Cummins Announces Strong First Quarter Results with Revenue Growth of 16 Percent and EBIT Increasing 24 Percent

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COLUMBUS, Ind.--(BUSINESS WIRE)-- Cummins Inc. (NYSE: CMI) today reported strong sales and profits for the first quarter of 2012.

First quarter revenue of $4.5 billion increased 16 percent from the same quarter in 2011. The increase year-over-year was driven by higher demand in truck, power generation and construction markets in North America and strong growth in global mining markets. Growth in these markets offset weaker demand in the truck market in Brazil, the construction market in China and construction and power generation markets in Europe.

Earnings before interest and taxes (EBIT) was $658 million or 14.7 percent of sales compared to $532 million or 13.8 percent of sales in the first quarter of 2011. EBIT increased by 24 percent, continuing the company’s trend of growing earnings faster than sales.

Net income attributable to Cummins in the first quarter of 2012 was $455 million ($2.38 per diluted share) compared to $343 million in the same period a year ago ($1.75 per diluted share).

“Cummins continues to benefit from its geographic diversification and its leadership position in a number of end markets as evidenced by our very strong first quarter results,” said Tom Linebarger, Chairman and Chief Executive Officer. “Revenues in North America grew 40 percent in the first quarter, offsetting near-term softness in some emerging markets. I am delighted that through close coordination with our key OEM partners and strong execution from our manufacturing and supply chain teams, we have been able to quickly increase our production in North America to meet strong demand for our products.”

Based on the current forecast, Cummins reaffirms that total Company revenues are expected to increase 10 percent in 2012, with EBIT in the range of 14.5 to 15 percent of sales.

Other recent highlights:

  • Cummins announced at the Mid-America Truck Show in March that it has commenced development of a new 15-liter spark-ignited natural gas engine for the U.S. heavy-duty truck market.
  • Also at the Mid-America Truck Show, Cummins unveiled its product solutions that will allow the Company’s engines for U.S. truck customers to meet 2014 fuel efficiency and green house gas standards in 2013.
  • Cummins announced plans to develop a new master site for its operations in Brazil.
  • For the fifth consecutive year, Cummins has been named one of the world's most ethical companies by The Ethisphere Institute.

First quarter detail (all comparisons to same period in 2011)

Engine Segment

  • Sales – $2.9 billion, up 20 percent
  • Segment EBIT – $381 million, or 13.3 percent of sales, compared to $290 million or 12.1 percent of sales
  • Improved demand in North American heavy duty truck, medium duty truck and light duty truck and construction markets offsetting lower sales to the China construction and Brazilian truck markets
  • Strong demand for mining engines globally

Components

  • Sales - $1.1 billion, an increase of 19 percent
  • Segment EBIT - $143 million, or 13.0 percent of sales, compared to $105 million or 11.4 percent of sales
  • Record quarter driven by increased demand in North America and Brazil more than offsetting lower demand in Europe and China

Power Generation

  • Sales – $780 million, down 2 percent
  • Segment EBIT – $76 million, or 9.7 percent of sales, compared to $89 million or 11.2 percent of sales
  • Improved demand in North America and Brazil offsetting lower revenues in the Middle East and Europe

Distribution

  • Sales – $775 million, up 21 percent
  • Segment EBIT – $94 million, or 12.1 percent of sales, compared to $89 million or 13.9 percent of sales
  • Revenue increase driven by strong growth in Asia Pacific region, North and Central America, Europe and Africa

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 employs approximately 44,000 people worldwide and serves customers in approximately 190 countries and territories through a network of more than 600 company-owned and independent distributor locations and approximately 6,500 dealer locations. Cummins earned $1.85 billion on sales of $18.0 billion in 2011. Press releases can be found on the Web at www.cummins.com.

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, expectations, hopes, beliefs and intentions on strategies regarding the future. 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 2011 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 1, December 31, March 27,
In millions, except per share amounts 2012 2011 2011
NET SALES $ 4,472 $ 4,921 $ 3,860
Cost of sales   3,274   3,680   2,903
GROSS MARGIN 1,198 1,241 957
 
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 475 496 389
Research, development and engineering expenses 181 179 129
Equity, royalty and interest income from investees (Note 1) 104 101 96
Gain on sale of business - 53 -
Other operating income (expense), net   2   25   (6)
OPERATING INCOME 648 745 529
 
Interest income 8 9 6
Interest expense 8 10 10
Other income (expense), net   2   14   (3)
INCOME BEFORE INCOME TAXES 650 758 522
 
Income tax expense (Note 2)   175   186   157
CONSOLIDATED NET INCOME 475 572 365
 
Less: Net income attributable to noncontrolling interests   20   24   22
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 455 $ 548 $ 343
 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

Basic $ 2.39 $ 2.87 $ 1.75
Diluted $ 2.38 $ 2.86 $ 1.75
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 190.4 190.9 195.5
Diluted 190.8 191.5 196.1
 
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.40 $ 0.40 $ 0.2625
 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America (GAAP).

