Cummins Announces First Quarter Results; Raises Outlook for 2017

COLUMBUS, Ind.

  • First quarter revenues of $4.6 billion, GAAPNet Income of $396 million
  • EBIT of 12.3 percent of sales, Diluted EPS of $2.36
  • Full year 2017 revenues expected to be up 4 to 7 percent, compared to prior guidance of flat to down 5 percent
  • EBIT expected to be in the range of 11.75 to 12.5 percent, up from 11 to 11.5 percent

Cummins Inc. (NYSE: CMI) today reported results for the first quarter of 2017.

First quarter revenues of $4.6 billion increased 7 percent from the same quarter in 2016. Stronger demand from construction and mining customers and higher sales from a distributor acquisition in the fourth quarter of last year, more than offset the impact of weaker truck production in North America. Currency negatively impacted revenues by approximately 1 percent compared to last year, primarily due to a stronger US dollar. International sales improved by 17 percent primarily due to growth in China and Europe while revenues in North America increased 1 percent.

Net income attributable to Cummins in the first quarter was $396 million ($2.36 per diluted share), compared to $321million ($1.87 per diluted share). The tax rate in the first quarter of 2017 was 26.1 percent.

Earnings before interest and taxes (EBIT) were $566 million, or 12.3 percent of sales, an increase from $484 million or 11.3 percent of sales a year ago.

“Cummins delivered solid financial results, successfully launched new products and returned $222 million in cash to shareholders in the form of dividends and share repurchases in the first quarter,” said Chairman and CEO Tom Linebarger. “We launched our fully updated range of engines for North American truck and bus markets offering improved performance and better fuel economy for our customers. As recently announced, we also advanced our strategy to be the leading global powertrain supplier through our agreement with Eaton to form the Eaton Cummins Automated Transmission Technologies joint venture. This new venture will design, develop and produce the next generation of Automated Transmissions which will be fully integrated with our engine development to deliver up to an additional 7 percent improvement in fuel economy. The joint venture will benefit from the continuing shift away from fully manual transmissions in commercial vehicles, launch new products that will gain market share, leverage Cummins’ strong presence in international markets for growth and generate aftermarket sales.”

Based on the current forecast, Cummins expects full year 2017 revenues to be up 4 to 7 percent, compared to prior guidance of flat to down 5 percent. EBIT is projected to be in the range of 11.75 to 12.5 percent of sales, up from 11 to 11.5 percent. This forecast excludes the impact of the new joint venture with Eaton, which will be consolidated within Cummins’ financial results and is expected to be operational in the third quarter of this year, subject to regulatory approvals.

First quarter 2017 highlights:

  • The Company returned $222 million to shareholders in the form of dividends and share repurchase, consistent with its plan to return 50 percent of Operating Cash Flow in 2017
  • Cummins was named to Ethisphere’s 2017 list of World’s Most Ethical Companies for a 10th consecutive year by the Ethisphere Institute
  • In March, the Company announced its plans to reach a 50 percent intensity reduction in water use at its facilities by 2020

1 Generally Accepted Accounting Principles

First quarter 2017 detail (all comparisons to same period in 2016)

Engine Segment

  • Sales - $2.0 billion, up 2 percent.
  • Segment EBIT - $229 million, or 11.3 percent of sales, compared to 197 million or 10 percent of sales
  • Off-highway revenues increased 20 percent primarily due to higher engines sales to global construction markets, while on-highway revenues declined by 2 percent

Distribution Segment

  • Sales - $1.6 billion, up 12 percent
  • Segment EBIT - $100 million, or 6.1 percent of sales, compared to $87 million or 5.9 percent of sales
  • Organic sales increased 6 percent, and revenue from the acquisition completed in the fourth quarter of 2016 added 6 percent

Components Segment

  • Sales - $1.3 billion, up 9 percent.
  • Segment EBIT - $179 million , or 13.3 percent of sales, compared to $163 million or 13.2 percent of sales
  • Strong international revenue growth, primarily in China, more than offset sales declines in North America due to lower commercial truck production

Power Systems Segment

  • Sales - $882 million, up 9 percent
  • Segment EBIT - $57 million, or 6.5 percent of sales, compared to $46 million, or 5.7 percent of sales
  • Increased demand for industrial engines sales primarily for mining and oil & gas markets was the primary driver of revenue growth

 

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 our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward looking statements include, without limitation, statements relating to our plans and expectations for our revenues for the full year of 2017. Our 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: the adoption and implementation of global emission standards; the price and availability of energy; the pace of infrastructure development; increasing global competition among our customers; general economic, business and financing conditions; governmental action; changes in our customers’ business strategies; competitor pricing activity; expense volatility; labor relations; and other risks detailed from time to time in our Securities and Exchange Commission filings, including particularly in the Risk Factors section of our 2016 Annual Report on Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

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.

