Cummins Inc. (NYSE: CMI) today reported record sales and profits in the second quarter, as strong global growth offset softness in some North American markets. All four of the Company's business segments reported record financial performance in the quarter, as non-U.S. sales grew to 61 percent of Cummins' business - up from 54 percent for all of 2007 and 57 percent in the first quarter of 2008.
Second quarter sales grew 16 percent to $3.89 billion, from $3.34 billion during the same period in 2007. Net income increased 37 percent to $293 million, or $1.49 a share, compared to $214 million, or $1.06 a share, in 2007.
Earnings Before Interest and Taxes (EBIT) of $469 million (12.1 percent of sales), was a 32 percent improvement over $354 million (10.6 percent of sales) during the same period a year ago.
The Company experienced broad gains in product and geographic markets around the world, including:
-- Strong sales growth and market share in the North American heavy-duty engine market. Despite high fuel prices and weakness in the U.S. economy, Cummins posted gains in this market, compared to 2007 when changes in emissions regulations led to sharply lower demand - especially in the first half of the year.
-- Strong medium-duty truck engine sales, especially in Brazil and Mexico.
-- Increased demand in the Company's commercial generator business, most notably in the Middle East, Latin America, China and the United Kingdom.
-- Strong sales growth in North America, Europe and China for turbochargers.
-- Significant sales gains for the Company's Emission Solutions products in North America and Europe, driven by new emissions regulations.
-- Significantly higher income from the Company's joint ventures worldwide, led by Dongfeng Cummins Engine Company in China, which saw large gains as result of a pre-buy in the on-highway truck market in advance of new emissions standards.
-- A 58 percent increase in the Company's Distribution Business sales, led by strong organic growth in Europe, the South Pacific and Middle East and the acquisition of a majority interest in a previously independent distributor in the United States.
The Company's strong second quarter performance came in the face of continued economic weakness in the United States, which has affected the Company's consumer-related markers. For the quarter, engine sales to Chrysler for the Dodge Ram heavy-duty pickup fell more than 60 percent from the same period in 2007; RV engine sales fell nearly 40 percent and the Company's consumer power generation sales were off more than 30 percent from a year ago.
"We had an outstanding second quarter in the face of some very real economic challenges, especially in the U.S.," said Cummins Chairman and Chief Executive Officer Tim Solso. "We are managing all of our businesses very carefully and the results speak to the effectiveness of our global growth strategy."
In light of the Company's performance in the first half of the year and its forecast for the remainder of 2008, Cummins today also announced that is now forecasting a 15 percent sales increase for all of 2008, up from its previous guidance of 12 percent. The Company expects to earn an EBIT margin of 10 percent of sales for the year.
"As we look forward, despite the continuing economic uncertainty in the U.S. and Western Europe, and expected increases in materials costs, we are confident that we will continue to see growth in the second half of the year," Solso said, adding that "2008 will be the fifth consecutive year of record sales and profits for Cummins."
Other recent Company-related news or events included:
-- Early this month, the Company announced a 40 percent increase in the quarterly dividend to 17.5 cents a share, payable Sept. 2 to shareholders of record on Aug. 22.
-- In June, severe flooding in southern Indiana affected a number of Cummins facilities. A large manufacturing plant was partially flooded and the Cummins Technical Center in Columbus experienced severe flooding, resulting in its engine test cells being out of operation for approximately five weeks. The second quarter results include a charge of approximately $6 million related to the flooding, but the Company is confident that it has insurance coverage to limit the impact of this event.
-- Fitch Rating Services upgraded the Company's senior unsecured long-term debt to BBB+, from BBB, citing recent market share gains and improvement in Cummins' geographic and business diversification.
-- Cummins entered in a new revolving credit facility that expands its capacity from $650 million to $1.1 billion.
Second Quarter Details
Engine Segment
Sales of $2.39 billion increased 13 percent from $2.11 billion in the same period in 2007, while Segment EBIT of $221 million, or 9.3 percent of sales, rose 19 percent from $186 million, or 8.8 percent of sales.
Heavy-duty truck engine sales increased 42 percent, while medium-duty truck and bus engine sales rose 32 percent - offsetting the large drop in sales to the light-duty automotive and RV markets. Sales to industrial markets grew 21 percent, fueled by stronger international demand particularly in the construction, mining and marine segments.
