Cummins Reports Strong First Quarter Profits; Increases Financial Guidance for 2010
-- Strength in emerging markets, operational improvements more than offset
weakness in U.S. on-highway engine markets
-- Company expects to earn 10 percent EBIT margin on $12 billion in sales
in 2010
COLUMBUS, Ind.--(BUSINESS WIRE)-- Cummins Inc. (NYSE: CMI) today reported higher sales and significantly improved profits in the first quarter compared to the same period in 2009. The gains came on the strength of the Company's performance in key international markets, and cost reductions and productivity gains in manufacturing facilities across the Company.
Sales of $2.48 billion rose 2 percent from $2.44 billion in the first quarter in 2009, as growth in the Company's Components and Distribution segments slightly more than offset declines in the Engine and Power Generation segments.
Net income attributable to Cummins Inc. increased to $149 million, or $0.75 a share, from $7 million, or $0.04 a share, during the same period in 2009. Earnings Before Interest and Taxes (EBIT) rose to $266 million, or 10.7 percent of sales, compared to the $94 million, or 3.9 percent of sales a year ago, which excluded restructuring charges.
Compared to the fourth quarter of 2009, sales were down 27 percent due to lower demand in North America, but EBIT remained strong at 10.7 percent of sales, compared to the 11.4 percent reported last quarter, which excluded restructuring charges.
Three of the Company's four business segments reported improved profits compared to the first quarter of 2009, with only the later-cycle Power Generation business reporting a decline.
The Company's operational improvements were most evident in the Engine and Components segments, where gross margins and EBIT improved significantly, while the Distribution segment continued its strong performance.
"Our strength in large developing markets such as China, India and Brazil has given us a significant boost as those economies have continued to recover from the recession more quickly than other regions," said Cummins Chairman and Chief Executive Officer Tim Solso.
"In addition, while demand in the North American on-highway truck markets was very low as we expected due to the implementation of new emissions standards in the U.S. in January 2010, our work during the downturn to reduce costs and improve productivity, largely through our well-established Six Sigma quality program, has allowed us to be much more efficient and to respond quickly to the volatility in demand," Solso added.
Based on the first quarter results and its forecast for the remainder of the year, the Company today increased its sales and EBIT guidance for 2010. The Company now expects sales to be $12 billion and to earn an EBIT margin of 10 percent of sales.
The Company benefited from stronger demand in China, India and Brazil as those countries continue their recovery from the recession in 2009. Demand for trucks, construction, mining and distributed power generation equipment strengthened in all three countries - as well as with European OEM customers that export to China, India and the Middle East, and is expected to continue through 2010.
The Company reported weaker demand in North America with medium-duty truck and bus, and heavy-duty engine shipments declining 80 percent from the same period a year ago - and by approximately 90 percent from the fourth quarter of last year. Demand in the North American on-highway engine markets is expected to remain weak through the end of the second quarter, before gradually improving in the second half of the year.
Joint venture income more than doubled year-over-year to $76 million in the first quarter, largely on increased volume at the Company's engine joint ventures in China and India.
The Company also expects to generate positive cash flow in 2010 and is forecasting capital spending of approximately $400 million for the year, an increase of nearly 30 percent from 2009, to fund projects critical to the Company's long-term growth.
"Our employees worldwide have done outstanding work, which is reflected in our strong first quarter results, but our priorities for the year have not changed," said Tom Linebarger, Cummins President and Chief Operating Officer.
"We remain focused on managing the business conservatively so that we can earn a solid profit for the duration of the global downturn and position the Company for strong profitable growth in all markets as the economy recovers," Linebarger said.
First quarter details (all comparisons are to same period in 2009)
Engine Segment
-- Sales - $1.42 billion, down 5 percent
-- Segment EBIT - $133 million (9.3 percent of sales), compared to a loss
of $16 million
-- Total on-highway sales decreased 13 percent
o Revenues in worldwide heavy-duty truck fell 36 percent; worldwide
medium-duty truck and bus revenues decreased 5 percent; sales to the
light-duty automotive market increased 33 percent on the launch of
2010 model year Dodge Ram pickup
-- Industrial sales increased 24 percent
o Construction sales increased 62 percent; marine engine sales increased
13 percent; mining sales increased 28 percent; oil and gas sales fell
80 percent
Power Generation
-- Sales - $517 million, down 21 percent
-- Segment EBIT - $34 million (6.6 percent of sales), down 51 percent from
$69 million (10.5 percent of sales)
-- Commercial Product sales down 27 percent; Commercial Projects down 21
percent; Generator Technologies down 21 percent; Power Electronics down
13 percent. Consumer sales rose 43 percent.
