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Press release from Business Wire

Cummins Reports Strong Sales and Profits in First Quarter

<ul> <li class='bwlistitemmargb'> <b>Company increases full-year guidance; now expects to earn 14% EBIT on $17 billion in sales</b> </li> </ul>

Tuesday, April 26, 2011

Cummins Reports Strong Sales and Profits in First Quarter07:30 EDT Tuesday, April 26, 2011 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 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 InformationEBIT is a non-GAAP measure used in this release, and is defined andreconciled 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 informationCummins 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 CumminsCummins 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 atwww.cummins.com.Forward-looking disclosure statementInformation 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 SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME(Unaudited) (a)         Three months endedMarch 27,December 31,March 28,In millions, except per share amounts201120102010NET SALES$3,860 $ 4,139 $ 2,478 Cost of sales   2,903     3,155     1,877   GROSS MARGIN957 984 601   OPERATING EXPENSES AND INCOME Selling, general and administrative expenses 389 423 335 Research, development and engineering expenses 129 123 92 Equity, royalty and interest income from investees (Note 1) 96 90 76 Other operating (expense) income, net   (6)   (3 )   (4 ) OPERATING INCOME529 525 246   Interest income 6 7 3 Interest expense 10 11 9 Other (expense) income, net   (3)   9     17   INCOME BEFORE INCOME TAXES522 530 257   Income tax expense (Note 2)   157     139     87   CONSOLIDATED NET INCOME365 391 170   Less: Net income attributable to noncontrolling interests   22     29     21   NET INCOME ATTRIBUTABLE TO CUMMINS INC.$343   $ 362   $ 149     EARNINGS PER COMMON SHARE ATTRIBUTABLETO 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 SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited) (a)     March 27,   December 31,In millions, except par value20112010ASSETS 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 investees 822 734 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, 222.1 and 221.8 shares issued 1,949 1,934 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, 2.0 and 2.1 shares (24) (25 ) 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 SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited) (a)       Three months endedMarch 27,   March 28,In millions20112010CASH 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 expense (5) (1 ) 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 EQUIVALENTS   8     (20 ) 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 SUBSIDIARIESSEGMENT INFORMATION(Unaudited)     Engine   PowerGeneration   Components   Distribution   Non-segmentItems(1)   TotalIn millionsThree months ended March 27, 2011 External sales $2,006$557$660$637$-$3,860 Intersegment sales 3852382645(892)   -   Total sales 2,391795924642(892)3,860 Depreciation and amortization(2)4510186-79 Research, development and engineering expenses 8011371-129 Equity, royalty and interest income from investees 428838-96 Interest income 3111-6 Segment EBIT 2908910589(41)532   Three months ended December 31, 2010 External sales $ 2,099 $ 690 $ 656 $ 694 $ - $ 4,139 Intersegment sales 398   213   262   5   (878 )   - Total sales 2,497 903 918 699 (878 ) 4,139 Depreciation and amortization(2) 46 10 18 6 - 80 Research, development and engineering expenses 76 13 33 1 - 123 Equity, royalty and interest income from investees 37 8 6 39 - 90 Interest income 5 1 1 - - 7 Segment EBIT 256 92 83 82 28 541   Three months ended March 28, 2010 External sales $ 1,173 $ 378 $ 453 $ 474 $ - $ 2,478 Intersegment sales 250 139 177 2 (568 )   - Total sales 1,423 517 630 476 (568 ) 2,478 Depreciation and amortization(2) 41 10 20 7 - 78 Research, development and engineering expenses 60 7 25 - - 92 Equity, royalty and interest income from investees 35 6 5 30 - 76 Interest income 2 1 - - - 3 Segment EBIT 133 34 57 72 (30 ) 266   (1)   Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the threemonth periods ended March 27, 2011, December 31, 2010 and March 28, 2010. (2)   Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount that is included in the Condensed Consolidated Statements ofIncome as “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 endedMarch 27,   December 31,   March 28,In millions201120102010 Segment EBIT $532 $ 541 $ 266 Less: Interest expense   10   11   9 Income before income taxes $522 $ 530 $ 257     CUMMINS INC. AND SUBSIDIARIESSEGMENT INFORMATION(Unaudited)   Engine segment net sales by market                                2011           In millionsQ1Q2Q3Q4YTD 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 millionsQ1Q2Q3Q4YTD 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)           2011UnitsQ1Q2Q3Q4YTD 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                                         UnitsQ1Q2Q3Q4YTD 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                     2011In millionsQ1Q2Q3Q4YTD 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 millionsQ1Q2Q3Q4YTD 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 SUBSIDIARIESSEGMENT INFORMATION(Unaudited)   Component segment sales by business                         2011In millionsQ1Q2Q3Q4YTD Turbo technologies $297 $ ― $ ― $ ― $ 297 Emission solutions 273 273 Filtration 255 ― ― ― 255 Fuel systems 99 ― ― ― 99 Total sales $924 $ ― $ ― $ ― $ 924 2010           In millionsQ1Q2Q3Q4YTD   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                         2011In millionsQ1Q2Q3Q4YTD Parts and filtration $235 $ ― $ ― $ ― $ 235 Power generation 145 145 Engines 140 ― ― ― 140 Service 122 ― ― ― 122 Total sales $642 $ ― $ ― $ ― $ 642 2010           In millionsQ1Q2Q3Q4YTD 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 SUBSIDIARIESFINANCIAL 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 consolidatedsubsidiaries (EBIT). We use EBIT to assess and measure the performance of our operating segments and also as a component in measuringour variable compensation programs. Below is a reconciliation of EBIT, a non-GAAP financial measure, to “Net income attributable toCummins Inc.,” for each of the applicable periods:   Three months endedMarch 27,   December 31,   March 28,In millions201120102010 Earnings before interest and income taxes $ 532 $ 541 $ 266   EBIT as a percentage of net sales13.8%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 interests   22     29     21   Net income attributable to Cummins Inc. $ 343   $ 362   $ 149       Net income attributable to Cummins Inc. as apercentage of net sales8.9%8.7%6.0%   We believe this is a useful measure of our operating performance for the periods presented as it illustrates our operating performancewithout 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 SUBSIDIARIESSELECTED 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 endedMarch 27,   December 31,   March 28,In millions201120102010Distribution 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 investees $96   $ 90   $ 76     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. Cummins Inc.Mark Land, 317-610-2456Executive Director - Corporate Communicationsmark.d.land@cummins.com