Power Generation
Sales of $938 million rose 22 percent from $769 million in the second quarter of 2007. Segment EBIT increased 31 percent to $115 million, or 12.3 percent of sales, compared to $88 million, or 11.4 percent of sales, in 2007.
The commercial generator business, the segment's largest, saw its sales increase 35 percent in the quarter, with very strong demand in the Middle East, Latin America, the U.K. and China. Alternator sales increased 14 percent and were strongest in the same international regions. In addition to the higher volumes, improved pricing led to the significantly higher Segment EBIT.
Components
Segment sales of $855 million were 13 percent higher than $757 million for the same period in 2007. Segment EBIT was sharply higher, improving by 60 percent to $77 million, or 9.0 percent of sales, from $48 million, or 6.3 percent of sales. The Segment EBIT gains were the result of higher sales volumes, improved pricing and increased manufacturing efficiencies across many of the businesses.
Sales gains were led by a 24 percent increase in turbocharger revenue, a 21 percent gain in fuel systems sales and a 17 percent rise in emission aftertreatment sales. Sales in the filtration business - the segment's largest business - were essentially flat as comparisons were negatively affected by the discontinuation of a product line last year and the sale of its Universal Silencer division at the end of 2007.
Distribution
Sales rose 58 percent to $581 million, from $368 million during the same period in 2007. Segment EBIT of $68 million, or 11.7 percent of sales, rose 48 percent from $46 million, or 12.5 percent of sales. The recently consolidated Power Systems distributor contributed $63 million to the sales increase.
Excluding Power Systems, the segment's power generation sales increased 58 percent led by Europe, the South Pacific and Middle East. Likewise, engine sales, powered by strength in Europe, rose 62 percent; while parts sales increased by 26 percent.
Earnings 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 $739 million on sales of $13.05 billion in 2007. Press releases can be found on the Web at www.cummins.com.
Presentation of Non-GAAP Financial Information
EBIT is a non-GAAP measure used in this release. EBIT 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.
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 Six months ended
---------------------------- ------------------
June 29, July 1, March 30, June 29, July 1,
2008 2007 2008 2008 2007
-------- -------- --------- --------- --------
Millions
(except per share amounts)
NET SALES $ 3,887 $ 3,343 $ 3,474 $ 7,361 $ 6,160
Cost of sales 3,008 2,673 2,767 5,775 4,938
-------- -------- --------- --------- --------
GROSS MARGIN 879 670 707 1,586 1,222
OPERATING EXPENSES AND
INCOME
Selling, general
and
administrative
expenses 370 314 351 721 597
Research,
development and
engineering
expenses 104 74 103 207 154
Equity, royalty
and interest
income from
investees 69 52 67 136 88
Flood damage
expense (Note 1) 6 -- -- 6 --
Other operating
income (expense),
net -- 7 (1) (1) 5
-------- -------- --------- --------- --------
OPERATING INCOME 468 341 319 787 564
Interest income 4 7 6 10 18
Interest expense 12 14 11 23 30
Other (expense)
income, net (3) 6 (10) (13) 15
-------- -------- --------- --------- --------
INCOME BEFORE INCOME
TAXES AND MINORITY
INTERESTS 457 340 304 761 567
Income tax expense 147 112 102 249 187
Minority interests in
income of
consolidated
subsidiaries 17 14 12 29 23
-------- -------- --------- --------- --------
NET INCOME $ 293 $ 214 $ 190 $ 483 $ 357
======== ======== ========= ========= ========
EARNINGS PER COMMON
SHARE
Basic $ 1.50 $ 1.07 $ 0.97 $ 2.47 $ 1.79
Diluted $ 1.49 $ 1.06 $ 0.97 $ 2.46 $ 1.77
WEIGHTED AVERAGE
SHARES OUTSTANDING
Basic 195.2 199.9 195.1 195.1 200.0
Diluted 196.6 201.3 196.4 196.5 201.2
CASH DIVIDENDS
DECLARED PER COMMON
SHARE $0.125 $ 0.09 $0.125 $ 0.25 $ 0.18
(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 29, December 31,
2008 2007
----------- ------------
Millions
(except par value)
