Cummins Reports Solid Profit and Strong Cash Flow in Second Quarter Despite Continued Global Recession
-- Company Reaffirms Its Sales and Profit Guidance for 2009 --
COLUMBUS, Ind.--(BUSINESS WIRE)-- Cummins Inc. (NYSE: CMI) today reported lower sales and profit in the second quarter 2009 compared to its record performance during the same period in 2008 as the global recession continued to dampen demand around the world. Compared to the first quarter, the Company increased its profit and improved cash flow on essentially flat sales, as a result of its ongoing efforts to reduce costs and align manufacturing capacity to the lower demand.
Sales for the quarter were $2.43 billion, 37 percent lower than $3.89 billion in the second quarter of 2008. Earnings Before Interest and Taxes were $109 million, or 4.5 percent of sales, compared to $469 million, or 12.1 percent of sales, in the second quarter 2008. Net income attributable to Cummins Inc. was $56 million, or $0.28 a share, down from $293 million, or $1.49 a share, a year ago.
The second quarter results include a $7 million charge associated with the cost of job-reduction actions taken at several Company manufacturing facilities during the quarter. Excluding the charge, EBIT was $116 million, or 4.8 percent of sales, and net income attributable to Cummins Inc. was $60 million, or $0.30 a share.
"The economic climate continues to be extremely challenging, and we are managing our business under the assumption that we won't see any recovery in our markets in 2009," said Cummins Chairman and Chief Executive Officer Tim Solso. "Still, our aggressive efforts to reduce costs and align manufacturing capacity with demand have allowed us to perform well under the circumstances and to position ourselves to emerge from the downturn an even stronger company."
The decline in profitability was primarily due to the sharply lower volumes. The Engine and Components segments continue to see the most severe reductions in demand, while the pace of the sales decline in the Power Generation segment increased rapidly in the quarter. Profitability in all three segments was significantly affected by the lower volumes.
Despite significant weakness in almost all end-markets and geographic regions, the Company improved its profitability from the first quarter, which - along with a significant reduction in inventory - contributed to the positive cash flow of $181 million in the quarter.
The Company continued to make capital expenditures on the most critical projects, especially those associated with the launch of new emission-compliant products in 2010 and with fuel economy improvements.
"Cash management remains a top priority for the Company this year," said Pat Ward, Chief Financial Officer. "And, despite the challenging economic conditions, the Company generated significant positive cash flow and did not need to use any of its $1.1 billion credit facility."
At the end of the second quarter the Company had $534 million in available cash and cash equivalents, compared to $353 million at the end of the first quarter and $426 million at the beginning of 2009.
Based on the second quarter results and Company forecasts for the remainder of the year, Cummins today reaffirmed its sales and profit guidance for 2009. The Company still expects 2009 sales to be slightly more than 30 percent lower than 2008 and anticipates EBIT of 5 percent of sales for the year, excluding the restructuring charges.
