Cummins Reports Strong Sales and Profits in First Quarter
-- Company increases full-year guidance; now expects to earn 14% EBIT on
$17 billion in sales
COLUMBUS, Ind.--(BUSINESS WIRE)-- Cummins Inc. (NYSE: CMI) today reported sharply higher sales and earnings compared to the first quarter of 2010 on continued strength in key international markets, a recovering North American truck market and productivity improvements.
First quarter sales of $3.9 billion were up 56 percent from $2.5 billion in the same period in 2010. Earnings before interest and taxes (EBIT) were $532 million or 13.8 percent of sales, double the Company's earnings from the same period a year ago. EBIT as a percentage of sales in the first quarter was at its highest level in at least 25 years.
Net income attributable to Cummins Inc. was $343 million ($1.75 per share) compared to $149 million (75 cents per share) in the first quarter of 2010.
"Our outstanding first quarter results demonstrate that we are well positioned to take advantage of our significant growth opportunities as markets around the world continue to recover," said Tim Solso, Chairman and Chief Executive Officer. "The work we have done over the past two years to keep the Company strong during the global economic recession is paying off today."
As a result of the Company's performance in the first quarter and its forecast for the remainder of the year, Cummins today increased both its EBIT and sales guidance for 2011. The Company now expects to earn 14 percent EBIT on $17 billion in sales in 2011.
Engine segment sales of $2.4 billion were up 68 percent compared to the same quarter a year ago, which was artificially weak due to a change in emissions standards and the economic downturn. Segment EBIT of $290 million, or 12.1 percent of sales, was a quarterly record.
Engine shipments in the global heavy-duty truck market more than tripled year-over-year, while medium-duty truck engine shipments increased 114 percent. In addition, shipments to global industrial markets such as construction (up 60 percent) and mining (up 59 percent) also were strong.
Sales in the Components segment, propelled by recovery in Europe, growth in China and India, and higher content of emission controls products on engines in North America, were up 47 percent to a record $924 million. Segment EBIT of $105 million, or 11.4 percent, also was a quarterly record for the Components group.
Power Generation sales increased 54 percent to $795 million on the strength of improved sales in its commercial products. Total segment sales in Western Europe increased 88 percent; 81 percent in the Middle East and 47 percent in India. Segment EBIT was $89 million, or 11.2 percent of sales.
The Distribution segment saw a sales increase of 35 percent to $642 million due to growth in most major markets, especially Europe, North and Central America and Asia Pacific. Segment EBIT of $89 million, or 13.9 percent of sales, was a quarterly record.
The Company's non- U.S. markets continued showing strong growth as sales were up in every major international region compared to the same period last year. Consolidated sales in China were up 66 percent; India 31 percent; Brazil 39 percent; Africa and Middle East 40 percent. Sales outside the United States accounted for 61 percent of the Company's revenue in the quarter.
"Our first quarter results reflect strong growth in demand for our products across most of our markets," said Cummins President and Chief Operating Officer Tom Linebarger. "We expect the growth to continue and are investing significantly in the additional capacity needed to serve our customers around the world."
The Company's guidance for 2011 excludes any gains from the previously announced sale of two businesses, which are expected to close later in the year.
The Company continued to return value to shareholders by repurchasing $190 million worth of Company shares in the first quarter. Cummins also announced a new share repurchase program in February that authorizes the acquisition of up to $1 billion in stock.
First quarter details (all comparisons to the same period in 2010)
Engine Segment
-- Sales - $2.4 billion, up 68 percent
-- Segment EBIT - $290 million or 12.1 percent of sales, compared to $133
million or 9.3 percent
-- Strong demand in Brazil contributed to the growth in the medium-duty
engine market
-- Demand in emerging economies drove a 68 percent growth in heavy and
light duty construction
-- Industrial sales are up by $278 million primarily due to strong demand
in international markets
-- Joint venture income was up by $7 million, led by a significant increase
in volume from Dongfeng Cummins Engine Company
Power Generation
-- Sales - $795 million, up 54 percent from what was the lowest quarter
during the economic downturn
-- Segment EBIT - $89 million or 11.2 percent of sales, compared to $34
million or 6.6 percent
-- Commercial product sales were up 64 percent
o Strongest sales growth was in the Middle East, Latin America, India,
the United Kingdom and North America
-- Generator Technologies had sales growth of 43 percent
Components
-- Sales - $924 million, up 47 percent
-- EBIT - $105 million, or 11.4 percent of sales, compared to $57 million
or 9.0 percent of sales
-- Higher volumes and increased content on aftertreatment products
contributed to the improved results
Distribution
-- Sales - $642 million, up 35 percent
-- EBIT - $89 million or 13.9 percent of sales, compared to $72 million or
15.1 percent of sales
-- Increased sales in engines, generators and parts drove strong
performance
Click here to read the financial statements from the first quarter.