ASSETS
Current assets
Cash and cash equivalents $ 522 $ 577
Marketable securities 107 120
Accounts and notes receivable, net 2,377 1,998
Inventories 1,924 1,692
Deferred income taxes 296 276
Prepaid expenses and other current assets 186 152
--------- ---------
Total current assets 5,412 4,815
--------- ---------
Long-term assets
Property, plant and equipment 4,443 4,313
Accumulated depreciation (2,743) (2,668)
--------- ---------
Property, plant and equipment, net 1,700 1,645
--------- ---------
Investments and advances related to equity
method investees 629 514
Goodwill and other intangible assets, net 572 538
Deferred income taxes and other assets 642 683
--------- ---------
Total assets $ 8,955 $ 8,195
========= =========
LIABILITIES
Current liabilities
Current portion of long-term debt and
loans payable $ 71 $ 119
Accounts payable (principally trade) 1,460 1,263
Current portion of accrued product
warranty 372 337
Accrued compensation, benefits and
retirement costs 338 441
Other accrued expenses 695 551
--------- ---------
Total current liabilities 2,936 2,711
--------- ---------
Long-term liabilities
Long-term debt 586 555
Pensions and other postretirement benefits 619 633
Other liabilities and deferred revenue 673 594
--------- ---------
Total liabilities 4,814 4,493
--------- ---------
MINORITY INTERESTS 309 293
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value, 500 shares
authorized, 221.5 and 220.4 shares issued 1,734 1,719
Retained earnings 3,087 2,660
Treasury stock, at cost, 18.8 and 18.2
shares (634) (593)
Common stock held by employee benefits
trust, at cost, 6.5 and 6.5 shares (79) (79)
Unearned compensation (7) (11)
Accumulated other comprehensive loss
Defined benefit postretirement plans (368) (378)
Other 99 91
--------- ---------
Total accumulated other
comprehensive loss (269) (287)
--------- ---------
Total shareholders' equity 3,832 3,409
--------- ---------
Total liabilities, minority interests and
shareholders' equity $ 8,955 $ 8,195
========= =========
(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 29, July 1,
2008 2007
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES Millions
Net income $ 483 $ 357
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 158 142
Net gain on disposal of property, plant and
equipment (2) (4)
Deferred income taxes 14 47
Equity in earnings of investees, net of
dividends (62) (22)
Minority interest in income of consolidated
subsidiaries 29 23
Pension expense 36 49
Pension contributions (39) (102)
Other post-retirement benefits expense, net of
cash payments (5) (16)
Stock-based compensation expense 17 12
Excess tax benefits on stock-based awards (12) (10)
Translation and hedging activities 8 (8)
Changes in current assets and liabilities, net
of acquisitions and dispositions:
Accounts and notes receivable (316) (287)
Inventories (202) (236)
Other current assets (16) (10)
Accounts payable 172 215
Accrued expenses 102 (39)
Changes in long-term liabilities 47 37
Other, net (6) 8
--------- -------
Net cash provided by operating activities 406 156
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (201) (108)
Investments in internal use software (36) (28)
Proceeds from disposals of property, plant and
equipment 10 19
Investments in and advances to equity investees (41) (28)
Acquisition of businesses, net of cash acquired (76) (20)
Investments in marketable securities--
acquisitions (158) (194)
Investments in marketable securities--
liquidations 159 191
Other, net (13) (8)
--------- -------
Net cash used in investing activities (356) (176)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 77 4
Payments on borrowings and capital lease
obligations (101) (115)
Net borrowings under short-term credit
agreements 1 (8)
Distributions to minority shareholders (6) (10)
Dividend payments on common stock (51) (38)
Repurchases of common stock (45) (36)
Excess tax benefits on stock-based awards 12 10
Other, net 2 (6)
--------- -------
Net cash used in financing activities (111) (199)
--------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS 6 5
