Cummins Reports Record Sales and Earnings in 2004; Fourth-Quarter Sales, Profits Also Hit All-time High
COLUMBUS, Ind.--Feb. 2, 2005--Cummins Inc. today reported record sales and earnings for 2004, fueled by strength across all business units and in most market segments.For all of 2004, Cummins posted sales of $8.44 billion, a 34 percent increase from $6.30 billion in 2003. Earnings before interest and taxes (EBIT) were $545 million, three times the $181 million the Company earned in 2003.
For the full year, Cummins reported net income of $350 million, or $7.39 per share on a diluted basis. By comparison, the Company recorded net income of $50 million, or $1.27 a share in 2003.
The Company also reported record sales of $2.35 billion in the fourth quarter, a 35 percent increase from $1.74 billion during the same period in 2003. The Company posted quarterly EBIT of $173 million -- or 7.4 percent of sales -- compared to $84 million, or 4.8 percent of sales, in 2003.
Net income in the fourth quarter was $119 million, or $2.41 a share, compared to $43 million -- $1.00 a share -- for the same period in 2003.
"The Company ended its best year ever with a strong fourth quarter that saw all our business units report record sales," said Cummins Chairman and Chief Executive Officer Tim Solso. "The industry faced a number of obstacles during the year, but our people rose to the challenge and executed well. As a result, we continued to grow our business around the world and have positioned ourselves for an even better 2005."
The Company expects to grow its EBIT by at least 30 percent in 2005 -- even as the revenue increase is expected to be only in the 7-8 percent range, Solso said.
In another sign of strong performance in 2004, the Company had record cash flow from operations and investment activities of $425 million, including $180 million in the fourth quarter.
"Our strong earnings have generated a significant amount of cash, which will allow us to reduce our debt further in the coming year -- including paying down $255 million in debt during the first quarter," said Cummins Chief Financial Officer Jean Blackwell. "We're also now in a better position to fund key growth initiatives with cash from our operations."
The Company's fourth-quarter gains were led by continued robust performance in the North American heavy-duty truck engine segment, strong worldwide increases in the Power Generation segment and growing sales at nearly every Company-owned international distributor. Power Generation completed a turnaround year in which it posted EBIT of $69 million, compared to a loss of $15 million in 2003.
Cummins income from its joint ventures around the world was $111 million in 2004, a 59 percent increase from $70 million in 2003. Cummins income from Dongfeng Cummins Engine Company in Xiangfan, China, more than doubled in 2004. The Company also saw significant strength in its North American distributor joint ventures, its joint venture operations in India and the Cummins Mercruiser joint venture.
The Company's gross margin continued to improve to 19.9 percent for the full year -- the highest figure since 1999. The Company posted strong results despite continued cost pressures on raw materials and persistent supply chain constraints due to rising sales volumes. The Company expects the rate of those increases to moderate in 2005.
The Company's fourth-quarter EPS of $2.41 exceeded its previous guidance of $2.15 - $2.25 a share and reflects a lower than anticipated effective income tax rate, primarily due to the current measurement of certain deferred tax assets.
Fourth quarter details:
Engine segment
Segment sales rose 55 percent in the fourth quarter to $1.5 billion, once again led by robust North American heavy duty truck engine shipments, which were up 89 percent from 2003. The Company's Chrysler business completed another record year by posting a 21 percent increase in shipments of engines for the Dodge Ram pickup truck. The Company also experienced strong growth in all industrial markets, especially sales to the global mining equipment market, which rose 77 percent in the quarter.
The Engine segment recorded Segment EBIT of $114 million, or 7.5 percent of sales, compared to $32 million (3.3 percent of sales) during the same period in 2003.
Power Generation segment
Sales jumped 37 percent to $538 million in the Company's Power Generation segment, leading to a doubling in Segment EBIT to $27 million in the quarter. The Company experienced strong demand worldwide for alternators and commercial generator sets.
Alternator sales rose 38 percent, while sales of commercial generator sets rose 31 percent with orders in North America hitting their highest levels since 2001. In addition to strong North American sales, the segment also enjoyed growth in most international markets, notably in the Middle East, Europe and Asia.
International Distributor segment
The Company's International Distributor segment reported record sales of $250 million and record Segment EBIT of $17 million. Nearly all the company-owned international distributors reported an increase in sales during the quarter, led by particularly strong sales in Europe, the Middle East and Southeast Asia. Sales in the Middle East rose 73 percent; Southeast Asia sales jumped 72 percent and sales in Europe increased 56 percent.