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.
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 employs approximately 40,000 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 6,000 dealer
locations. Cummins earned $1.0 billion on sales of $13.2 billion in
2010. 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 27, December 31, March 28,
In millions, except per share amounts 2011 2010 2010
NET SALES $ 3,860 $ 4,139 $ 2,478
Cost of sales 2,903 3,155 1,877
GROSS MARGIN 957 984 601
OPERATING EXPENSES AND INCOME
Selling, general and administrative 389 423 335
expenses
Research, development and engineering 129 123 92
expenses
Equity, royalty and interest income from 96 90 76
investees (Note 1)
Other operating (expense) income, net (6 ) (3 ) (4 )
OPERATING INCOME 529 525 246
Interest income 6 7 3
Interest expense 10 11 9
Other (expense) income, net (3 ) 9 17
INCOME BEFORE INCOME TAXES 522 530 257
Income tax expense (Note 2) 157 139 87
CONSOLIDATED NET INCOME 365 391 170
Less: Net income attributable to 22 29 21
noncontrolling interests
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 343 $ 362 $ 149
EARNINGS PER COMMON SHARE ATTRIBUTABLE
TO CUMMINS INC.
Basic $ 1.75 $ 1.85 $ 0.75
Diluted $ 1.75 $ 1.84 $ 0.75
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 195.5 195.8 198.4
Diluted 196.1 196.4 198.7
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.2625 $ 0.2625 $ 0.175
(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 27, December 31,
In millions, except par value 2011 2010
ASSETS
Current assets
Cash and cash equivalents $ 779 $ 1,023
Marketable securities 307 339
Accounts and notes receivable, net 2,570 2,243
Inventories 2,202 1,977
Deferred income taxes 307 314
Prepaid expenses and other current assets 329 393
Total current assets 6,494 6,289
Long-term assets
Property, plant and equipment 5,026 4,927
Accumulated depreciation (2,962 ) (2,886 )
Property, plant and equipment, net 2,064 2,041
Investments and advances related to equity method 822 734
investees
Goodwill 368 367
Other intangible assets, net 217 222
Deferred income taxes 187 203
Other assets 574 546
Total assets $ 10,726 $ 10,402
LIABILITIES
Current liabilities
Loans payable $ 82 $ 82
Accounts payable (principally trade) 1,626 1,362
Current portion of accrued product warranty 435 421
Accrued compensation, benefits and retirement costs 323 468
Deferred revenue 189 182
Taxes payable (including taxes on income) 224 202
Other accrued expenses 572 543
Total current liabilities 3,451 3,260
Long-term liabilities
Long-term debt 685 709
Pensions 146 195
Postretirement benefits other than pensions 435 439
Other liabilities and deferred revenue 810 803
Total liabilities 5,527 5,406
EQUITY
Cummins Inc. shareholders' equity
Common stock, $2.50 par value, 500 shares authorized, 1,949 1,934
222.1 and 221.8 shares issued
Retained earnings 4,737 4,445
Treasury stock, at cost, 25.8 and 24.0 shares (1,153 ) (964 )
Common stock held by employee benefits trust, at cost, (24 ) (25 )
2.0 and 2.1 shares
Accumulated other comprehensive loss
Defined benefit postretirement plans (620 ) (646 )
Other (22 ) (74 )
Total accumulated other comprehensive loss (642 ) (720 )
Total Cummins Inc. shareholders' equity 4,867 4,670
Noncontrolling interests 332 326
Total equity 5,199 4,996
Total liabilities and equity $ 10,726 $ 10,402
(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
March 27, March 28,
In millions 2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 365 $ 170
Adjustments to reconcile consolidated net income to net
cash provided by operating activities:
Depreciation and amortization 79 79
Gain on fair value adjustment for consolidated investee - (12 )
Deferred income taxes 21 13
Equity in income of investees, net of dividends (62 ) (53 )
Pension contributions in excess of expense (24 ) (93 )
Other post-retirement benefits payments in excess of (5 ) (1 )
expense
Stock-based compensation expense 5 6
Excess tax benefits on stock based awards (2 ) (6 )
Translation and hedging activities 4 (9 )
Changes in current assets and liabilities, net of
