Cummins financial and ESG highlights in 2020

Dear Shareholder:

As I reflect on 2020, I am extremely grateful for the way our employees responded to the significant challenges caused by the COVID-19 pandemic. Their efforts and flexibility allowed us to deliver strong performance in the face of an uncertain and volatile environment, and we are thankful for their ongoing commitment to strict safety measures. While 2020 presented many challenges, I wanted to take a moment to summarize the year’s financial performance, update you on our progress on other initiatives and look forward to the year ahead.

Our business faced significant disruption driven by the COVID-19 pandemic last year, resulting in revenues of $19.8 billion and net earnings of $1.8 billion or $12.01 per diluted share. In response to this challenging operating environment, we took decisive actions to reduce costs and preserve cash. These actions included restructuring, temporary salary reductions and reducing capital expenditures. We delivered EBITDA of $3.1 billion or 15.7% of sales for 2020 compared to $3.7 billion or 15.8% of sales a year ago – effectively maintaining flat year-over-year margins and delivering solid profitability despite the significant decline in revenue and elevated costs tied to constraints in our global supply chain.

As I reflect on our performance for the full year, a few key highlights come to mind, including:

  • The experience of our management team meant that we were able to quickly respond to early signs of a cyclical slowdown in key markets in the second half of 2019 and executed restructuring actions to protect 2020 performance. As the pandemic impacted the global economy, we took further steps to reduce costs and preserve cash in the face of elevated uncertainty.
  • Over the second half of the year, the pace at which customer demand for our products rebounded and our employees' agility in responding to the higher customer orders.
  • We converted these sales into cash, delivering $2.7 billion of operating cash flow.
  • Delivery of record joint venture performance in China was remarkable when considering the COVID-19-related restrictions faced by our people and operations throughout much of last year.
  • We returned $1.4 billion of cash to shareholders in the form of share repurchases and dividends in 2021.

To summarize, we delivered strong results in 2020 in the face of unprecedented challenges, extending our track record of raising performance cycle-over-cycle, with diluted earnings per share 46% higher than we delivered in the prior downturn of 2016. As we enter 2021, we are well positioned to capitalize on strengthening markets to deliver another strong year. With our strong cash generation and healthy balance sheet, we will continue to invest in the products and technologies that will fuel profitable growth in the future and return capital to shareholders, while maintaining the flexibility to ensure that we can weather any volatility that may lay ahead.

In addition to achieving strong financial performance, we also made considerable progress on our environmental, social and governance work as we continue to advance our mission of powering a more prosperous world. Among several highlights, we reduced energy, waste and water in our operations, implemented a strategy to address climate change and other environmental challenges, enhanced our human capital disclosures and took a leadership role in addressing systemic discrimination against the Black community in U.S. cities where we operate. Additionally, in November 2020, we held our Cummins Hydrogen Day event, revealing our vision of a world fueled by green hydrogen. We continue to make strategic investments in this space and believe our technology leadership, customer relationships and global capabilities will help lead the way to a decarbonized world. I hope you will take a minute to read our year-end highlights linked here.

Thank you for your continued interest and confidence in our company.

Mark Smith

Vice President - Chief Financial Officer

Cummins Inc.