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
             
In millions, except par value April 1, 2012 December 31, 2011
ASSETS
Current assets
Cash and cash equivalents $ 1,317 $ 1,484
Marketable securities   252   277
Total cash, cash equivalents and marketable securities 1,569 1,761
Accounts and notes receivable, net 2,684 2,526
Inventories 2,382 2,141
Prepaid expenses and other current assets   682   663
Total current assets   7,317   7,091
Long-term assets
Property, plant and equipment 5,416 5,245
Accumulated depreciation   (3,025)   (2,957)
Property, plant and equipment, net   2,391   2,288
Investments and advances related to equity method investees 903 838
Goodwill 342 339
Other intangible assets, net 250 227
Other assets   916   885
Total assets $ 12,119 $ 11,668
 
LIABILITIES
Current liabilities
Loans payable $ 33 $ 28
Accounts payable (principally trade) 1,731 1,546
Current portion of accrued product warranty 418 422
Accrued compensation, benefits and retirement costs 289 511
Deferred revenue 211 208
Taxes payable (including taxes on income) 297 282
Other accrued expenses   651   660
Total current liabilities   3,630   3,657
Long-term liabilities
Long-term debt 650 658
Pensions 157 205
Postretirement benefits other than pensions 428 432
Other liabilities and deferred revenue   896   885
Total liabilities   5,761   5,837
 
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.2 shares issued 2,017 2,001
Retained earnings 6,416 6,038
Treasury stock, at cost, 30.2 and 30.2 shares (1,590) (1,587)
Common stock held by employee benefits trust, at cost, 1.7 and 1.8 shares (20) (22)
Accumulated other comprehensive loss
Defined benefit postretirement plans (713) (724)
Other   (100)   (214)
Total accumulated other comprehensive loss   (813)   (938)
Total Cummins Inc. shareholders’ equity 6,010 5,492
Noncontrolling interests   348   339
Total equity   6,358   5,831
Total liabilities and equity $ 12,119 $ 11,668
 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America (GAAP).

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
       
Three months ended
In millions April 1, 2012 March 27, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 475 $ 365
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization 85 79
Deferred income taxes (27) 21
Equity in income of investees, net of dividends (59) (62)
Pension contributions in excess of expense (27) (24)
Other post-retirement benefits payments in excess of expense (4) (5)
Stock-based compensation expense 7 5
Excess tax benefits on stock-based awards (11) (2)
Translation and hedging activities 10 4
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable (135) (306)
Inventories (209) (210)
Other current assets (28) (2)
Accounts payable 148 251
Accrued expenses (196) (28)
Changes in other liabilities and deferred revenue 29 24
Other, net   (37)   (22)
Net cash provided by operating activities   21   88
 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (126) (91)
Investments in internal use software (16) (10)
Investments in and advances to equity investees (5) (21)
Acquisition of businesses, net of cash acquired (5) -
Investments in marketable securities—acquisitions (146) (101)
Investments in marketable securities—liquidations 184 134
Cash flows from derivatives not designated as hedges 11 4
Other, net   1   7
Net cash used in investing activities   (102)   (78)
 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 12 38
Payments on borrowings and capital lease obligations (38) (45)
Net borrowings (payments) under short-term credit agreements - 1
Distributions to noncontrolling interests (22) (21)
Dividend payments on common stock (77) (51)
Repurchases of common stock (8) (190)
Excess tax benefits on stock-based awards 11 2
Other, net   9   4
Net cash used in financing activities   (113)   (262)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   27   8
Net increase (decrease) in cash and cash equivalents (167) (244)
Cash and cash equivalents at beginning of year   1,484   1,023
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,317 $ 779
 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America (GAAP).

 

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

         

 

In millions Engine Components

Power
Generation

Distribution

Non-segment
Items(1)

Total
Three months ended April 1, 2012
External sales $ 2,412 $ 774 $ 516 $ 770 $ - $ 4,472
Intersegment sales 447 325 264 5 (1,041)   -
  Total sales 2,859 1,099 780 775 (1,041) 4,472
Depreciation and amortization(2) 47 19 11 7 - 84
Research, development and engineering expenses 111 51 18 1 - 181
Equity, royalty and interest income from investees 38 8 10 48 - 104
Interest income 4 1 2 1 - 8
Segment EBIT 381 143 76 94 (36) 658
 
Three months ended December 31, 2011
External sales $ 2,628 $ 781 $ 682 $ 830 $ - $ 4,921
Intersegment sales 433   311   238   4   (986)   -
Total sales 3,061 1,092 920 834 (986) 4,921
Depreciation and amortization(2) 46 18 10 8 - 82
Research, development and engineering expenses 112 49 17 1 - 179
Equity, royalty and interest income from investees 40 7 10 44 - 101
Interest income 4 2 2 1 - 9
Segment EBIT 368 132 87 87 94 768
 