--------- -------
Net decrease in cash and cash equivalents (55) (214)
Cash and cash equivalents at beginning of year 577 840
--------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 522 $ 626
========= =======
(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)
Power
Engine Generation Components
------- ---------- ----------
Millions
Three months ended June 29, 2008
External sales $2,030 $ 692 $ 584
Intersegment sales 356 246 271
----- ----- -----
Total sales 2,386 938 855
Depreciation and amortization(2) 46 11 18
Research, development and engineering
expense 70 10 24
Equity, royalty and interest income
from investees 32 6 3
Interest income 2 1 1
Segment EBIT 221 115 77
Three months ended July 1, 2007
External sales $1,855 $ 605 $ 516
Intersegment sales 254 164 241
----- ----- -----
Total sales 2,109 769 757
Depreciation and amortization(2) 46 10 15
Research, development and engineering
expense 51 9 14
Equity, royalty and interest income
from investees 25 4 (1)
Interest income 6 1 --
Segment EBIT 186 88 48
Three months ended March 30, 2008
External sales $1,885 $ 581 $ 567
Intersegment sales 324 206 253
----- ----- -----
Total sales 2,209 787 820
Depreciation and amortization(2) 44 11 15
Research, development and engineering
expense 70 10 23
Equity, royalty and interest income
from investees 33 5 4
Interest income 3 1 1
Segment EBIT 194 78 37
Six months ended June 29, 2008
External sales $3,915 $1,273 $1,151
Intersegment sales 680 452 524
----- ----- -----
Total sales 4,595 1,725 1,675
Depreciation and amortization(2) 90 22 33
Research, development and engineering
expense 140 20 47
Equity, royalty and interest income
from investees 65 11 7
Interest income 5 2 2
Segment EBIT 415 193 114
Six months ended July 1, 2007
External sales $3,377 $1,136 $ 971
Intersegment sales 497 308 443
----- ----- -----
Total sales 3,874 1,444 1,414
Depreciation and amortization(2) 87 20 29
Research, development and engineering
expense 103 17 34
Equity, royalty and interest income
from investees 42 7 (2)
Interest income 14 3 1
Segment EBIT 314 165 72
Non-segment
Distribution items(1) Total
-------------- ------------ ------
Millions
Three months ended June 29, 2008
External sales $ 581 $ -- $3,887
Intersegment sales -- (873) --
----- ------ -----
Total sales 581 (873) 3,887
Depreciation and amortization(2) 7 -- 82
Research, development and
engineering expense -- -- 104
Equity, royalty and interest income
from investees 28 -- 69
Interest income -- -- 4
Segment EBIT 68 (12) 469
Three months ended July 1, 2007
External sales $ 367 $ -- $3,343
Intersegment sales 1 (660) --
----- ------ -----
Total sales 368 (660) 3,343
Depreciation and amortization(2) 3 -- 74
Research, development and
engineering expense -- -- 74
Equity, royalty and interest income
from investees 24 -- 52
Interest income -- -- 7
Segment EBIT 46 (14) 354
Three months ended March 30, 2008
External sales $ 441 $ -- $3,474
Intersegment sales 4 (787) --
----- ------ -----
Total sales 445 (787) 3,474
Depreciation and amortization(2) 4 -- 74
Research, development and
engineering expense -- -- 103
Equity, royalty and interest income
from investees 25 -- 67
Interest income 1 -- 6
Segment EBIT 49 (43) 315
Six months ended June 29, 2008
External sales $1,022 $ -- $7,361
Intersegment sales 4 (1,660) --
----- ------ -----
Total sales 1,026 (1,660) 7,361
Depreciation and amortization(2) 11 -- 156
Research, development and
engineering expense -- -- 207
Equity, royalty and interest income
from investees 53 -- 136
Interest income 1 -- 10
Segment EBIT 117 (55) 784
Six months ended July 1, 2007
External sales $ 676 $ -- $6,160
Intersegment sales 1 (1,249) --
----- ------ -----
Total sales 677 (1,249) 6,160
Depreciation and amortization(2) 5 -- 141
Research, development and
engineering expense -- -- 154
Equity, royalty and interest income
from investees 41 -- 88
Interest income -- -- 18
Segment EBIT 85 (39) 597
(1) Includes intersegment sales and profit in inventory eliminations
and unallocated corporate and flood related expenses.
(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.
