Cummins Announces Second Quarter Results

• Second quarter revenues of $6.2 billion; GAAP¹ Net Income of $675 million
• Second quarter EBITDA of 17.0 percent of sales; Diluted EPS of $4.27
• Expects full year 2019 revenues to be flat, at the low end of our previous guidance
• The company is maintaining its full year 2019 EBITDA guidance of 16.25 to 16.75 percent

COLUMBUS, Ind.--(BUSINESS WIRE)-- Cummins Inc. (NYSE: CMI) today reported results for the second quarter of 2019.

Second quarter revenues of $6.2 billion increased 1 percent from the same quarter in 2018. Increased truck production in North America and stronger demand in North American power generation markets was partially offset by lower demand in oil and gas and international truck markets. Currency negatively impacted revenues by 2 percent primarily due to a stronger US dollar.

Second quarter sales in North America set a new record and improved by 7 percent while international revenues decreased by 6 percent. Sales in North America increased in all segments except Power Systems, which was negatively impacted by lower demand in oil and gas markets. International revenues declined primarily due to lower truck demand in China, Europe, Brazil, and India.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter were a record $1.1 billion, or 17.0 percent of sales, compared to $897 million or 14.6 percent of sales a year ago. Net income attributable to Cummins in the second quarter was $675 million ($4.27 per diluted share), compared to net income of $545 million ($3.32 per diluted share).

“We achieved record revenues, EBITDA, and operating cash flow in the first half of 2019, extending our track record of raising performance cycle over cycle,” said Chairman and CEO Tom Linebarger. “While we do expect to see a moderation in demand in the second half of the year, our financial strength combined with our diversified geographic and end market exposure will enable us to generate strong profits, continue to invest in future growth, and return cash to shareholders.”

2019 Outlook:

Cummins now expects 2019 revenue to be flat, which places the forecast at the low end of our previous guidance range of flat to 4 percent. This lower outlook is driven by reduced truck demand in international markets, moderating parts demand in North America, and the impact of a stronger US dollar. The company continues to expect EBITDA to be in the range of 16.25 to 16.75 percent of sales and plans to return 75 percent of Operating Cash Flow to shareholders in the form of dividends and share repurchases.

Our outlook does not include any potential impact of the company’s review of its emission certification process and compliance with emissions standards or acquisition of Hydrogenics.

Second Quarter 2019 Highlights:

• The Board of Directors approved a 15 percent increase in the Company's quarterly cash dividend from $1.14 per share to $1.311 per share
• Cummins entered into a definitive agreement to acquire the majority of shares of fuel cell systems provider Hydrogenics Corporation. The agreement is subject to customary closing conditions and Hydrogenics’ shareholder approval
• Cummins and Gillig announced that the GILLIG zero-emission battery electric bus, powered by Cummins, is now available for commercial orders by customers

Second quarter 2019 detail (all comparisons to same period in 2018)

Engine Segment

• Sales - $2.7 billion, flat versus prior year
• Segment EBITDA - $416 million, or 15.4 percent of sales, compared to $362 million or 13.4 percent of sales
• On-highway revenues increased 2 percent and off-highway revenues decreased by 7 percent
• North America revenues increased by 7 percent due to higher demand in on-highway markets while international revenues declined 15 percent primarily due to lower demand in China

Distribution Segment

• Sales - $2.0 billion, up 2 percent
• Segment EBITDA - $172 million, or 8.5 percent of sales, compared to $145 million or 7.3 percent of sales
• Revenues in North America increased by 2 percent and international sales were flat
• Strong demand for power generation equipment in North America, especially data centers, was partially offset by lower demand in oil and gas markets and the unfavorable impact from a stronger US dollar, which impacted sales by 2 percent

Components Segment

• Sales - $1.8 billion, down 2 percent
• Segment EBITDA - $297 million, or 16.1 percent of sales, compared to $237 million or 12.6 percent of sales
• Revenues in North America increased by 5 percent due to higher heavy and medium-duty truck production while international sales declined by 12 percent due to lower demand in Europe, China, and India

