Cummins Reports Strong First-Quarter 2006 Earnings
COLUMBUS, Ind.--April 28, 2006--Cummins Inc. today reported strong first-quarter earnings of $135 million, or $2.70 per diluted share, powered by sales growth across most of its markets and product lines, and continued gross margin strength. Sales for the quarter totaled $2.68 billion.Based on its first-quarter performance and its forecast for the remainder of the year, Cummins also is increasing its 2006 full-year guidance today. The Company now expects to earn between $12.40 and $12.60 a share in 2006, up from its original guidance of $11.90 - $12.10 a share. The Company expects to earn between $3.35 and $3.45 a share in the second quarter.
"As we have been saying for some time, we're confident 2006 will be an even better year than our record 2005 and these results indicate that we are on our way to achieving our goals," said Cummins Chairman and Chief Executive Officer Tim Solso. "Our first-quarter performance reflects considerable strength along the breadth of our product line and in markets around the world.
"We have become a less cyclical, more diversified company, and as our operating performance continues to improve and we strengthen our balance sheet, we are increasingly well-positioned for the future."
In the first quarter, Indiana passed a tax bill that will, over time, lower Cummins' effective tax rate in the state. As a result, however, Cummins' first-quarter results include a one-time charge of approximately $12 million, or 23 cents a share, for adjustments required as a consequence of this legislation.
The Company's first-quarter performance was significantly stronger than the same period in 2005. For the first quarter, net income rose 39 percent from $97 million, or $1.96 per diluted share, during the first quarter of 2005. Revenues increased 21 percent, from $2.21 billion a year ago.
Earnings Before Interest and Taxes (EBIT) rose 56 percent to $255 million, from $163 million in the first quarter of 2005. EBIT as a percentage of sales was 9.5 percent, compared to 7.4 percent a year ago. Gross margins for the quarter also improved from the same period a year ago, increasing to 22.4 percent from 20.7 percent.
The Company's Engine segment enjoyed its most profitable quarter ever, while the Power Generation and Distribution segments posted strong sales and earnings during the quarter. The Company's fourth business segment - Components - began to see improvement in earnings while continuing to invest in technologies critical to the Company's future success.
First-quarter details
Engine Segment
Segment EBIT of $179 million was a record and a 53 percent increase from the first quarter of 2005. Segment EBIT as a percentage of sales was 9.8 percent, compared to 7.9 percent during the first quarter of 2005.
Engine sales rose 23 percent to $1.82 billion, led by stronger-than-expected volumes across nearly all markets. Global heavy-duty truck engine shipments rose 22 percent from the same period in 2005, while bus shipments increased 35 percent, construction shipments increased 29 percent and global light-duty automotive shipments rose 36 percent.
Power Generation Segment
Power Generation sales of $536 million were 26 percent higher than during the first quarter of 2005, while Segment EBIT tripled to $45 million, or 8.4 percent of sales, in the quarter.
Commercial generator sales, which represent more than half of the segment's total sales, rose 32 percent from the same period last year led by strong growth in North America and the Middle East. Consumer generator sales rose 14 percent, while Power Electronics sales increased 53 percent compared to the same period a year ago.
Distribution Segment
Distribution Segment sales of $317 million were 25 percent higher than during the first quarter 2005, while Segment EBIT rose 55 percent to $31 million, or 9.8 percent of sales. Quarterly sales and Segment EBIT were the second-highest ever, trailing only the fourth quarter of 2005.
Sales increased across all product lines, led by a 27 percent increase in sales of Power Generation products and a 20 percent rise in parts sales. From a geographic perspective, sales were particularly strong in the Middle East and Europe. Profits at the Company's joint venture distributors in all regions also improved.
Components Segment
Sales in the Company's Components Segments - made up of the Company's filtration, turbocharger, fuel systems and exhaust aftertreatment businesses - increased 17 percent to $555 million, while Segment EBIT rose 35 percent to $31 million, or 5.6 percent of sales.