Filtration and Other segment
Sales in the Filtration and Other segment rose 41 percent to $399 million, but Segment EBIT fell to $15 million, from $25 million during the same period in 2003, due to persistent rising raw materials costs and a challenging supply chain environment. The Company also continued to make incremental investments in its Emission Solutions business to develop aftertreatment products to meet future emissions requirements.
The Company's Filtration business continues to benefit from sales growth associated with its long-term agreement partners and the Holset turbocharger division had a strong quarter paced by demand in the North American heavy-duty market and sales in China.
2005 guidance
The Company expects to earn between $1.50 - $1.60 a share in the first quarter of 2005 and between $8.00 - $8.30 a share for the full year. In addition, the Company expects to invest between $220 million and $240 million in capital expenditures in 2005 to increase manufacturing capacity and fund growth.
Presentation of Non-GAAP Financial Information
EBIT is a non-GAAP financial 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.
Webcast Information
Cummins management will host a teleconference to discuss these results at 10 a.m., EST. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com.
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 more than 160 countries through its network of 550 distributor facilities and more than 5,000 dealer locations. With more than 24,000 employees worldwide, Cummins reported sales of $8.4 billion in 2004. Press releases can be found on the Web at www.cummins.com.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended
Dec. 31, 2004 Dec. 31, 2003
Millions, except per share amounts Unaudited (a) Unaudited (a)
---------------------------------- --------------- -------------
Net sales $2,349 $1,736
Cost of sales 1,876 1,400
--------------- -------------
Gross margin 473 336
Expense and other income:
Selling and administrative expenses 281 227
Research and engineering expenses 66 52
Equity, royalty and other income from
investees (38) (26)
Interest expense 31 25
Other income, net (9) (1)
--------------- -------------
Earnings before income taxes, minority
interests, dividends on preferred
securities of subsidiary trust and
cumulative effect of change in
accounting principle 142 59
Provision (benefit) for income taxes 12 7
Minority interests in earnings of
consolidated subsidiaries 11 5
Dividends on preferred securities of
subsidiary trust - -
--------------- -------------
Earnings before cumulative effect of
change in accounting principle 119 47
Cumulative effect of change in
accounting principle, net of tax - (4)
--------------- -------------
Net earnings $119 $43
=============== =============
Basic earnings per share of common
stock:
Earnings before cumulative effect of
change in accounting principle $2.73 $1.17
Cumulative effect of change in
accounting principle, net of tax - (.09)
--------------- -------------
Net earnings per share - basic $2.73 $1.08
=============== =============
Diluted earnings per share of common
stock:
Earnings before cumulative effect of
change in accounting principle $2.41 $1.07
Cumulative effect of change in
accounting principle, net of tax - (.07)
--------------- -------------
Net earnings per share - diluted $2.41 $1.00
=============== =============
Cash dividends declared per share $0.30 $0.30
Weighted average shares outstanding:
Basic 43.6 40.1
Diluted 50.7 46.7
For the Years Ended
Dec. 31, 2004
Millions, except per share amounts Unaudited (a) Dec. 31, 2003
---------------------------------- -------------- -------------
Net sales $8,438 $6,296
Cost of sales 6,758 5,173
-------------- -------------
Gross margin 1,680 1,123
Expense and other income:
Selling and administrative expenses 1,015 830
Research and engineering expenses 241 200
Equity, royalty and other income from
investees (111) (70)
Interest expense 113 90
Other income, net (10) (18)
-------------- -------------
Earnings before income taxes, minority
interests, dividends on preferred
securities of subsidiary trust and
cumulative effect of change in
accounting principle 432 91
Provision (benefit) for income taxes 56 12
Minority interests in earnings of
consolidated subsidiaries 26 14
Dividends on preferred securities of
subsidiary trust - 11
-------------- -------------
Earnings before cumulative effect of
change in accounting principle 350 54
Cumulative effect of change in accounting
principle, net of tax - (4)
-------------- -------------
Net earnings $350 $50
============== =============
Basic earnings per share of common
stock:
Earnings before cumulative effect of
change in accounting principle $8.30 $1.37
Cumulative effect of change in
accounting principle, net of tax - (.09)
-------------- -------------
Net earnings per share - basic $8.30 $1.28
============== =============
Diluted earnings per share of common
stock:
Earnings before cumulative effect of
change in accounting principle $7.39 $1.36
Cumulative effect of change in
accounting principle, net of tax - (.09)