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 29, July 1, March 30, June 29, July 1,
2008 2007 2008 2008 2007
-------- ------- --------- -------- -------
Millions
Segment EBIT $469 $354 $315 $784 $597
Less:
Interest expense 12 14 11 23 30
-------- ------- --------- -------- -------
Income before income taxes
and minority interests $457 $340 $304 $761 $567
======== ======= ========= ======== =======
NOTE 1. FLOOD DAMAGE
In June 2008, Columbus, Indiana experienced significant flooding which damaged some of our facilities. We lost approximately five weeks of testing at our technical center, however, critical testing was transferred to other Cummins facilities and external suppliers to minimize the interruption. The physical damage to the facilities, as well as the related removal, salvage and recovery costs, was covered by insurance, subject to a deductible of $6 million, which was recorded in the second quarter of 2008. We anticipate that all other costs will be reimbursed through our insurance coverage. We are confident our insurance coverage will limit the impact of this event.
CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)
Earnings before interest, taxes and minority interests (EBIT)
We define EBIT as earnings before interest expense, provision for
income taxes and minority interests in earnings of consolidated
subsidiaries. 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 our consolidated net income, for each
of the applicable periods:
Three Months Ended Six Months Ended
-------------------------- -----------------
June 29, July 1, March 29, June 29, July 1,
2008 2007 2008 2008 2007
-------- ------- --------- --------- -------
Millions
Earnings before interest
expense, income taxes
and minority interests $469 $354 $315 $784 $597
EBIT as a percentage of
net sales 12.1% 10.6% 9.1% 10.7% 9.7%
Less:
Interest expense 12 14 11 23 30
Income tax expense 147 112 102 249 187
Minority interests in
income of consolidated
subsidiaries 17 14 12 29 23
-------- ------- --------- --------- ------
Net income $293 $214 $190 $483 $357
======== ======= ========= ========= ======
Net income as a
percentage of net sales 7.5% 6.4% 5.5% 6.6% 5.8%
We believe EBIT is a useful measure of our operating performance for
the periods presented as it illustrates our operating performance
without regard to financing 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 (GAAP) and may not be consistent with measures used by other
companies. It should be considered supplemental data.
----------------------------------------------------------------------
Sales
$Millions Q1 Q2 Q3 Q4 YTD
------- ------- ------- ------- --------
2008
Engine
Business
Heavy-Duty
Truck 536 672 1,208
Medium Duty
Truck+Bus 397 422 819
Light Duty
Auto+RV 275 205 480
Industrial 733 804 1,537
Stationary
Power 268 283 551
----------------------------------------
TOTAL ENGINE
BUSINESS 2,209 2,386 0 0 4,595
Power
Generation 787 938 1,725
Components 820 855 1,675
Distributors 445 581 1,026
Eliminations (787) (873) (1,660)
----------------------------------------
TOTAL 3,474 3,887 0 0 7,361
========================================
2007
Engine
Business
Heavy-Duty
Truck 424 473 520 531 1,948
Medium Duty
Truck+Bus 206 320 359 398 1,283
Light Duty
Auto+RV 288 418 388 247 1,341
Industrial 617 665 661 733 2,676
Stationary
Power 230 233 225 246 934
----------------------------------------
TOTAL ENGINE
BUSINESS 1,765 2,109 2,153 2,155 8,182
Power
Generation 675 769 776 840 3,060
Components 657 757 741 777 2,932
Distributors 309 368 395 468 1,540
Eliminations (589) (660) (693) (724) (2,666)
----------------------------------------
TOTAL 2,817 3,343 3,372 3,516 13,048
========================================
----------------------------------------------------------------------
----------------------------------------------------------------------
Engine Shipments
Units Q1 Q2 Q3 Q4 YTD
------- ------- ------- ------- --------
2008
Midrange 114,200 114,800 229,000
Heavy-duty 24,700 31,700 56,400
High
Horsepower 4,600 5,500 10,100
----------------------------------------
TOTAL 143,500 152,000 0 0 295,500
========================================
2007
Midrange 107,200 133,500 130,500 115,600 486,800
Heavy-duty 19,000 23,800 24,800 23,800 91,400
High
Horsepower 4,300 4,700 4,600 4,900 18,500
----------------------------------------
TOTAL 130,500 162,000 159,900 144,300 596,700
========================================
Contacts:
Mark Land, Director of Public Relations, 317-610-2456
mark.d.land@cummins.com