The Filtration business benefited from strong aftermarket sales and sales to original equipment makers in North and Latin America. The Segment saw higher return on sales, despite continued investment in research and engineering to develop new products for 2007 and beyond.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (a)
Three months ended
--------------------------------
April 2, March 27, December 31,
2006 2005 2005
--------- --------- ------------
Millions
(except per share amounts)
Net sales $ 2,678 $ 2,208 $ 2,753
Cost of sales 2,079 1,752 2,134
--------- --------- ------------
Gross margin 599 456 619
Operating expenses and income
Selling and administrative
expenses 301 259 313
Research and engineering expenses 82 63 71
Investee equity, royalty and other
income (31) (34) (28)
Other operating income, net (1) -- (1)
--------- --------- ------------
Operating earnings 248 168 264
Interest income (9) (5) (9)
Interest expense 27 28 26
Other expenses, net 2 10 4
--------- --------- ------------
Earnings before income taxes and
minority interests 228 135 243
Provision for income taxes 85 34 63
Minority interests in earnings of
consolidated subsidiaries 8 4 13
--------- --------- ------------
Net earnings $ 135 $ 97 $ 167
========= ========= ============
Earnings per share
Basic $ 3.04 $ 2.20 $ 3.75
Diluted $ 2.70 $ 1.96 $ 3.31
Cash dividends declared per share $ 0.30 $ 0.30 $ 0.30
(a) Prepared on an unaudited basis in accordance with accounting
principles generally accepted in the United States of America.
Certain reclassifications have been made to 2005 amounts to
conform to the 2006 presentation.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
April 2, December 31,
2006 2005
--------- ------------
Millions
(except par value)
ASSETS
Current assets
Cash and cash equivalents $ 676 $ 779
Marketable securities 58 61
Receivables, net 1,620 1,423
Inventories 1,251 1,174
Deferred income taxes 365 363
Prepaid expenses and other current assets 118 116
--------- ------------
Total current assets 4,088 3,916
Long-term assets
Property, plant and equipment, net 1,535 1,557
Investments in and advances to equity
investees 287 278
Goodwill 358 358
Other intangible assets, net 105 100
Deferred income taxes 449 500
Other assets 175 176
--------- ------------
Total assets $ 6,997 $6,885
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 162 $ 154
Accounts payable 1,014 904
Other accrued expenses 1,080 1,160
--------- ------------
Total current liabilities 2,256 2,218
Long-term liabilities
Long-term debt 1,164 1,213
Pensions 386 396
Postretirement benefits other than pensions 550 554
Other liabilities and deferred revenue 428 415
--------- ------------
Total liabilities 4,784 4,796
--------- ------------
Minority interests 235 225
Shareholders' equity
Common stock, $2.50 par value, 150 shares
authorized, 48.7 and 48.5 shares issued 122 121
Additional contributed capital 1,205 1,201
Retained earnings 1,480 1,360
Accumulated other comprehensive loss
Minimum pension liability adjustment (523) (523)
Foreign currency translation adjustments (75) (84)
Unrealized gain on marketable securities 2 3
Unrealized gain on derivatives 8 1
--------- ------------
Total accumulated other comprehensive
loss (588) (603)
--------- ------------
Common stock in treasury, at cost, 2.2 and
2.0 shares (132) (101)
Common stock held in trust for employee
benefit plans, 2.0 and 2.0 shares (95) (97)
Unearned compensation (14) (17)
--------- ------------
Total shareholders' equity 1,978 1,864
--------- ------------
Total liabilities and shareholders' equity $ 6,997 $6,885
========= ============
(a) Prepared on an unaudited basis in accordance with accounting
principles generally accepted in the United States of America.
Certain reclassifications have been made to 2005 amounts to
conform to the 2006 presentation.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
Three months ended
-----------------------
April 2, March 27,
2006 2005
----------- -----------
Millions
Net cash provided by (used in) operating
activities $ 18 $ (62)
----------- -----------
Cash flows from investing activities
Capital expenditures (52) (31)
Investments in marketable securities--
acquisitions (38) (26)
Investments in marketable securities--
liquidations 42 39
Other, net 10 --
----------- -----------
Net cash used in investing activities (38) (18)
----------- -----------
Cash flows from financing activities
Proceeds from borrowings 19 25
Payments on borrowings and capital lease
obligations (64) (294)
Dividend payments on common stock (14) (14)
Proceeds from issuing common stock 4 7
Repurchases of common stock (36) --
Other, net 7 8
----------- -----------
Net cash used in financing activities (84) (268)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents 1 (2)
----------- -----------
Net decrease in cash and cash equivalents (103) (350)
Cash and cash equivalents at beginning of
year 779 611
----------- -----------
Cash and cash equivalents at end of period $ 676 $ 261
=========== ===========
(a) Prepared on an unaudited basis in accordance with accounting
principles generally accepted in the United States of America.
