Cummins Reports Record Third Quarter 2008 Financial Performance
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COLUMBUS, Ind.October 31, 2008: Cummins Inc. today reported its highest third quarter sales and profits ever, and second best quarter in its history, led by strong gains internationally that more than offset continued weakness in the Company’s North American consumer markets.
Third quarter sales of $3.69 billion were 10 percent higher than $3.37 billion during the same period in 2007. Net income rose 24 percent to $229 million, or $1.17 a share, compared to $184 million, or $0.92 a share a year ago. Earnings Before Interest and Taxes (EBIT) increased 24 percent to $380 million, from $306 million in the third quarter of 2007.
All four of the Company’s business segments improved their sales and Segment EBIT compared to the same period in 2007. Power Generation and Distribution had the largest percentage sales gains compared to last year, while the Components and Power Generation segments both saw their Segment EBIT as a percentage of sales increase significantly in the quarter.
Non-U.S. sales accounted for 61 percent of the Company’s revenues in the third quarter, compared to 52 percent a year ago. Cummins’ international business was particularly strong in the Power Generation segment, where sales grew 29 percent outside North America, and the Distribution segment, which saw a 28 percent increase outside North America in the quarter.
“Despite the significant challenges facing the U.S. economy and signs of economic weakness in Europe, the Company performed extremely well in the third quarter,” said Cummins Chairman and Chief Executive Officer Tim Solso. “Even more importantly, we continue to meet or exceed our profitability targets as we grow our sales. These results, which keep us on track for a fifth straight year of record financial performance, are further proof that our strategy of diversifying our product line and expanding our geographic customer base is working.
“While we expect the fourth quarter to bring more economic challenges – especially in the U.S. and Europe – Cummins has never been better positioned to ride out a turbulent economy than it is today,” Solso added. “Our debt is less than 15 percent of our total capital. We have healthy cash balances and our business operations continue to generate cash. We also have a $1.1 billion revolving credit line for additional liquidity.”
Despite the continuing economic softness in some markets, Cummins expects revenue to grow in 2008 by 12 percent from last year, down from earlier guidance of 15 percent, and to earn an EBIT margin of 10 percent on its sales.
Among the third quarter highlights:
Despite its strong overall performance, the Company is experiencing significant declines in some of its consumer markets as the U.S. economy continues to deteriorate. Revenue from the light-duty automotive and recreational vehicle markets fell 56 percent, compared to the same period in 2007, as engine shipments to Chrysler for the heavy-duty Dodge Ram pickup fell 75 percent. Within Power Generation, sales in the consumer line of business fell 34 percent in the quarter, driven primarily by sharply lower sales to the recreational vehicle and residential standby generator markets in the U.S.
Economic conditions in the U.S. and Europe are not going to improve in the fourth quarter. Cummins is closely monitoring the economic situation around the world and is taking steps to appropriately adjust spending and investment levels to ensure that the Company meets its financial commitments in the future.
“We have experience in managing through difficult economic times, and we will be proactive in monitoring our costs very closely in the short term, even as we continue to invest in profitable growth opportunities,” said Chief Financial Officer Pat Ward. “With our strong balance sheet, positive cash flow and available credit facilities we are well positioned to manage through the downturn in the economy, while delivering the products our customers expect and the financial returns our investors demand.”
Third quarter details
Sales of $2.28 billion were 6 percent higher than $2.15 billion in the same period in 2007, while Segment EBIT increased 3 percent to $160 million, or 7.0 percent of sales, from $155 million, or 7.2 percent of sales.
Sales to the heavy duty truck market increased 21 percent, driven by market share gains in North America. Medium-duty truck and bus market sales rose 13 percent, led by strong demand in Brazil and share gains in the North American bus engine market. Sales to the industrial engine markets increased 19 percent. The increases in these and other markets were partially offset by the dramatic drop in sales in the North American light-duty automotive and recreational vehicle markets.
Sales of $888 million increased 14 percent from $776 million a year ago. Segment EBIT rose 30 percent to $108 million, or 12.2 percent of sales, from $83 million, or 10.7 percent of sales.
Sales to the commercial power generation markets, the largest business in the segment, increased 25 percent, led by a 90 percent growth in sales in China, 42 percent growth in Latin America and 36 percent sales growth in India. The alternator and rental businesses also had strong sales gains.
Sales of $801 million were 8 percent higher than $741 million during the third quarter of 2007, as Segment EBIT increased 79 percent to $61 million, or 7.6 percent of sales, from $34 million, or 4.6 percent of sales.
The segment continued to see strong sales gains from the turbocharger and Emission Solutions businesses, and profitability improvements from all four lines of business as pricing and manufacturing efficiency improved. Emission Solutions sales increased 27 percent in the quarter, while turbocharger sales rose 9 percent.
Sales rose 47 percent in the quarter to $581 million, from $395 million in the same period in 2007. The increase reflects $80 million from the acquisition of three previously independent Cummins distributors; absent the acquisitions sales increased 27 percent during the quarter.
Strong engine sales in Europe and Africa, power generation in the South Pacific and Singapore, and service revenue gains in the South Pacific - primarily for mining equipment – led the organic growth.
Segment EBIT increased 33 percent to $61 million, or 10.5 percent of sales, from $46 million, or 11.6 percent of sales, a year ago. Segment EBIT gains due to stronger sales and improved margins were partially offset by unfavorable currency translation during the quarter.
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 CUMMINS. 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.