acquisitions and dispositions:
Accounts and notes receivable (306 ) 275
Inventories (210 ) (189 )
Other current assets (2 ) 3
Accounts payable 251 54
Accrued expenses (28 ) (154 )
Changes in other liabilities and deferred revenue 24 29
Other, net (22 ) 14
Net cash provided by operating activities 88 126
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (91 ) (47 )
Investments in internal use software (10 ) (17 )
Proceeds from disposals of property, plant and equipment 5 38
Investments in and advances to equity investees (21 ) (11 )
Acquisition of businesses, net of cash acquired - (71 )
Investments in marketable securities--acquisitions (101 ) (133 )
Investments in marketable securities--liquidations 134 108
Cash flows from derivatives not designated as hedges 4 (11 )
Other, net 2 -
Net cash used in investing activities (78 ) (144 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 38 70
Payments on borrowings and capital lease obligations (45 ) (20 )
Net borrowings under short-term credit agreements 1 5
Distributions to noncontrolling interests (21 ) (1 )
Dividend payments on common stock (51 ) (35 )
Repurchases of common stock (190 ) (39 )
Excess tax benefits on stock-based awards 2 6
Other, net 4 7
Net cash used in financing activities (262 ) (7 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH 8 (20 )
EQUIVALENTS
Net increase (decrease) in cash and cash equivalents (244 ) (45 )
Cash and cash equivalents at beginning of year 1,023 930
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 779 $ 885
(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)
Engine Power Components Distribution Non-segment Total
Generation Items(1)
In millions
Three months
ended March
27, 2011
External $ 2,006 $ 557 $ 660 $ 637 $ - $ 3,860
sales
Intersegment 385 238 264 5 (892 ) -
sales
Total sales 2,391 795 924 642 (892 ) 3,860
Depreciation
and 45 10 18 6 - 79
amortization
(2)
Research,
development
and 80 11 37 1 - 129
engineering
expenses
Equity,
royalty and
interest 42 8 8 38 - 96
income from
investees
Interest 3 1 1 1 - 6
income
Segment EBIT 290 89 105 89 (41 ) 532
Three months
ended
December 31,
2010
External $ 2,099 $ 690 $ 656 $ 694 $ - $ 4,139
sales
Intersegment 398 213 262 5 (878 ) -
sales
Total sales 2,497 903 918 699 (878 ) 4,139
Depreciation
and 46 10 18 6 - 80
amortization
(2)
Research,
development
and 76 13 33 1 - 123
engineering
expenses
Equity,
royalty and
interest 37 8 6 39 - 90
income from
investees
Interest 5 1 1 - - 7
income
Segment EBIT 256 92 83 82 28 541
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
expenses
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
Includes intersegment sales and profit in inventory eliminations and unallocated
(1) corporate expenses. There were no significant unallocated corporate expenses for
the three
month periods ended March 27, 2011, December 31, 2010 and March 28, 2010.
Depreciation and amortization as shown on a segment basis excludes the
(2) amortization of debt discount that is included in theCondensed Consolidated
Statements of
Incomeas "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
March 27, December 31, March 28,
In millions 2011 2010 2010
Segment EBIT $ 532 $ 541 $ 266
Less:
Interest expense 10 11 9
Income before income taxes $ 522 $ 530 $ 257
CUMMINS INC. AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) Engine segment net sales by market 2011 In millions Q1 Q2 Q3 Q4 YTD Heavy-duty truck $ 485 $ $ $ $ 485 Medium-duty bus and truck 474 474 Light-duty auto and RV 296 296 Industrial 855 855 Stationary power 281 281 Total sales $ 2,391 $ $ $ $ 2,391
2010 In millions Q1 Q2 Q3 Q4 YTD Heavy-duty truck $ 252 $ 340 $ 395 $ 516 $ 1,503 Medium-duty bus and truck 217 352 430 436 1,435 Light-duty auto and RV 207 296 239 280 1,022 Industrial 577 656 700 956 2,889 Stationary power 170 255 305 309 1,039 Total sales $ 1,423 $ 1,899 $ 2,069 $ 2,497 $ 7,888
Unit shipments by engine classification (including unit shipments to Power Generation) 2011 Units Q1 Q2 Q3 Q4 YTD Mid-range 109,400 109,400 Heavy-duty 20,000 20,000 High horsepower 4,900 4,900 Total units 134,300 134,300