Certain reclassifications have been made to the 2005 amounts to
conform to 2006 presentation.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
Power
Engine Generation Components Distribution Eliminations Total
------ ---------- ---------- ------------ ------------ -----
Millions
Three
months
ended
April 2,
2006
Net sales $1,821 $536 $555 $317 $(551) $2,678
Investee
equity,
royalty
and
other
income 17 3 2 9 -- 31
Segment
EBIT 179 45 31 31 (31) 255
Net
assets 1,526 752 965 366 -- 3,609
Three
months
ended
March
27, 2005
Net sales $1,480 $427 $473 $253 $(425) $2,208
Investee
equity,
royalty
and
other
income 25 1 2 6 -- 34
Segment
EBIT 117 15 23 20 (12) 163
Net
assets 1,166 595 938 295 -- 2,994
Three
months
ended
December
31, 2005
Net sales $1,838 $575 $535 $346 $(541) $2,753
Investee
equity,
royalty
and
other
income 13 3 1 11 -- 28
Segment
EBIT 156 49 24 33 7 269
Net
assets 1,518 718 944 299 -- 3,479
A reconciliation of our segment information to the corresponding
amounts in the Consolidated Financial Statements is shown in the table
below:
Three Months Ended
-------------------------------
April 2, March 27, December 31,
2006 2005 2005
-------- --------- ------------
Millions
Segment EBIT $ 255 $ 163 $ 269
Less:
Interest expense 27 28 26
-------- --------- ------------
Earnings before income taxes and
minority interests $ 228 $ 135 $ 243
======== ========= ============
April 2, March 27, December 31,
2006 2005 2005
---------- --------- ------------
Millions
Net assets for operating segments $ 3,609 $ 2,994 $ 3,479
Liabilities deducted in arriving at
net assets 3,385 3,252 3,354
Minimum pension liability excluded
from net assets (837) (826) (837)
Deferred tax assets not allocated
to segments 814 978 863
Debt-related costs not allocated to
segments 26 27 26
---------- --------- ------------
Total assets $ 6,997 $ 6,425 $ 6,885
========== ========= ============
Certain reclassifications have been made to 2005 amounts to conform to
the 2006 presentation.
CUMMINS INC. AND CONSOLIDATED 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 earnings, for each of the
applicable periods:
Three Months Ended
--------------------------------
April 2, March 27, December 31,
2006 2005 2005
--------- --------- ------------
Millions
Earnings before interest, income
taxes and minority interests $ 255 $ 163 $ 269
EBIT as a percentage of net sales 9.5 % 7.4 % 9.8 %
Less:
Interest expense 27 28 26
Provision for income taxes 85 34 63
Minority interests in earnings of
consolidated subsidiaries 8 4 13
--------- --------- ------------
Net earnings $ 135 $ 97 $ 167
========= ========= ============
Net earnings as a percentage of net
sales 5.0 % 4.4 % 6.1 %
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.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)
NOTE 1. EARNINGS PER SHARE
The following is a reconciliation of net earnings and
weighted-average common shares outstanding for purposes of calculating
basic and diluted net earnings per share:
Three months ended
---------------------------------
April 2, March 27, December 31,
2006 2005 2005
---------- --------- ------------
Millions
(except per share amounts)
Net earnings for basic EPS $ 134.6 $ 96.6 $ 166.8
Interest on junior convertible
subordinated debentures, net of
tax 3.2 3.2 3.2
---------- --------- ------------
Net earnings for diluted EPS $ 137.8 $ 99.8 $ 170.0
========== ========= ============
Weighted-average common shares
outstanding:
Basic 44.3 43.9 44.5
Dilutive effect of stock
compensation awards 0.4 0.6 0.5
Dilutive effect of junior
convertible subordinated
debentures 6.3 6.3 6.3
---------- --------- ------------
Diluted 51.0 50.8 51.3