Power Systems Segment

• Sales - $1.2 billion, down 3 percent
• Segment EBITDA - $173 million, or 14.4 percent of sales, compared to $186 million or 14.9 percent of sales
• Industrial revenues decreased 11 percent due to lower demand in North America oil and gas and global mining markets while power generation revenues were flat

Electrified Power Segment

• Sales - $8 million
• Segment EBITDA loss - $33 million

About Cummins

Cummins Inc., a global technology leader, is a corporation of complementary business segments designing, manufacturing, distributing and servicing a broad portfolio of power solutions. The company’s products range from diesel and natural gas engines to hybrid and electric platforms, as well as related technologies, including transmissions, battery systems, fuel systems, controls, air handling, filtration, emission solutions, and electrical power generation systems. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 62,600 people committed to powering a more prosperous world through three global corporate responsibility priorities critical to healthy communities: education, environment and equality of opportunity. Cummins serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations, and over 7,600 dealer locations. In 2018, the company earned about $2.1 billion on sales of $23.8 billion. See how Cummins is powering a world that’s Always On by accessing news releases and more information at https://www.cummins.com/always-on. Follow Cummins on Twitter at www.twitter.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 and EBITDA percentage for the full year of 2019. 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: any adverse results of our internal review into our emissions certification process and compliance with emissions standards; a sustained slowdown or significant downturn in our markets; changes in the engine outsourcing practices of significant customers; the development of new technologies that reduce demand for our current products and services; increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emissions standards around the world; product recalls; policy changes in international trade; the United Kingdom's (U.K.) decision to end its membership in the European Union; lower than expected acceptance of new or existing products or services; a slowdown in infrastructure development and/or depressed commodity prices; supply shortages and supplier financial risk, particularly from any of our single-sourced suppliers; exposure to potential security breaches or other disruptions to our information technology systems and data security; a major customer experiencing financial distress; the actions of, and income from, joint ventures and other investees that we do not directly control; our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions; failure to realize expected results from our investment in Eaton Cummins Automated Transmission Technologies joint venture; competitor activity; increasing competition, including increased global competition among our customers in emerging markets; foreign currency exchange rate changes; variability in material and commodity costs; political, economic and other risks from operations in numerous countries; changes in taxation; global legal and ethical compliance costs and risks; aligning our capacity and production with our demand; product liability claims; increasingly stringent environmental laws and regulations; future bans or limitations on the use of diesel-powered products; the price and availability of energy; the performance of our pension plan assets and volatility of discount rates; labor relations; changes in accounting standards; our sales mix of products; protection and validity of our patent and other intellectual property rights; the outcome of pending and future litigation and governmental proceedings; continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and other risks detailed from time to time in our SEC filings, including particularly in the Risk Factors section of our 2018 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. 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 SEC, 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

EBITDA 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 EBITDA 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. ET. 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
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)

Reconciliation of Non GAAP measures - Earnings before interest, income taxes, noncontrolling interests, depreciation and amortization (EBITDA)

We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard for financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors.

EBITDA is not in accordance with, or an alternative for, accounting principles generally accepted in the United States (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data; however, the amounts included in the EBITDA calculation are derived from amounts included in the Condensed Consolidated Statements of Net Income. Below is a reconciliation of “Net income attributable to Cummins Inc.” to EBITDA for each of the applicable periods:

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

We believe these are useful measures of our operating performance for the periods presented as they illustrate our operating performance without regard to other discrete tax adjustments. These measures are not in accordance with, or an alternative for GAAP and may not be consistent with measures used by other companies. This should be considered supplemental data. The following table reconciles net income and diluted EPS attributable to Cummins Inc. to net income and diluted EPS attributable to Cummins Inc. excluding special discrete tax items for the following periods:

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:

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

Distribution Segment Sales by Product Line

Sales for our Distribution segment by product line were as follows: