ —   $ 1,344
 
2016
In millions Q1 Q2 Q3 Q4 YTD
Emission solutions $ 589 $ 603 $ 522 $ 524 $ 2,238
Turbo technologies 265 276 241 254 1,036
Filtration 252 262 244 252 1,010
Fuel systems 131   138   136   147   552
Total sales $ 1,237   $ 1,279   $ 1,143   $ 1,177   $ 4,836
 
2015
In millions YTD
Emission solutions $ 2,449
Turbo technologies 1,141
Filtration 1,010
Fuel systems 572  
Total sales $ 5,172  
 

Power Systems Segment Sales by Product Line and Unit Shipments by Engine Classification

In the first quarter of 2017, the Power Systems segment reorganized its product lines to better reflect how the business is managed. Prior year sales have been reclassified to reflect these changes.

Sales for our Power Systems segment by product line were as follows:

2017            
In millions Q1 Q2 Q3 Q4 YTD
Power generation $ 526 $ — $ —

$

—

$ 526
Industrial 275 — —

—

275
Generator technologies 81   —   —  

—

  81
Total sales $ 882   $ —   $ —  

$

—

  $ 882
 
2016
In millions Q1 Q2 Q3 Q4 YTD
Power generation $ 518 $ 602 $ 543 $ 593 $ 2,256
Industrial 215 236 235 255 941
Generator technologies 75   83   78   84   320
Total sales $ 808   $ 921   $ 856   $ 932   $ 3,517
 

High-horsepower unit shipments by engine classification were as follows:

2017            
Units Q1 Q2 Q3 Q4 YTD
Power generation 1,900 — —

—

1,900
Industrial 1,300   —   —  

—

  1,300
Total units 3,200   —   —  

—

  3,200
 
2016
Units Q1 Q2 Q3 Q4 YTD
Power generation 1,800 2,200 2,000 1,900 7,900
Industrial 1,000   1,100   1,000   1,300   4,400
Total units 2,800   3,300   3,000   3,200   12,300

Cummins Inc.
Carole Casto, 317--610-2480
Vice President - Corporate Communications
carole.casto@cummins.com

Source: Cummins Inc.

Released May 2, 2017