Second quarter details (all comparisons are to same period in 2008)
Engine Segment
-- Sales - $1.31 billion, down 45 percent
-- Segment EBIT - $4 million loss (negative 0.3 percent of sales), compared
to a $221 million profit (9.3 percent of sales)
-- Heavy-duty sales down 41 percent; medium-duty down 43 percent;
light-duty/RV down 54 percent; industrial down 45 percent
-- Sales declined sharply in nearly every geographic market due to the
global recession
Power Generation
-- Sales - $610 million, down 35 percent
-- Segment EBIT - $41 million (6.7 percent of sales), down 64 percent from
$115 million (12.3 percent of sales)
-- Commercial product sales down 35 percent; commercial projects down 59
percent; Consumer products down 48 percent; Alternators down 24 percent
-- Commercial markets most affected by economic slowdown in Europe, Middle
East and Latin America; Consumer decline led by continued weakness in
the North American marine and RV markets
Components
-- Sales - $502 million, down 41 percent
-- Segment EBIT - $10 million loss (negative 2.0 percent of sales),
compared to a $77 million profit (9.0 percent of sales)
-- Turbochargers down 50 percent; Filtration down 37 percent; Emission
Solutions down 22 percent; Fuel Systems down 54 percent
-- Sales and profit decline driven primarily by large volume drop from OEM
customers in North America and Europe
Distribution
-- Sales - $463 million, down 20 percent
-- Segment EBIT - $55 million (11.9 percent of sales), down 19 percent from
$68 million (11.7 percent of sales)
-- Unfavorable foreign currency movements had a significant impact on sales
- 9 percentage points
-- Improved Segment EBIT margin from 7 percent increase in joint venture
earnings
Joint Ventures
-- Total income - $57 million, down 17 percent from second quarter 2008,
but up $24 million (73 percent) from the first quarter 2009
-- Engine JV income down $15 million (47 percent) primarily as a result of
large demand declines in on-highway markets in China
-- All other segment JVs reported flat or modestly higher profits compared
to second quarter 2008
Presentation of Non-GAAP Financial Information
EBIT and Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding restructuring charges are non-GAAP measure 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. Cummins reported net income of $755 million on sales of $14.3 billion in 2008. 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
June 28, March 29, June 29,
In millions (except per share amounts) 2009 2009 2008
NET SALES $ 2,431 $ 2,439 $ 3,887
Cost of sales 1,983 1,994 3,008
GROSS MARGIN 448 445 879
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 287 300 370
Research, development and engineering 79 85 104
expenses
Equity, royalty and interest income from 57 33 69
investees
Restructuring charges 7 66
Other operating (expense) income, net (11 ) 2 (6 )
OPERATING INCOME 121 29 468
Interest income 1 2 4
Interest expense 10 7 12
Other (expense) income, net (13 ) (3 ) (3 )
INCOME BEFORE INCOME TAXES 99 21 457
Income tax expense 29 7 147
NET INCOME 70 14 310
Less: net income attributable to 14 7 17
noncontrolling interests
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 56 $ 7 $ 293
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO
CUMMINS INC.
Basic $ 0.28 $ 0.04 $ 1.50
Diluted $ 0.28 $ 0.04 $ 1.49
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 197.1 196.8 195.2
Diluted 197.4 197.0 196.6
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.175 $ 0.175 $ 0.125
(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 INCOME
(Unaudited) (a)
Six months ended
June 28, June 29,
In millions (except per share amounts) 2009 2008
NET SALES $ 4,870 $ 7,361
Cost of sales 3,977 5,775
GROSS MARGIN 893 1,586
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 587 721
Research, development and engineering expenses 164 207
Equity, royalty and interest income from investees 90 136
Restructuring charges 73
Other operating (expense) income, net (9 ) (7 )
OPERATING INCOME 150 787
Interest income 3 10
Interest expense 17 23
Other (expense) income, net (16 ) (13 )
INCOME BEFORE INCOME TAXES 120 761
Income tax expense 36 249
NET INCOME 84 512