-------------- -------------
Net earnings per share - diluted $7.39 $1.27
============== =============
Cash dividends declared per share $1.20 $1.20
Weighted average shares outstanding:
Basic 42.2 39.3
Diluted 49.2 39.5
Three Months
Ended
Sept. 26, 2004
Millions, except per share amounts Unaudited (a)
---------------------------------- ------------------
Net sales $2,194
Cost of sales 1,760
------------------
Gross margin 434
Expense and other income:
Selling and administrative expenses 260
Research and engineering expenses 60
Equity, royalty and other income from investees (26)
Interest expense 28
Other income, net (6)
------------------
Earnings before income taxes, minority interests,
dividends on preferred securities of subsidiary
trust and cumulative effect of change in
accounting principle 118
Provision (benefit) for income taxes (4)
Minority interests in earnings of consolidated
subsidiaries 6
Dividends on preferred securities of subsidiary
trust -
------------------
Earnings before cumulative effect of change in
accounting principle 116
Cumulative effect of change in accounting
principle, net of tax -
------------------
Net earnings $116
==================
Basic earnings per share of common stock:
Earnings before cumulative effect of change in
accounting principle $2.71
Cumulative effect of change in accounting
principle, net of tax -
------------------
Net earnings per share - basic $2.71
==================
Diluted earnings per share of common stock:
Earnings before cumulative effect of change in
accounting principle $2.40
Cumulative effect of change in accounting
principle, net of tax -
------------------
Net earnings per share - diluted $2.40
==================
Cash dividends declared per share $0.30
Weighted average shares outstanding:
Basic 42.8
Diluted 49.8
(a) Prepared in accordance with accounting principles generally
accepted in the United States of America, on an unaudited basis.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Millions, except par value Dec. 31, 2004
-------------------------- Unaudited (a) Dec. 31, 2003
--------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $611 $108
Marketable securities 79 87
Receivables, net 1,160 929
Inventories 1,016 733
Deferred income taxes 301 192
Other current assets 106 81
--------------- -------------
Total current assets 3,273 2,130
Long-term assets:
Property, plant and equipment, net 1,648 1,347
Investments in and advances to equity
investees 286 339
Goodwill 355 344
Other intangible assets, net 93 92
Deferred income taxes 689 663
Other assets 183 211
--------------- -------------
Total assets $6,527 $5,126
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $346 $49
Accounts payable 823 557
Accrued product coverage and marketing
expenses 279 246
Other current liabilities 749 539
--------------- -------------
Total current liabilities 2,197 1,391
Long-term liabilities:
Long-term debt 1,299 1,380
Pensions 466 446
Postretirement benefits other than
pensions 570 577
Other liabilities 386 260
--------------- -------------
Total liabilities 4,918 4,054
Minority interests 208 123
Shareholders' equity:
Common stock, $2.50 par value, 48.2 and
48.3 shares issued 121 121
Additional contributed capital 1,167 1,113
Retained earnings 866 569
Accumulated other comprehensive loss
Minimum pension liability (499) (434)
Other components, net (41) (58)
Common stock in treasury, at cost, 2.2
and 5.6 shares (88) (225)
Common stock held in trust for
employee benefit plans, 2.2 and 2.3
shares (104) (113)
Unearned compensation (21) (24)
--------------- -------------
Total shareholders' equity 1,401 949
--------------- -------------
Total liabilities and shareholders'
equity $6,527 $5,126
=============== =============
(a) Prepared in accordance with accounting principles generally
accepted in the United States of America, on an unaudited basis.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
Millions Dec. 31, 2004
-------- Unaudited (a) Dec. 31, 2003
------------- -------------
Cash flows from operating activities:
Net earnings $350 $50
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 272 223
Loss on disposal of property, plant
and equipment 11 4
Deferred income tax benefit (50) (48)
Equity in earnings of investees, net
of dividends (28) (33)
Minority interests in earnings of
consolidated subsidiaries 26 14
Pension expense 89 61
Pension contributions (135) (118)
Stock-based compensation expense 16 5
Tax benefit on stock options
exercised 27 5
Amortization of gain on swap unwind (6) (7)
Translation and hedging activities (8) (18)
Cumulative effect of change in
accounting principle - 4
Changes in assets and liabilities:
Receivables (163) (64)
Inventories (204) (63)
Accounts payable 210 100
Accrued expenses 236 22
Other, net (29) 21
------------- -------------
Net cash provided by operating activities 614 158
------------- -------------
Cash flows from investing activities:
Capital expenditures (151) (111)
Investments in internal use software (33) (29)
Proceeds from disposals of property,
plant and equipment 12 13