-- Markets with the largest declines were Western Europe, Middle East,
Africa and North America. The segment saw sales gains in India, China
and Eastern Europe.
Components
-- Sales - $630 million, up 19 percent
-- Segment EBIT - $57 million (9.0 percent of sales), up from $1 million
(0.2 percent of sales)
-- Emission Solutions sales up 30 percent; Turbo Technologies sales up 28
percent; Filtration up 13 percent; Fuel Systems down 4 percent
-- Fuel systems sales decreased mainly as result of demand decline in North
American truck and bus engine markets.
-- Turbo Technologies sales growth led by large increases in volumes in
China and recovery in aftermarket sales.
-- Emission Solutions sales gain driven by higher volumes in North America
as a result of the transition to the EPA 2010 emissions standards.
Distribution
-- Sales - $476 million, up 15 percent
-- Segment EBIT - $72 million (15.1 percent of sales), up 24 percent from
$58 million (14.0 percent of sales). Gain of $12 million on the
acquisition of the Cummins Western Canada distributor contributed to
improved segment EBIT margin.
-- Cummins Western Canada consolidation contributed $54 million in sales.
Largest sales declines by region were in Europe and North and Central
America, excluding Western Canada. Asia Pacific posted largest revenue
gain. Aftermarket growth in most regions more than offset decline in
power generation and engine sales.
Joint Ventures
-- Total income - $76 million, up 130 percent from $33 million
-- Engine JVs accounted for nearly all of the gain from previous year, led
by China and India JVs.
Presentation of Non-GAAP Financial Information
EBIT and EBIT excluding restructuring and other charges and net income attributable to Cummins Inc. are non-GAAP measures used in this release. Each 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.
About Cummins
Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins serves customers in approximately 190 countries and territories through a network of more than 500 company-owned and independent distributor locations and approximately 5,200 dealer locations. The Company reported net income attributable to Cummins Inc. of $428 million on sales of $10.8 billion in 2009. 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 the company's expectations, hopes, beliefs and intentions on strategies regarding the future. It is important to note that the company's 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, general economic, business and financing conditions, labor relations, governmental action, competitor pricing activity, expense volatility and other risks detailed from time to time in Cummins Securities and Exchange Commission filings.
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
Three months ended
March 28, December 31, March 29,
In millions, except per share amounts 2010 2009 2009
NET SALES $ 2,478 $ 3,400 $ 2,439
Cost of sales 1,877 2,627 1,994
GROSS MARGIN 601 773 445
OPERATING EXPENSES AND INCOME
Selling, general and administrative 335 348 300
expenses
Research, development and engineering 92 108 85
expenses
Equity, royalty and interest income 76 67 33
from investees (Note 1)
Restructuring and other charges 4 66
Other operating (expense) income, net (4 ) 5 2
OPERATING INCOME 246 385 29
Interest income 3 3 2
Interest expense 9 9 7
Other income (expense), net (Note 2) 17 (5 ) (3 )
INCOME BEFORE INCOME TAXES 257 374 21
Income tax expense (Note 3) 87 84 7
CONSOLIDATED NET INCOME 170 290 14
Less: net income attributable to 21 20 7
noncontrolling interests
NET INCOME ATTRIBUTABLE TO CUMMINS $ 149 $ 270 $ 7
INC.
EARNINGS PER COMMON SHARE ATTRIBUTABLE
TO CUMMINS INC.