Three months ended March 27, 2011
External sales $ 2,006 $ 660 $ 557 $ 637 $ - $ 3,860
Intersegment sales 385 264 238 5 (892)   -
Total sales 2,391 924 795 642 (892) 3,860
Depreciation and amortization(2) 45 18 10 6 - 79
Research, development and engineering expenses 80 37 11 1 - 129
Equity, royalty and interest income from investees 42 8 8 38 - 96
Interest income 3 1 1 1 - 6
Segment EBIT 290 105 89 89 (41) 532
 
(1)   Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three month periods ended April 1, 2012 and March 27, 2011. For the three months ended December 31, 2011, unallocated corporate expenses include a $53 million gain ($33 million after-tax) recorded for the sale of certain assets and liabilities of our light-duty filtration business from our Components segment and a $38 million gain ($24 million after-tax) related to flood damage recoveries from the insurance settlement regarding a June 2008 flood in Southern Indiana.
(2)

Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount that is included in the Condensed Consolidated Statements of Income as “Interest expense.”

 

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
April 1,   December 31,   March 27,
In millions 2012 2011 2011
Segment EBIT $ 658 $ 768 $ 532
Less
Interest expense   8   10   10
Income before income taxes $ 650 $ 758 $ 522
 

CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)

NOTE 1. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

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

    Three months ended
April 1,   December 31,   March 27,
In millions 2012 2011 2011
Distribution Entities
North American distributors $ 40 $ 34 $ 30
Komatsu Cummins Chile, Ltda. 5 6 4
All other distributors 1 1 1
Manufacturing Entities
Chongqing Cummins Engine Company, Ltd. 18 17 12
Dongfeng Cummins Engine Company, Ltd. 16 16 23
Cummins Westport, Inc. 5 6 1
Tata Cummins, Ltd. 4 5 4
Shanghai Fleetguard Filter Co., Ltd. 3 3 4
Valvoline Cummins, Ltd. 2 1 2
Komatsu manufacturing alliances (1) 2 2
Beijing Foton Cummins Engine Co., Ltd. (2) (2) (2)
All other manufacturers   1   2   6
Cummins share of net income 92 91 87
Royalty and interest income   12   10   9
Equity, royalty and interest income from investees $ 104 $ 101 $ 96
 

NOTE 2. INCOME TAXES

Our effective tax rate for the year is expected to approximate 27 percent, absent any discrete period activity. Our tax rate is generally less than the 35 percent U.S. statutory income tax rate primarily due to lower tax rates on foreign income. The tax rate for the three month period ended April 1, 2012, was 27 percent.

Our effective tax rate for the three months ended March 27, 2011, was 30 percent. The decrease in the 2012 effective tax rate compared to 2011 is due primarily to our assertion that income earned after 2011 by our China operations is permanently reinvested, as well as certain tax planning strategies implemented in our U.K. subsidiaries.

CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)

Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding special items

We believe this is a useful measure of our operating performance for the period presented as it illustrates our operating performance without regard to special items including the gains related to the sale of certain assets and liabilities and flood insurance recovery. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America and may not be consistent with measures used by other companies. It should be considered supplemental data. The following table reconciles net income attributable to Cummins Inc. to net income attributable to Cummins Inc. excluding special items for the quarters ended April 1, 2012, December 31, 2011 and March 27, 2011.

        Three months ended
April 1, 2012   December 31, 2011   March 27, 2011
In millions Net Income   Diluted EPS Net Income   Diluted EPS Net Income   Diluted EPS
Net income attributable to Cummins Inc. $ 455 $ 2.38 $ 548 $ 2.86 $ 343 $ 1.75
Subtract
Gain on sale of business (1) - - 33 0.17 - -
Flood insurance recovery (1) - - 24 0.13 - -
                       

Net income attributable to Cummins Inc. excluding special items

$ 455 $ 2.38 $ 491 $ 2.56 $ 343 $ 1.75
 

(1)The gains have been excluded from operating results as they were not considered in our evaluation of performance for the quarter ended December 31, 2011.

CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)

Earnings before interest expense, taxes and noncontrolling interests

We define EBIT as earnings or loss before interest expense, income tax expense and noncontrolling interests in income of consolidated subsidiaries (EBIT). We use EBIT to assess and measure the performance of our operating segments and also as a component in measuring our variable compensation programs. Below is a reconciliation of EBIT, a non-GAAP financial measure, to “Net income attributable to Cummins Inc.,” for each of the applicable periods:

        Three months ended
April 1,   December 31,   March 27,
In millions 2012 2011 2011

Earnings before interest expense, income taxes and special items

$ 658 $ 677 $ 532
 

Earnings before interest expense, income taxes and special items as a percentage of net sales

14.7% 13.8% 13.8%
 
Add
Gain on sale of business - 53 -
Flood insurance recovery   -   38   -
 
Earnings before interest expense and income taxes $ 658 $ 768 $ 532
 
EBIT as a percentage of net sales 14.7% 15.6% 13.8%
 
Less
Interest expense 8 10 10
Income tax expense   175   186   157
Consolidated net income   475   572   365
 
Less
Net income attributable to noncontrolling interests   20   24   22
Net income attributable to Cummins Inc. $ 455 $ 548 $ 343
 

Net income attributable to Cummins Inc. as a percentage of net sales

10.2% 11.1% 8.9%
 

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

Engine segment net sales by market

2012          
In millions Q1 Q2 Q3 Q4 YTD
Heavy-duty truck $ 892 $ - $ - $ - $ 892
Medium-duty truck and bus 526 - - - 526
Light-duty automotive and RV 286 - - - 286
Industrial 861 - - - 861
Stationary power   294   -   -   -   294
  Total sales $ 2,859 $ - $ - $ - $ 2,859
 
2011
In millions Q1 Q2 Q3 Q4 YTD
Heavy-duty truck $ 485 $ 693 $ 748 $ 865 $ 2,791
Medium-duty truck and bus 474 608 640 598 2,320
Light-duty automotive and RV 296 310 271 299 1,176
Industrial 855 988 977 1,030 3,850
Stationary power   281   301   319   269   1,170
Total sales $ 2,391 $ 2,900 $ 2,955 $ 3,061 $ 11,307
 

Unit shipments by engine classification (including unit shipments to Power Generation)

2012          
Units Q1 Q2 Q3 Q4 YTD
Midrange 109,000 - - - 109,000
Heavy-duty 36,000 - - - 36,000
High-horsepower 5,500 - - - 5,500
  Total units 150,500 - - - 150,500
 
2011
Units Q1 Q2 Q3 Q4 YTD
Midrange 109,400 131,300 130,600 138,100 509,400
Heavy-duty 20,000 29,900 31,100 35,300 116,300
High-horsepower 4,900 5,700 5,600 5,400 21,600
Total units 134,300 166,900 167,300 178,800 647,300
 

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

Component segment sales by business

2012          
In millions Q1 Q2 Q3 Q4 YTD
Emission solutions $ 404 $ - $ - $ - $ 404
Turbo technologies 298 - - - 298
Filtration 270 - - - 270
Fuel systems   127   -   -   -   127
  Total sales $ 1,099 $ - $ - $ - $ 1,099
 
2011
In millions Q1 Q2 Q3 Q4 YTD
Emission solutions $ 273 $ 311 $ 306 $ 372 $ 1,262
Turbo technologies 297 314 298 314 1,223
Filtration 255 287 288 283 1,113
Fuel systems   99   120   123   123   465
Total sales $ 924 $ 1,032 $ 1,015 $ 1,092 $ 4,063
 

In the first quarter of 2012, our Power Generation segment reorganized its reporting structure to include the following businesses: power products, power systems, generator technologies and power solutions. Sales for our Power Generation segment by business (including 2011 and 2010 reorganized balances) were as follows:

2012          
In millions Q1 Q2 Q3 Q4 YTD
Power products $ 375 $ - $ - $ - $ 375
Power systems 188 - - - 188
Generator technologies 141 - - - 141
Power solutions   76   -   -   -   76
  Total sales $ 780 $ - $ - $ - $ 780
 
2011
In millions Q1 Q2 Q3 Q4 YTD
Power products $ 377 $ 415 $ 433 $ 411 $ 1,636
Power systems 189 210 188 228 815
Generator technologies 154 189 166 164 673
Power solutions   75   95   87   117   374
Total sales $ 795 $ 909 $ 874 $ 920 $ 3,498
 
2010
In millions YTD
Power products $ 1,465
Power systems 616
Generator technologies 550
Power solutions   288
Total sales $ 2,919

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

Distribution segment sales by product

2012          
In millions Q1 Q2 Q3 Q4 YTD
Parts and filtration $ 288 $ - $ - $ - $ 288
Power generation 186 - - - 186
Engines 166 - - - 166
Service   135   -   -   -   135
  Total sales $ 775 $ - $ - $ - $ 775
 
2011
In millions Q1 Q2 Q3 Q4 YTD
Parts and filtration $ 235 $ 271 $ 283 $ 296 $ 1,085
Power generation 145 195 191 191 722
Engines 140 186 171 206 703
Service   122   133   138   141   534
Total sales $ 642 $ 785 $ 783 $ 834 $ 3,044

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

Source: Cummins Inc.

Released May 1, 2012