Investments in and advances to equity
investees (19) (4)
Acquisition of businesses, net of cash
acquired (18) -
Investments in marketable securities -
acquisitions (152) (137)
Investments in marketable securities -
liquidations 171 134
Other, net 1 (1)
------------- -------------
Net cash used in investing activities (189) (135)
------------- -------------
Cash flows from financing activities:
Proceeds from borrowings 43 19
Payments on borrowings and capital lease
obligations (73) (150)
Net borrowings under short-term credit
agreements 20 7
Distributions to minority shareholders (8) (15)
Proceeds from issuing common stock 148 52
Dividend payments on common stock (53) (50)
Other, net (3) (8)
------------- -------------
Net cash provided by (used in) financing
activities 74 (145)
------------- -------------
Effect of exchange rate changes on cash and
cash equivalents 4 6
------------- -------------
Net increase (decrease) in cash and cash
equivalents 503 (116)
Cash and cash equivalents at beginning of
the year 108 224
------------- -------------
Cash and cash equivalents at end of the
year $611 $108
============= =============
(a) Prepared in accordance with accounting principles generally
accepted in the United States of America, on an unaudited basis.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
Power Filtration
Millions Engine Generation And Other
-------- ------- ---------- ----------
Three Months Ended Dec. 31, 2004
--------------------------------
Net sales (1) $1,530 $538 $399
Segment EBIT 114 27 15
Net assets 1,492 720 788
Three Months Ended Dec. 31, 2003
--------------------------------
Net sales $984 $392 $282
Segment EBIT 32 14 25
Net assets 1,061 499 644
For the Year Ended Dec. 31, 2004
--------------------------------
Net sales (1) $5,500 $1,877 $1,484
Segment EBIT 341 69 84
For the Year Ended Dec. 31, 2003
--------------------------------
Net sales $3,631 $1,329 $1,056
Segment EBIT 70 (15) 86
International
Millions Distributor Eliminations Total
-------- ------------- ------------ -------
Three Months Ended Dec. 31, 2004
--------------------------------
Net sales (1) $250 $(368) $2,349
Segment EBIT 17 - 173
Net assets 168 - 3,168
Three Months Ended Dec. 31, 2003
--------------------------------
Net sales $190 $(112) $1,736
Segment EBIT 13 - 84
Net assets 180 - 2,384
For the Year Ended Dec. 31, 2004
--------------------------------
Net sales (1) $856 $(1,279) $8,438
Segment EBIT 51 - 545
For the Year Ended Dec. 31, 2003
--------------------------------
Net sales $669 $(389) $6,296
Segment EBIT 40 - 181
The table below reconciles the segment information to the
corresponding amounts in the Consolidated Financial Statements.
Three Months Ended For the Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
Millions 2004 2003 2004 2003
-------- --------- --------- --------- --------
Segment EBIT $173 $84 $545 $181
Less:
Interest expense 31 25 113 90
Provision for income taxes 12 7 56 12
Minority interest in
earnings of consolidated
subsidiaries 11 5 26 14
Dividends on preferred
securities - - - 11
Cumulative effect of change
in accounting principle - 4 - 4
--------- --------- --------- --------
Consolidated net earnings $119 $43 $350 $50
========= ========= ========= ========
Net assets for operating
segments $3,168 $2,384
Liabilities deducted in
computing net assets 3,168 2,559
Minimum pension liability
excluded from net assets (826) (698)
Deferred tax assets not
allocated to segments 990 855
Debt-related costs not
allocated to segments 27 26
--------- ---------
Consolidated assets $6,527 $5,126
========= =========
(1) Prior to January 1, 2004, intersegment transactions between the
Engine segment and the Power Generation segment and between the
Filtration and Other segment and the Engine segment were reported at
cost and no sale reported by the transferor segment. Beginning January
1, 2004, this inter-segment activity is reflected in the sales and
unit shipments of the transferor segments at a market based transfer
price discounted for certain items; further, certain intersegment cost
allocations to the transferor segments have been eliminated. In
addition, certain engines made by the Engine segment and sold to
International Distributors through Power Generation were previously
recorded as a sale to Power Generation; however under the new
methodology Power Generation records a sales commission. We believe
the methodology change allows our segment management to focus on those
pricing decisions and cost structuring actions that are within their
control. As a result of the change in methodology in the three and
twelve months ended December 31, 2004, sales in the Engine segment
increased $139 million and $496 million, respectively, sales in the
Power Generation segment increased $1 million and decreased $30
million, respectively, sales in the Filtration and Other segment
increased $52 million and $205 million, respectively and eliminations
increased $192 million and $671 million, respectively. The impact on
segment EBIT was immaterial for each segment in both periods.