     
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
     
    Three months ended
    April 2,   April 3,
In millions, except per share amounts   2017   2016
NET SALES   $ 4,589     $ 4,291  
Cost of sales   3,461     3,235  
GROSS MARGIN   1,128     1,056  
OPERATING EXPENSES AND INCOME        
Selling, general and administrative expenses   537     490  
Research, development and engineering expenses   158     166  
Equity, royalty and interest income from investees   108     72  
Other operating income (expense), net   5     (2 )
OPERATING INCOME   546     470  
Interest income   2     6  
Interest expense   18     19  
Other income (expense), net   18     8  
INCOME BEFORE INCOME TAXES   548     465  
Income tax expense   143     132  
CONSOLIDATED NET INCOME   405     333  
Less: Net income attributable to noncontrolling interests   9     12  
NET INCOME ATTRIBUTABLE TO CUMMINS INC.   $ 396     $ 321  
         
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.        
Basic   $ 2.36     $ 1.87  
Diluted   $ 2.36     $ 1.87  
         
WEIGHTED AVERAGE SHARES OUTSTANDING        
Basic   167.5     171.8  
Diluted   168.0     172.0  
         
CASH DIVIDENDS DECLARED PER COMMON SHARE   $ 1.025     $ 0.975  
         
(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)
         
    April 2,   December 31,
In millions, except par value   2017   2016
ASSETS        
Current assets        
Cash and cash equivalents   $ 1,322     $ 1,120  
Marketable securities   145     260  
Total cash, cash equivalents and marketable securities   1,467     1,380  
Accounts and notes receivable, net   3,247     3,025  
Inventories   2,894     2,675  
Prepaid expenses and other current assets   551     627  
Total current assets   8,159     7,707  
Long-term assets        
Property, plant and equipment   7,746     7,635  
Accumulated depreciation   (3,944 )   (3,835 )

Property, plant and equipment, net

  3,802     3,800  
Investments and advances related to equity method investees   1,059     946  
Goodwill   482     480  
Other intangible assets, net   345     332  
Pension assets   785     731  
Other assets   1,002     1,015  
Total assets   $ 15,634     $ 15,011  
         
LIABILITIES        
Current liabilities        
Accounts payable (principally trade)   $ 2,168     $ 1,854  
Loans payable   48     41  
Commercial paper   274     212  
Accrued compensation, benefits and retirement costs   334     412  
Current portion of accrued product warranty   352     333  
Current portion of deferred revenue   498     468  
Other accrued expenses   941     970  
Current maturities of long-term debt   47     35  
Total current liabilities   4,662     4,325  
Long-term liabilities        
Long-term debt   1,576     1,568  
Postretirement benefits other than pensions   317     329  
Pensions   325     326  
Other liabilities and deferred revenue   1,278     1,289  
Total liabilities   $ 8,158     $ 7,837  
         
EQUITY        
Cummins Inc. shareholders’ equity        
Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.4 shares issued   $ 2,163     $ 2,153  
Retained earnings   11,265     11,040  
Treasury stock, at cost, 54.4 and 54.2 shares   (4,524 )   (4,489 )
Common stock held by employee benefits trust, at cost, 0.6 and 0.7 shares   (7 )   (8 )
Accumulated other comprehensive loss   (1,732 )   (1,821 )
Total Cummins Inc. shareholders’ equity   7,165     6,875  
Noncontrolling interests   311     299  
Total equity   $ 7,476     $ 7,174  
Total liabilities and equity   $ 15,634     $ 15,011  
         
(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)
     
    Three months ended
In millions   April 2, 2017   April 3, 2016
CASH FLOWS FROM OPERATING ACTIVITIES        
Consolidated net income   $ 405     $ 333  
Adjustments to reconcile consolidated net income to net cash provided by operating activities        

Depreciation and amortization

  139     128  
Deferred income taxes   10     (2 )
Equity in income of investees, net of dividends   (83 )   (48 )
Pension contributions in excess of expense   (23 )   (50 )
Other post-retirement benefits payments in excess of expense   (10 )   (8 )
Stock-based compensation expense   7     5  
Restructuring charges and other actions, net of cash payments       (25 )
Translation and hedging activities   11     (14 )
Changes in current assets and liabilities, net of acquisitions        
Accounts and notes receivable   (205 )   (98 )
Inventories   (202 )   (54 )
Other current assets   73     188  
Accounts payable   296     107  
Accrued expenses   (90 )   (283 )
Changes in other liabilities and deferred revenue   48     78  
Other, net   3     10  
Net cash provided by operating activities   379     267  
CASH FLOWS FROM INVESTING ACTIVITIES        
Capital expenditures   (81 )   (71 )
Investments in internal use software   (27 )   (13 )
Investments in and advances to equity investees   (20 )   (25 )
Investments in marketable securities—acquisitions   (26 )   (291 )
Investments in marketable securities—liquidations   147     35  
Cash flows from derivatives not designated as hedges   (24 )   (26 )
Other, net   4     3  
Net cash used in investing activities   (27 )   (388 )
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from borrowings       105  
Net borrowings of commercial paper   62     50  
Payments on borrowings and capital lease obligations   (11 )   (15 )
Distributions to noncontrolling interests   (10 )   (10 )
Dividend payments on common stock   (171 )   (170 )
Repurchases of common stock   (51 )   (575 )
Other, net   17     (21 )
Net cash used in financing activities   (164 )   (636 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   14     (39 )
Net increase (decrease) in cash and cash equivalents   202     (796 )
Cash and cash equivalents at beginning of year   1,120     1,711  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 1,322     $ 915  
         