2010 Units Q1 Q2 Q3 Q4 YTD Mid-range 69,100 90,500 93,500 115,800 368,900 Heavy-duty 8,700 14,500 15,200 22,800 61,200 High horsepower 3,400 4,800 4,900 5,400 18,500 Total units 81,200 109,800 113,600 144,000 448,600
Power generation segment sales by business 2011 In millions Q1 Q2 Q3 Q4 YTD Commercial products $ 505 $ $ $ $ 505 Generator technologies 153 153 Commercial projects 55 55 Consumer 50 50 Power electronics 32 32 Total sales $ 795 $ $ $ $ 795
2010 In millions Q1 Q2 Q3 Q4 YTD Commercial products $ 307 $ 436 $ 519 $ 569 $ 1,831 Generator technologies 107 135 140 167 549 Commercial projects 33 57 49 83 222 Consumer 43 49 49 45 186 Power electronics 27 31 34 39 131 Total sales $ 517 $ 708 $ 791 $ 903 $ 2,919
CUMMINS INC. AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) Component segment sales by business 2011 In millions Q1 Q2 Q3 Q4 YTD Turbo technologies $ 297 $ $ $ $ 297 Emission solutions 273 273 Filtration 255 255 Fuel systems 99 99 Total sales $ 924 $ $ $ $ 924
2010 In millions Q1 Q2 Q3 Q4 YTD Turbo technologies $ 200 $ 226 $ 239 $ 283 $ 948 Emission solutions 137 170 192 251 750 Filtration 228 250 248 285 1,011 Fuel systems 65 83 90 99 337 Total sales $ 630 $ 729 $ 769 $ 918 $ 3,046
Distribution segment sales by product 2011 In millions Q1 Q2 Q3 Q4 YTD Parts and filtration $ 235 $ $ $ $ 235 Power generation 145 145 Engines 140 140 Service 122 122 Total sales $ 642 $ $ $ $ 642
2010 In millions Q1 Q2 Q3 Q4 YTD Parts and filtration $ 193 $ 221 $ 220 $ 248 $ 882 Power generation 99 135 125 157 516 Engines 83 109 112 162 466 Service 101 111 116 132 460 Total sales $ 476 $ 576 $ 573 $ 699 $ 2,324
CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)
Earnings before interest, 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
March 27, December 31, March 28,
In millions 2011 2010 2010
Earnings before interest and income taxes $ 532 $ 541 $ 266
EBIT as a percentage of net sales 13.8 % 13.1 % 10.7 %
Less:
Interest expense 10 11 9
Income tax expense 157 139 87
Consolidated net income 365 391 170
Less:
Net income attributable to noncontrolling 22 29 21
interests
Net income attributable to Cummins Inc. $ 343 $ 362 $ 149
Net income attributable to Cummins Inc. as
a 8.9 % 8.7 % 6.0 %
percentage of net sales
We believe this is a useful measure of our operating performance for the
periods presented as it illustrates our operating performance
without regard to financial methods, capital structure or income taxes. 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.
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 ourCondensed
Consolidated Statements of Income for the interim reporting periods was as
follows:
Three months ended
March 27, December 31, March 28,
In millions 2011 2010 2010
Distribution Entities
North American distributors $ 30 $ 29 $ 23
Komatsu Cummins Chile, Ltda 4 5 3
All other distributors 1 1 1
Manufacturing Entities
Dongfeng Cummins Engine Company, Ltd. 23 23 18
Chongqing Cummins Engine Company, Ltd. 12 11 10
Tata Cummins, Ltd. 4 3 4
Shanghai Fleetguard Filter Co., Ltd. 4 3 2
Komatsu manufacturing alliances 2 4 2
Cummins Westport, Inc. 1 3 3
Valvoline Cummins, Ltd. 2 1 2
Cummins MerCruiser Diesel Marine, LLC - (2 ) -
Beijing Foton Cummins Engine Co., Ltd. (2 ) (4 ) (2 )
All other manufacturers 6 5 3
Cummins share of net income 87 82 69
Royalty and interest income 9 8 7
Equity, royalty and interest income from $ 96 $ 90 $ 76
investees
NOTE 2. INCOME TAXES
Our effective tax rate for the year is expected to approximate 30 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 and research credits. The tax rate for the three month period ended March 27, 2011, was 30 percent.
Our effective tax rate for the comparable prior year period was 34 percent and included a discrete tax charge of $7 million (three percent) related to the enactment of the "Patient Protection and Affordable Care Act". This rate was less than the 35 percent U.S. statutory income tax rate primarily due to lower tax rates on foreign income.
Source: Cummins Inc.
Released April 26, 2011