========== ========= ============
Earnings per share:
Basic $ 3.04 $ 2.20 $ 3.75
Diluted $ 2.70 $ 1.96 $ 3.31
NOTE 2. INVESTEE EQUITY, ROYALTY AND OTHER INCOME
Investee equity, royalty and other income included in our
Condensed Consolidated Statements of Earnings for the interim
reporting periods was as follows:
Three months ended
---------------------------------
April 2, March 27, December 31,
2006 2005 2005
---------- --------- ------------
Millions
Dongfeng Cummins Engine Company, Ltd $ 5 $ 15 $ 3
North American distributors 9 6 10
Cummins Mercruiser 1 2 2
Chongqing Cummins 3 2 2
Tata Cummins 3 1 2
Fleetguard Shanghai 1 1 1
All others 4 1 4
---------- --------- ------------
Cummins share of net earnings 26 28 24
Royalty and other income 5 6 4
---------- --------- ------------
Investee equity, royalty and other
income $ 31 $ 34 $ 28
========== ========= ============
NOTE 3. PROVISION FOR INCOME TAXES
Our income tax provision for the three months ended April 2, 2006,
was increased due to a tax bill passed in Indiana during March 2006
that will have the effect of lowering our effective tax rate in
Indiana over time. As a result, our first quarter tax provision
includes a $12 million charge to adjust deferred tax assets to their
ultimate expected realizable value based upon this action. Absent this
charge, our effective tax rate was 32 percent for the quarter. If
Congress passes a tax bill in 2006 that includes provisions to extend
the research tax credits, we believe such action will reduce our
effective tax rate to 31 percent for the year.
NOTE 4. DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense included in operating
activities of the Condensed Consolidated Statements of Cash Flows was
as follows:
Three months ended
--------------------
April 2, March 27,
2006 2005
---------- ---------
Millions
Depreciation and amortization $ 74 $ 72
Supplemental Data
Sales
$Millions Q1 Q2 Q3 Q4 YTD
----------------------------------------
2006
Engine
Business
Heavy-Duty
Truck 608 608
Medium Duty
Truck+Bus 231 231
Light Duty
Auto+RV 315 315
Industrial 481 481
Stationary
Power 186 186
----------------------------------------
TOTAL ENGINE
BUSINESS 1,821 0 0 0 1,821
Power
Generation 536 536
Components 555 555
Distributors 317 317
Eliminations (551) (551)
----------------------------------------
TOTAL 2,678 0 0 0 2,678
========================================
2005
Engine
Business
Heavy-Duty
Truck 494 553 524 568 2,139
Medium Duty
Truck+Bus 191 228 238 261 918
Light Duty
Auto+RV 255 269 314 326 1,164
Industrial 399 458 427 507 1,791
Stationary
Power 141 159 169 176 645
----------------------------------------
TOTAL ENGINE
BUSINESS 1,480 1,667 1,672 1,838 6,657
Power
Generation 427 493 504 575 1,999
Components 473 511 481 535 2,000
Distributors 253 297 295 346 1,191
Eliminations (425) (478) (485) (541) (1,929)
----------------------------------------
TOTAL 2,208 2,490 2,467 2,753 9,918
========================================
----------------------------------------------------------------------
----------------------------------------------------------------------
Engine Shipments
Units Q1 Q2 Q3 Q4 YTD
----------------------------------------
2006
Midrange 114,500 114,500
Heavy-duty 30,100 30,100
High
Horsepower 3,700 3,700
----------------------------------------
TOTAL 148,300 0 0 0 148,300
========================================
2005
Midrange 91,100 101,600 106,100 120,400 419,200
Heavy-duty 24,900 27,500 26,300 28,900 107,600
High
Horsepower 3,100 3,800 3,300 4,200 14,400
----------------------------------------
TOTAL 119,100 132,900 135,700 153,500 541,200
========================================