(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   Intersegment    
  In millions   Engine   Distribution   Components   Systems  

Eliminations (1)

  Total
  Three months ended April 2, 2017                        
  External sales   $ 1,457     $ 1,637     $ 980     $ 515     $     $ 4,589  
  Intersegment sales   566     8     364     367     (1,305 )    
  Total sales   2,023     1,645     1,344     882     (1,305 )   4,589  
  Depreciation and amortization (2)   44     30     37     28         139  
  Research, development and engineering expenses   54     4     50     50         158  
  Equity, royalty and interest income from investees   72     11     13     12         108  
  Interest income   1     1                 2  
  Segment EBIT   229     100     179     57     1     566  
                           
  Segment EBIT as a percentage of total sales   11.3 %   6.1 %   13.3 %   6.5 %       12.3 %
                           
  Three months ended April 3, 2016                        
  External sales   $ 1,489     $ 1,458     $ 897     $ 447     $     $ 4,291  
  Intersegment sales   487     5     340     361     (1,193 )    
  Total sales   1,976     1,463     1,237     808     (1,193 )   4,291  
  Depreciation and amortization (2)   39     28     31     29         127  
  Research, development and engineering expenses   57     4     56     49         166  
  Equity, royalty and interest income from investees   36     18     8     10         72  
  Interest income   2     1     1     2         6  
  Segment EBIT   197     87     163     46     (9 )   484  
                           
  Segment EBIT as a percentage of total sales   10.0 %   5.9 %   13.2 %   5.7 %       11.3 %
                           

(1)

 

Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended April 2, 2017 and April 3, 2016.

(2)

 

Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Income as "Interest expense." The amortization of debt discount and deferred costs were less than $1 million and $1 million for the three months ended April 2, 2017 and April 3, 2016, respectively.

     

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
In millions       April 2,
2017
      April 3,
2016
Total segment EBIT       $ 566         $ 484
Less: Interest expense       18         19
Income before income taxes       $ 548         $ 465
                       

CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)

EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the reporting periods was as follows:

        Three months ended
In millions      

April 2,
2017

     

April 3,
2016

Distribution entities                
Komatsu Cummins Chile, Ltda.       $ 7         $ 10
North American distributors               5
Manufacturing entities                
Beijing Foton Cummins Engine Co., Ltd.       33         18
Dongfeng Cummins Engine Company, Ltd.       22         7
Chongqing Cummins Engine Company, Ltd.       9         8
All other manufacturers       24         16
Cummins share of net income       95         64
Royalty and interest income       13         8
Equity, royalty and interest income from investees       $ 108         $ 72
                       

Earnings before interest, income taxes and noncontrolling interests

We define EBIT as earnings before interest expense, income tax expense and noncontrolling interests in income 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. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States and may not be consistent with measures used by other companies. It should be considered supplemental data. Below is a reconciliation of “Net income attributable to Cummins Inc.” to EBIT for each of the applicable periods:

        Three months ended
In millions       April 2, 2017       April 3, 2016
Net income attributable to Cummins Inc.       $ 396         $ 321  
                 
Net income attributable to Cummins Inc. as a percentage of net sales       8.6 %       7.5 %
                 
Add                
Net income attributable to noncontrolling interests       9         12  
Consolidated net income       405         333  
                 
Add                
Interest expense       18         19  
Income tax expense       143         132  
Earnings before interest expense and income taxes       566         484  
                 
EBIT as a percentage of net sales       12.3 %       11.3 %
                     

CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)

Engine Segment Sales by Market and Unit Shipments by Engine Classification

Sales for our Engine segment by market were as follows:

2017                      
In millions     Q1   Q2   Q3   Q4   YTD
Heavy-duty truck     $ 620     $     $     $     $ 620
Medium-duty truck and bus     544                 544
Light-duty automotive     423                 423
Off-highway     436                 436
Total sales     $ 2,023     $     $     $     $ 2,023
                       