Basic $ 0.75 $ 1.36 $ 0.04
Diluted $ 0.75 $ 1.36 $ 0.04
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 198.4 198.4 196.8
Diluted 198.7 198.7 197.0
CASH DIVIDENDS DECLARED PER COMMON $ 0.175 $ 0.175 $ 0.175
SHARE
(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)
March 28, December 31,
In millions, except par value 2010 2009
ASSETS
Current assets
Cash and cash equivalents $ 885 $ 930
Marketable securities 217 190
Accounts and notes receivable, net 1,727 2,004
Inventories 1,549 1,341
Deferred income taxes 302 295
Prepaid expenses and other current assets 240 243
Total current assets 4,920 5,003
Long-term assets
Property, plant and equipment 4,696 4,765
Accumulated depreciation (2,834 ) (2,879 )
Property, plant and equipment, net 1,862 1,886
Investments and advances related to equity method 638 574
investees
Goodwill 365 364
Other intangible assets, net 239 228
Deferred income taxes 413 436
Other assets 332 325
Total assets $ 8,769 $ 8,816
LIABILITIES
Current liabilities
Loans payable $ 95 $ 37
Accounts payable (principally trade) 1,030 957
Current portion of accrued product warranty 387 426
Accrued compensation, benefits and retirement costs 308 366
Deferred revenue 144 128
Other accrued expenses 522 518
Total current liabilities 2,486 2,432
Long-term liabilities
Long-term debt 640 637
Pensions 406 514
Postretirement benefits other than pensions 466 453
Other liabilities and deferred revenue 719 760
Total liabilities 4,717 4,796
EQUITY
Cummins Inc. shareholders' equity
Common stock, $2.50 par value, 500 shares authorized, 1,862 1,860
221.9 and 222.0 shares issued
Retained earnings 3,689 3,575
Treasury stock, at cost, 21.3 and 20.7 shares (769 ) (731 )
Common stock held by employee benefits trust, at cost, (36 ) (36 )
3.0 and 3.0 shares
Accumulated other comprehensive loss
Defined benefit postretirement plans (794 ) (788 )
Other (161 ) (107 )
Total accumulated other comprehensive loss (955 ) (895 )
Total Cummins Inc. shareholders' equity 3,791 3,773
Noncontrolling interests 261 247
Total equity 4,052 4,020
Total liabilities and equity $ 8,769 $ 8,816
(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
March 28, March 29,
In millions 2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 170 $ 14
Adjustments to reconcile consolidated net income to
net cash provided by operating activities:
Restructuring charges, net of cash payments 48
Depreciation and amortization 79 76
Gain on fair value adjustment for consolidated (12 )
investee
Deferred income tax provision (benefit) 13 (21 )
Equity in income of investees, net of dividends (53 ) 52
Pension expense, net of pension contributions (93 ) 15
Other post-retirement benefits expense, net of cash (1 ) (8 )
payments
Stock-based compensation expense 6 6
Translation and hedging activities (9 ) 19
Changes in current assets and liabilities, net of
acquisitions and divestitures:
Accounts and notes receivable 275 49
Inventories (189 ) 44
Other current assets 3 9
Accounts payable 54 (103 )
Accrued expenses (154 ) (173 )
Changes in long-term liabilities 29 36
Other, net 8 13
Net cash provided by operating activities 126 76
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (47 ) (64 )
Investments in internal use software (17 ) (11 )
Proceeds from disposals of property, plant and 38 6
equipment
Investments in and advances (to) from equity investees (11 ) 5
Acquisition of businesses, net of cash acquired (71 ) (2 )
Investments in marketable securities--acquisitions (133 ) (69 )
Investments in marketable securities--liquidations 108 78
Cash flows from derivatives not designated as hedges (11 ) (33 )
Net cash used in investing activities (144 ) (90 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 70 7
Payments on borrowings and capital lease obligations (20 ) (19 )
Net borrowings under short-term credit agreements 5 4
Distributions to noncontrolling interests (1 ) (9 )
Dividend payments on common stock (35 ) (35 )
Repurchases of common stock (39 )
Other, net 13 (1 )
Net cash used in financing activities (7 ) (53 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH (20 ) (6 )
EQUIVALENTS