Less: net income attributable to noncontrolling interests 21 29
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 63 $ 483
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic $ 0.32 $ 2.47
Diluted $ 0.32 $ 2.46
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 197.0 195.1
Diluted 197.2 196.5
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.35 $ 0.25
(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)
June 28, December 31,
In millions (except par value) 2009 2008
ASSETS
Current assets
Cash and cash equivalents $ 534 $ 426
Marketable securities 17 77
Accounts and notes receivable, net 1,725 1,782
Inventories 1,535 1,783
Deferred income taxes 364 347
Prepaid expenses and other current assets 198 298
Total current assets 4,373 4,713
Long-term assets
Property, plant and equipment 4,681 4,539
Accumulated depreciation (2,821 ) (2,698 )
Property, plant and equipment, net 1,860 1,841
Investments and advances related to equity method 527 588
investees
Goodwill 362 362
Other intangible assets, net 241 223
Deferred income taxes 499 491
Other assets 259 301
Total assets $ 8,121 $ 8,519
LIABILITIES
Current liabilities
Current portion of long-term debt and loans payable $ 63 $ 69
Accounts payable (principally trade) 773 1,009
Current portion of accrued product warranty 373 434
Accrued compensation, benefits and retirement costs 283 364
Other accrued expenses 622 763
Total current liabilities 2,114 2,639
Long-term liabilities
Long-term debt 617 629
Pensions 561 574
Postretirement benefits other than pensions 442 452
Other liabilities and deferred revenue 792 745
Total liabilities 4,526 5,039
EQUITY
Cummins Inc. shareholders' equity
Common stock, $2.50 par value, 500 shares authorized, 1,796 1,793
222.1 and 221.7 shares issued
Retained earnings 3,280 3,288
Treasury stock, at cost, 20.3 and 20.4 shares (714 ) (715 )
Common stock held by employee benefits trust, at cost, (58 ) (61 )
4.8 and 5.1 shares
Unearned compensation (1 ) (5 )
Accumulated other comprehensive loss
Defined benefit postretirement plans (794 ) (798 )
Other (137 ) (268 )
Total accumulated other comprehensive loss (931 ) (1,066 )
Total Cummins Inc. shareholders' equity 3,372 3,234
Noncontrolling interests 223 246
Total equity 3,595 3,480
Total liabilities and equity $ 8,121 $ 8,519
(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)
Six months ended
June 28, June 29,
In millions 2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 84 $ 512
Adjustments to reconcile net income to net cash provided
by operating activities:
Restructuring charges, net of cash payments 20
Depreciation and amortization 154 158
Deferred income taxes 20 14
Equity in income of investees, net of dividends 60 (62 )
Pension expense, net of pension contributions (15 ) (3 )
Other post-retirement benefits expense, net of cash (16 ) (5 )
payments
Stock-based compensation expense 12 17
Excess tax deficiencies (benefits) on stock-based awards 2 (12 )
Translation and hedging activities 51 8
Changes in current assets and liabilities, net of
acquisitions and dispositions:
Accounts and notes receivable 86 (316 )
Inventories 282 (202 )
Other current assets 22 (16 )
Accounts payable (253 ) 172
Accrued expenses (242 ) 102
Changes in long-term liabilities 73 47
Other, net (19 ) (8 )
Net cash provided by operating activities 321 406
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (139 ) (201 )
Investments in internal use software (19 ) (36 )
Proceeds from disposals of property, plant and equipment 7 10
Investments in and advances (to) from equity investees 1 (41 )
Acquisition of businesses, net of cash acquired (2 ) (76 )
Investments in marketable securities--acquisitions (69 ) (158 )
Investments in marketable securities--liquidations 133 159
Cash flows from derivatives not designated as hedges (21 ) (18 )
Other, net 5
Net cash used in investing activities (109 ) (356 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 10 77
Payments on borrowings and capital lease obligations (44 ) (101 )
Net borrowings under short-term credit agreements (5 ) 1
Distributions to noncontrolling interests (10 ) (6 )
Dividend payments on common stock (71 ) (51 )
Repurchases of common stock (45 )
Excess tax (deficiencies) benefits on stock-based awards (2 ) 12
Other, net 3 2
Net cash used in financing activities (119 ) (111 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH 15 6
EQUIVALENTS
Net increase (decrease) in cash and cash equivalents 108 (55 )
Cash and cash equivalents at beginning of year 426 577
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 534 $ 522
(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 June
28, 2009
External $ 1,133 $ 481 $ 355 $ 462 $ -- $ 2,431
sales
Intersegment 173 129 147 1 (450 )
sales
Total sales 1,306 610 502 463 (450 ) 2,431
Depreciation
and 45 11 17 4 -- 77
amortization
(2)
Research,
development
and 51 8 20 -- 79
engineering
expense
Equity,
royalty and
interest 17 6 4 30 -- 57
income from
investees
Restructuring 7 7
charges
Interest 1 1
income
Segment EBIT (4 ) 41 (10 ) 55 27 109
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
(loss) income
from
investees
Restructuring 66 66
charges
Interest 1 1 2
income
Segment EBIT (16 ) 69 1 58 (84 ) 28
Three months
ended June
29, 2008
External $ 2,030 $ 692 $ 584 $ 581 $ -- $ 3,887
sales
Intersegment 356 246 271 (873 )
sales
Total sales 2,386 938 855 581 (873 ) 3,887
Depreciation
and 46 11 18 7 82
amortization
(2)
Research,
development
and 70 10 24 104
engineering
expense
Equity,
royalty and
interest 32 6 3 28 -- 69
income from
investees
Interest 2 1 1 -- 4
income
Segment EBIT 221 115 77 68 (12 ) 469
Six months
ended June
28, 2009
External $ 2,338 $ 958 $ 701 $ 873 $ $ 4,870
sales
Intersegment 460 309 331 3 (1,103 )
sales
Total sales 2,798 1,267 1,032 876 (1,103 ) 4,870
Depreciation
and 86 22 35 9 152
amortization
(2)
Research,
development
and 109 16 39 164
engineering
expense
Equity,
royalty and
interest 14 11 5 60 90
income from
investees
Restructuring 73 73
charges
Interest 1 1 1 3
income
Segment EBIT (20 ) 110 (9 ) 113 (57 ) 137
Six months
ended June
29, 2008
External $ 3,915 $ 1,273 $ 1,151 $ 1,022 $ -- $ 7,361
sales
Intersegment 680 452 524 4 (1,660 )
sales
Total sales 4,595 1,725 1,675 1,026 (1,660 ) 7,361
Depreciation
and 90 22 33 11 156
amortization
(2)
Research,
development
and 140 20 47 207
engineering
expense
Equity,
royalty and
interest 65 11 7 53 136
income from
investees
Interest 5 2 2 1 10
income
Segment EBIT 415 193 114 117 (55 ) 784
(1) Includes intersegment sales and profit in inventory eliminations and unallocated
corporate expenses. For the three and six months ended June 28, 2009, unallocated
corporate expenses included restructuring charges of $7 million and $73 million and
losses of $9 million and $3 million related to flood damages. For the three months
ended March 29, 2009, unallocated corporate expenses include restructuring charges
of $66 million and a $6 million gain related to flood damage insurance recoveries.
For both the three and six months ended June 29, 2008, unallocated corporate
expenses included losses of $6 million related to flood damages.
(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 Six months ended
June 28, March 29, June 29, June 28, June 29,
In millions 2009 2009 2008 2009 2008
Segment EBIT $ 109 $ 28 $ 469 $ 137 $ 784
Less:
Interest expense 10 7 12 17 23
Income before income taxes $ 99 $ 21 $ 457 $ 120 $ 761
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)
Earnings before interest, taxes, noncontrolling interests and restructuring
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 consolidated net income
attributable to Cummins Inc., for each of the applicable periods:
Three months ended Six months ended
June 28, March 29, June 29, June 28, June 29,
In millions 2009 2009 2008 2009 2008
Earnings before
interest expense, $ 116 $ 94 $ 469 $ 210 $ 784
income taxes and
restructuring charges
Earnings before
interest expense,
income taxes and 4.8 % 3.9 % 12.1 % 4.3 % 10.7 %
restructuring charges
as a percentage of net
sales
Less:
Restructuring charges 7 66 73
Earnings before
interest and income $ 109 $ 28 $ 469 $ 137 $ 784
taxes
EBIT as a percentage of 4.5 % 1.1 % 12.1 % 2.8 % 10.7 %
net sales
Less:
Interest expense 10 7 12 17 23
Income tax expense 29 7 147 36 249
Net income 70 14 310 84 512
Less:
Net income attributable
to noncontrolling 14 7 17 21 29
interests
Net income attributable $ 56 $ 7 $ 293 $ 63 $ 483
to Cummins Inc.