2016                      
In millions     Q1   Q2   Q3   Q4   YTD
Heavy-duty truck     $ 631     $ 622     $ 625     $ 565     $ 2,443
Medium-duty truck and bus     549     600     517     606     2,272
Light-duty automotive     433     394     345     409     1,581
Off-highway     363     386     372     387     1,508
Total sales     $ 1,976     $ 2,002     $ 1,859     $ 1,967     $ 7,804
                                         

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:

2017                      
Units     Q1   Q2   Q3   Q4   YTD
Heavy-duty     19,200            

    19,200
Medium-duty     60,300            

    60,300
Light-duty     63,100            

    63,100
Total units     142,600            

    142,600
                       
2016                      
Units     Q1   Q2   Q3   Q4   YTD
Heavy-duty     19,700     20,700     20,100     18,500     79,000
Medium-duty     55,400     62,300     53,400     58,000     229,100
Light-duty     61,700     57,100     49,800     60,000     228,600
Total units     136,800     140,100     123,300     136,500     536,700
                               

Distribution Segment Sales by Product Line

2017                      
In millions     Q1   Q2   Q3   Q4   YTD
Parts     $ 745     $     $     $     $ 745
Service     319                 319
Power generation     306                 306
Engines     275                 275
Total sales     $ 1,645     $     $     $     $ 1,645
                       
2016                      
In millions     Q1   Q2   Q3   Q4   YTD
Parts     $ 648     $ 642     $ 643     $ 694     $ 2,627
Service     299     297     299     320     1,215
Power generation     275     326     291     347     1,239
Engines     241     279     271     309     1,100
Total sales     $ 1,463     $ 1,544     $ 1,504     $ 1,670     $ 6,181
                                         

Component Segment Sales by Business

In the first quarter of 2017, our Components segment reorganized its reporting structure to move a small piece of the emission solutions business to the fuel systems business to enhance operational, administrative and product development efficiencies. Prior year balances were reclassified to conform with this change.

2017                      
In millions     Q1   Q2   Q3   Q4   YTD
Emission solutions     $ 616     $     $     $     $ 616
Turbo technologies     287                 287
Filtration     277                 277
Fuel systems     164                 164
Total sales     $ 1,344     $     $     $     $ 1,344
                       
2016                      
In millions     Q1   Q2   Q3   Q4   YTD
Emission solutions     $ 589     $ 603     $ 522     $ 524     $ 2,238
Turbo technologies     265     276     241     254     1,036
Filtration     252     262     244     252     1,010
Fuel systems     131     138     136     147     552
Total sales     $ 1,237     $ 1,279     $ 1,143     $ 1,177     $ 4,836
                       
2015                      
In millions     YTD                
Emission solutions     $ 2,449                  
Turbo technologies     1,141                  
Filtration     1,010                  
Fuel systems     572                  
Total sales     $ 5,172                  
                           

Power Systems Segment Sales by Product Line and Unit Shipments by Engine Classification

In the first quarter of 2017, the Power Systems segment reorganized its product lines to better reflect how the business is managed. Prior year sales have been reclassified to reflect these changes.

Sales for our Power Systems segment by product line were as follows:

2017                      
In millions     Q1   Q2   Q3   Q4   YTD
Power generation     $ 526     $     $    

$

    $ 526
Industrial     275            

    275
Generator technologies     81            

    81
Total sales     $ 882     $     $    

$

    $ 882
                       
2016                      
In millions     Q1   Q2   Q3   Q4   YTD
Power generation     $ 518     $ 602     $ 543     $ 593     $ 2,256
Industrial     215     236     235     255     941
Generator technologies     75     83     78     84     320
Total sales     $ 808     $ 921     $ 856     $ 932     $ 3,517
                                         

High-horsepower unit shipments by engine classification were as follows:

2017                      
Units     Q1   Q2   Q3   Q4   YTD
Power generation     1,900            

    1,900
Industrial     1,300            

    1,300
Total units     3,200            

    3,200
                       
2016                      
Units     Q1   Q2   Q3   Q4   YTD
Power generation     1,800     2,200     2,000     1,900     7,900
Industrial     1,000     1,100     1,000     1,300     4,400
Total units     2,800     3,300     3,000     3,200     12,300

 

Source: Cummins Inc.

About Cummins Inc.

Cummins Inc., a global power leader, is a corporation of complementary business segments that design, manufacture, distribute and service a broad portfolio of power solutions. The company’s products range from diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 61,600 people committed to powering a more prosperous world through three global corporate responsibility priorities critical to healthy communities: education, environment and equality of opportunity. Cummins serves its customers online, through a network of company-owned and independent distributor locations, and through thousands of dealer locations worldwide and earned about $2.3 billion on sales of $23.6 billion in 2019. See how Cummins is powering a world that’s always on by accessing news releases and more information at https://www.cummins.com/always-on.

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cummins.com

We are launching that site for you now.

Thank you.