Net decrease in cash and cash equivalents (45 ) (73 )
Cash and cash equivalents at beginning of year 930 426
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 885 $ 353
(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)
In millions Engine Power Components Distribution Non-segment Total
Generation items(1)
Three months
ended March
28, 2010
External $ 1,173 $ 378 $ 453 $ 474 $ -- $ 2,478
sales
Intersegment 250 139 177 2 (568 )
sales
Total sales 1,423 517 630 476 (568 ) 2,478
Depreciation
and 41 10 20 7 78
amortization
(2)
Research,
development
and 60 7 25 92
engineering
expense
Equity,
royalty and
interest 35 6 5 30 76
income from
investees
Interest 2 1 3
income
Segment EBIT 133 34 57 72 (30 ) 266
Three months
ended
December 31,
2009
External $ 1,974 $ 477 $ 466 $ 483 $ -- $ 3,400
sales
Intersegment 194 124 266 3 (587 )
sales
Total sales 2,168 601 732 486 (587 ) 3,400
Depreciation
and 50 14 20 3 87
amortization
(2)
Research,
development
and 73 8 27 108
engineering
expense
Equity,
royalty and
interest 24 6 4 33 67
income from
investees
Restructuring
and other 4 4
charges
Interest 1 2 3
income
Segment EBIT 211 34 73 67 (2 ) 383
Three months
ended March
29, 2009
External $ 1,205 $ 477 $ 346 $ 411 $ -- $ 2,439
sales
Intersegment 287 180 184 2 (653 )
sales
Total sales 1,492 657 530 413 (653 ) 2,439
Depreciation
and 41 11 18 5 75
amortization
(2)
Research,
development
and 58 8 19 85
engineering
expense
Equity,
royalty and
interest (3 ) 5 1 30 33
income from
investees
Restructuring
and other 66 66
charges
Interest 1 1 2
income
Segment EBIT (16 ) 69 1 58 (84 ) 28
(1) Includes intersegment sales and profit in inventory eliminations and
unallocated corporate expenses. There were no significant unallocated corporate
expenses for the three months ended March 28, 2010. For the three months ended
December 31, 2009, unallocated corporate expenses included $4 million of
restructuring and other charges and a gain of $7 million related to flood damage
recoveries. For the three months ended March 29, 2009, unallocated corporate
expenses included $66 million of restructuring charges and a $6 million gain
related to flood damage recoveries.
(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."
CUMMINS INC. AND SUBSIDIARIES
RECONCILIATION OF SEGMENT INFORMATION
(Unaudited)
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
March 28, December 31, March 29,
In millions 2010 2009 2009
Segment EBIT $ 266 $ 383 $ 28
Less:
Interest expense 9 9 7
Income before income taxes $ 257 $ 374 $ 21
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)
Earnings before interest, taxes, noncontrolling interests and restructuring and
other charges
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
March 28, December 31, March 29,
In millions 2010 2009 2009
Earnings before interest expense, income
taxes and restructuring and other $ 266 $ 387 $ 94
charges
Earnings before interest expense, income
taxes and restructuring and other 10.7 % 11.4 % 3.9 %
charges as a percentage of sales
Less:
Restructuring and other charges 4 66
Earnings before interest and income $ 266 $ 383 $ 28
taxes
EBIT as a percentage of net sales 10.7 % 11.3 % 1.1 %
Less:
Interest expense 9 9 7
Income tax expense 87 84 7
Consolidated net income 170 290 14
Less:
Net income attributable to 21 20 7
noncontrolling interests
Net income attributable to Cummins Inc. $ 149 $ 270 $ 7
Net income attributable to Cummins Inc. 6.0 % 7.9 % 0.3 %
as a percentage of net sales
CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)
Net income and diluted earnings per share (EPS) attributable to Cummins Inc.
excluding restructuring and other charges
We believe this is a useful measure of our operating performance for the
period presented as it illustrates our operating performance without regard
to restructuring. 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. excluding restructuring and other charges to
"Net income attributable to Cummins Inc." for the three months ended December
31, 2009, and the three months ended March 29, 2009. There were no
restructuring actions taken in the three months ended March 28, 2010.