Net income attributable
to Cummins Inc. as a 2.3 % 0.3 % 7.5 % 1.3 % 6.6 %
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 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.
Three months ended Six months ended
June 28, 2009 June 28, 2009
In millions Net Income Diluted EPS Net Income Diluted EPS
Net income attributable to
Cummins Inc. excluding $ 60 $ 0.30 $ 111 $ 0.56
restructuring charges
Less:
Restructuring charges, net(1) 4 0.02 48 0.24
Net income attributable to $ 56 $ 0.28 $ 63 $ 0.32
Cummins Inc.
(1) During the three and six months ended June 28, 2009, management approved
and committed to undertake certain restructuring actions, which resulted in a
pretax charge of $7 and $73 million, respectively. These charges included
employee-related liabilities for severance and benefits of approximately $8
million and $68 million and exit costs of approximately zero and $6 million,
respectively.
SUPPLEMENTAL INFORMATION
In 2009, the Power Generation segment reorganized its reporting structure to
include the following businesses: Commercial Products, Alternators, Commercial
Projects, Power Electronics and Consumer. Sales by quarter for our Power
Generation segment by business for the years 2008 and 2007 were as follows:
2008 Three months ended Year ended
In millions March 30, June 29, 2008 September 28, December 31, December 31,
2008 2008 2008 2008
Commercial $ 444 $ 555 $ 559 $ 558 $ 2,116
Products
Alternator 156 178 174 178 686
Commercial 86 111 63 68 328
Projects
Power 27 31 35 39 132
Electronics
Consumer 74 63 57 44 238
Total sales $ 787 $ 938 $ 888 $ 887 $ 3,500
2007 Three months ended Year ended
In millions April 1, July 1, 2007 September 30, December 31, December 31,
2007 2007 2007 2007
Commercial $ 383 $ 448 $ 449 $ 481 $ 1,761
Products
Alternator 132 156 163 172 623
Commercial 45 44 49 81 219
Projects
Power 26 26 28 28 108
Electronics
Consumer 89 95 87 78 349
Total sales $ 675 $ 769 $ 776 $ 840 $ 3,060
Sales
In millions Q1 Q2 Q3 Q4 YTD
2009
Engine Business
Heavy-Duty 394 395 789
Truck
Medium Duty 229 240 469
Truck+Bus
Light Duty 156 94 250
Auto+RV
Industrial 467 440 907
Stationary 246 137 383
Power
TOTAL ENGINE 1,492 1,306 2,798
BUSINESS
Power Generation 657 610 1,267
Components 530 502 1,032
Distributors 413 463 876
Eliminations (653 ) (450 ) (1,103 )
TOTAL 2,439 2,431 4,870
2008
Engine Business
Heavy-Duty 536 672 630 470 2,308
Truck
Medium Duty 397 422 406 325 1,550
Truck+Bus
Light Duty 275 205 170 154 804
Auto+RV
Industrial 733 804 788 704 3,029
Stationary 268 283 285 283 1,119
Power
TOTAL ENGINE 2,209 2,386 2,279 1,936 8,810
BUSINESS
Power Generation 787 938 888 887 3,500
Components 820 855 801 676 3,152
Distributors 445 581 581 557 2,164
Eliminations (787 ) (873 ) (856 ) (768 ) (3,284 )
TOTAL 3,474 3,887 3,693 3,288 14,342
Engine
Shipments
Units Q1 Q2 Q3 Q4 YTD
2009
Midrange 60,600 49,200 109,800
Heavy-duty 16,600 16,400 33,000
High Horsepower 3,900 3,200 7,100
TOTAL 81,100 68,800 149,900
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 Horsepower 4,600 5,500 5,300 5,200 20,600
TOTAL 143,500 152,000 137,100 114,600 547,200
Source: Cummins Inc.
Released July 30, 2009