NON-GAAP FINANCIAL MEASURES (Unaudited)
Earnings before interest, taxes, minority interests and preferred
dividends (EBIT)
We define EBIT as earnings before interest, taxes, minority
interests, preferred dividends and the cumulative effect of any
accounting changes. 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 earnings, for each
of the applicable periods:
Three
Months
Three Months Ended For the Year Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Sept. 26,
Millions 2004 2003 2004 2003 2004
-------- --------- --------- --------- -------- ---------
Earnings before
interest, income
taxes, minority
interests
and dividends on
preferred securities
of subsidiary trust $173 $84 $545 $181 $146
EBIT as a percentage
of net sales 7.4% 4.8% 6.5% 2.9% 6.7%
Less:
Interest expense 31 25 113 90 28
Provision (benefit)
for income taxes 12 7 56 12 (4)
Minority interests
in earnings of
consolidated
subsidiaries 11 5 26 14 6
Dividends on
preferred
securities of
subsidiary trust - - - 11 -
Cumulative effect
of change in
accounting
principle - 4 - 4 -
--------- --------- --------- -------- ---------
Net earnings $119 $43 $350 $50 $116
========= ========= ========= ======== =========
Net earnings as a
percentage of net
sales 5.1% 2.5% 4.1% 0.8% 5.3%
-- Interest expense between accounting periods is not comparable
due to the issuance of a new accounting standard. In May 2003,
the FASB issued SFAS 150 which required that dividends on our
Convertible Preferred Securities of Subsidiary Trust be
classified as interest expense after July 1, 2003. This
reclassification results in interest expense not being
comparable for the periods presented.
-- 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.
Supplemental Data
Sales
$Millions Q1 Q2 Q3 Q4 YTD
---------------------------------------
2004
Engine Business
Heavy-Duty Truck 341 445 466 491 1,743
Medium Duty Truck+Bus 165 192 195 221 773
Light Duty Auto+RV 274 304 299 299 1,176
Industrial 260 324 334 368 1,286
Stationary Power 99 128 144 151 522
---------------------------------------
TOTAL ENGINE BUSINESS 1,139 1,393 1,438 1,530 5,500
Power Generation 369 468 502 538 1,877
Filtration / Other 347 369 369 399 1,484
Int'l. Distributors 171 220 215 250 856
Eliminations (255) (326) (330) (368) (1,279)
---------------------------------------
TOTAL 1,771 2,124 2,194 2,349 8,438
=======================================
2003
Engine Business
Heavy-Duty Truck 236 266 278 320 1,100
Medium Duty Truck+Bus 122 141 140 157 560
Light Duty Auto+RV 222 228 264 221 935
Industrial 236 254 260 286 1,036
---------------------------------------
TOTAL ENGINE BUSINESS 816 889 942 984 3,631
Power Generation 267 307 363 392 1,329
Filtration / Other 254 265 255 282 1,056
Int'l. Distributors 136 169 174 190 669
Eliminations (86) (91) (100) (112) (389)
---------------------------------------
TOTAL 1,387 1,539 1,634 1,736 6,296
=======================================
Engine Shipments
Units Q1 Q2 Q3 Q4 YTD
---------------------------------------
2004
Midrange 79,700 91,400 88,200 88,700 348,000
Heavy-duty 15,900 22,100 23,200 26,000 87,200
High Horsepower 2,200 3,100 3,200 3,600 12,100
---------------------------------------
TOTAL 97,800 116,600 114,600 118,300 447,300
=======================================
2003
Midrange 66,300 69,800 73,800 70,900 280,800
Heavy-duty 10,700 12,800 13,200 16,000 52,700
High Horsepower 1,900 2,000 2,400 2,500 8,800
---------------------------------------
TOTAL 78,900 84,600 89,400 89,400 342,300
=======================================