Three months ended
December 31, 2009 March 29, 2009
In millions Net Diluted Net Diluted
Income EPS Income EPS
Net income attributable to Cummins Inc. $ 272 $ 1.37 $ 51 $ 0.26
excluding restructuring and other charges
Less:
Restructuring and other charges, net(1) 2 0.01 44 0.22
Net income attributable to Cummins Inc. $ 270 $ 1.36 $ 7 $ 0.04
(1) During the three months ended December 31, 2009, and March 29, 2009,
management approved and committed to undertake restructuring actions, which
resulted in pretax charges of $4 million and $66 million, respectively. These
charges included employee-related liabilities for severance and benefits,
exit costs and pension and other postretirement benefit curtailment charges.
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
March 28, December 31, March 29,
In millions 2010 2009 2009
Distribution Entities
North American distributors $ 23 $ 26 $ 26
Komatsu Cummins Chile, Ltda. 3 3 2
All other distributors 1 1 1
Manufacturing Entities
Dongfeng Cummins Engine Company, Ltd. 18 15
Chongqing Cummins Engine Company, Ltd. 10 8 8
Tata Cummins Ltd. 4 3 (2 )
All other manufacturers 10 4 (5 )
Cummins share of net income 69 60 30
Royalty and interest income 7 7 3
Equity, royalty and interest income from $ 76 $ 67 $ 33
investees
NOTE 2. OTHER INCOME (EXPENSE)
Other income (expense) included the
following:
Three months ended
March 28, December 31, March 29,
In millions 2010 2009 2009
Gain on acquisition of Cummins Western $ 12 $ $
Canada
Foreign currency gains (losses) 7 (2 ) (8 )
Other, net (2 ) (3 ) 5
Total other income (expense), net $ 17 $ (5 ) $ (3 )
NOTE 3. INCOME TAXES
Our effective tax rate for the year is expected to approximate 31 percent, absent discrete period activity. Our tax rate is generally less than the 35 percent U.S. income tax rate primarily due to lower tax rates on foreign income. The tax rate for the three month period ended March 28, 2010, was 34 percent and includes a discrete tax charge of $7 million (3 percent) related to the enactment of the "Patient Protection and Affordable Care Act."
Our effective tax rate for March 29, 2009 was 33 percent. This rate is less than the 35 percent U.S. income tax rate primarily due to lower tax rates on foreign income.
Sales
$Millions Q1 Q2 Q3 Q4 YTD
2010
Engine Business
Heavy-Duty 252 252
Truck
Medium Duty 217 217
Truck+Bus
Light Duty 207 207
Auto+RV
Industrial 577 577
Stationary 170 170
Power
TOTAL ENGINE 1,423 1,423
BUSINESS
Power Generation 517 517
Components 630 630
Distributors 476 476
Eliminations (568 ) (568 )
TOTAL 2,478 0 0 0 2,478
2009
Engine Business
Heavy-Duty 394 395 493 714 1,996
Truck
Medium Duty 229 240 294 469 1,232
Truck+Bus
Light Duty 156 94 120 318 688
Auto+RV
Industrial 467 440 407 507 1,821
Stationary 246 137 125 160 668
Power
TOTAL ENGINE 1,492 1,306 1,439 2,168 6,405
BUSINESS
Power Generation 657 610 549 601 2,417
Components 530 502 591 732 2,355
Distributors 413 463 422 486 1,784
Eliminations (653 ) (450 ) (471 ) (587 ) (2,161 )
TOTAL 2,439 2,431 2,530 3,400 10,800
Engine
Shipments
Units Q1 Q2 Q3 Q4 YTD
2010
Midrange 69,100 69,100
Heavy-duty 8,700 8,700
High 3,400 3,400
Horsepower
TOTAL 81,200 0 0 0 81,200
2009
Midrange 60,600 49,200 58,800 100,600 269,200
Heavy-duty 16,600 16,400 20,600 32,300 85,900
High 3,900 3,200 2,600 3,700 13,400
Horsepower
TOTAL 81,100 68,800 82,000 136,600 368,500
2008
Midrange 114,200 114,800 102,400 86,900 418,300
Heavy-duty 24,700 31,700 29,400 22,500 108,300
High 4,600 5,500 5,300 5,200 20,600
Horsepower
TOTAL 143,500 152,000 137,100 114,600 547,200
Source: Cummins Inc.
Released April 27, 2010