Cummins Inc. Reports Earnings For The Second Quarter 2002
COLUMBUS, Ind.--July 19, 2002--Today Cummins Inc. reported second quarter earnings of $.33 per share, or $13 million profit after taxes, on sales of $1.46 billion. This compares to a loss of $2.14 per share, or an $82 million loss after taxes in the second quarter of 2001 on flat sales of $1.46 billion. The loss in 2001 was inclusive of a $125 million pre-tax charge associated with restructuring actions."Our earnings this quarter reflect the beginning of a slow recovery in our industry and the continued success of our Six Sigma, cost reduction, and quality improvement programs at Cummins," said Chairman and Chief Executive Officer Tim Solso. "Despite flat sales from a year ago, we were able to deliver higher operating earnings and considerable improvement in earnings per share for the quarter."
"The majority of our end markets remain at very low levels; however, we believe we reached the bottom in most of these markets in the first quarter of this year and are now seeing moderate improvement. We expect this trend to continue."
The Company experienced particular strength in its Dodge Ram and recreational vehicle businesses. Higher order rates for heavy duty-duty trucks and continued growth in several markets segments in China also positively impacted earnings in the quarter. A breakdown of results for Cummins four business units is listed below.
Engine Business
Total sales in the Engine Business in the second quarter were $850 million, an 8 percent increase over sales of $786 million a year ago. Revenues in the automotive markets, which as a whole were up 13 percent year-over-year, reflected increases across all segments. Overall revenue from industrial markets was down slightly year-over-year, with decreases in mining and construction sales, partially offset by increased sales in agricultural and rail markets.
In April, Cummins became the first engine manufacturer to receive EPA certification of its engines for the October 2002 emissions standard. By October, the certified ISX engine will have over 6 million miles of field-testing completed by customers running these engines. The Engine Business is well positioned for a continued market upturn and stands to grow share as well as improve profitability.
Power Generation
Revenues of $304 million in Power Generation were down 21 percent from the second quarter of 2001. In North America, revenues were down 26 percent compared to a year ago, with lower demand in our commercial genset business due to lower economic activity generally, reduced emergency power needs, and high inventory levels in the marketplace. This decrease was partially offset by increased demand in our consumer business, primarily recreational vehicle sales. Consumer business revenues increased 23 percent compared to the second quarter of 2001.
Outside North America, revenues declined in Europe, India, and China compared to the second quarter of 2001 due to lower demand. Revenues increased in Latin America by 17 percent year-over-year, due to the continued effects of the energy crisis.
Filtration Business and Other
Revenues for the Filtration and Other segment of $243 million improved 8 percent compared to the second quarter of 2001. Filtration business revenue increased in North America, primarily due to higher OEM sales where Cummins has higher market penetration. Revenues at the Holset turbocharger business increased from a year ago, helped in part by continued strong sales in China.
International Distributor Business
Sales for the International Distributor Business were $145 million in the quarter, an increase of $2 million from last year. Increased sales in Australia and Asia were partially offset by sales declines in Europe.
Outlook
For the remainder of 2002, the Company expects some improvement in the majority of it's markets, with the exception of the heavy-duty truck segment, which is expected to see volatility in the remaining two quarters of 2002. The heavy-duty truck segment will provide stronger earnings in the third quarter than previously forecasted, with lower earnings in the fourth quarter.
"As demonstrated in this quarter's earnings, we continued to make progress on our cost reduction efforts, allowing us to substantially lower our breakeven point," said Solso. "This, combined with strength in our Chrysler and RV business, will permit us to maintain profitability, despite a short-term fall-off in the heavy-duty market."
Guidance for the full year 2002 remains in the previously announced range of $.70 to $.80 cents per share. The Company expects to deliver profit in the range of $.90 to $1.00 per share in the third quarter. Total company sales for the year are still expected to be flat to up 5% compared to 2001. The Company now expects Power Generation sales to be down at least 10%, with Engine Business sales up nearly 10% compared to last year. The International Distributor Business and the Filtration and Other Business are expected to deliver modest increases in sales. Continued emphasis on cost reduction in all business units will also contribute toward the Company's expectations of full year profitability.
A global power leader, Cummins Inc., is a corporation of complementary business units that design, manufacture, distribute, and service electrical power generation systems, engines, and related technologies, including fuel systems, controls, air handling, filtration, and emissions solutions. Headquartered in Columbus, Indiana (USA), Cummins serves its customers through more than 500 company-owned and independent distributor locations in 131 countries and territories. With 24,900 employees worldwide, Cummins reported sales of $5.7 billion in 2001. Press releases by fax can be requested by calling News On Demand (toll free) at 888-329-2305. Cummins home page can be found at www.cummins.com.
Information provided and statements made on the webcast and in this release that are nor 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. Its 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.
(Millions, except per share amounts)
Unaudited
For The Second Quarter Ended June 30, 2002 June 24, 2001
Net Sales $ 1,458 $ 1,461
Before special charges
Earnings before interest and taxes $ 45 $ 31
Net earnings 12 2
Basic earnings per share $ .31 $ .06
Diluted earnings per share .31 .06
Weighted-average number of shares for EPS:
Basic 38.5 38.2
Diluted 39.0 38.4
As reported
Earnings (loss) before interest and taxes $ 46 $ (94)
Net earnings (loss) 13 (82)
Basic earnings (loss) per share $ .33 $ (2.14)
Diluted earnings (loss) per share .33 (2.14)
Weighted-average number of shares for EPS:
Basic 38.5 38.2
Diluted 39.0 38.2
For The First Half Ended June 30, 2002 June 24, 2001
Net Sales $ 2,791 $ 2,810
Before special charges
Earnings before interest and taxes $ 30 $ 25
Net loss (17) (24)
Basic loss per share $ (.44) $ (.62)
Diluted loss per share (.44) (.62)
As reported
Earnings (loss) before interest and taxes $ 31 $ (100)
Net loss (16) (108)
Basic loss per share $ (.42) $ (2.82)
Diluted loss per share (.42) (2.82)
Weighted-average number of shares for EPS:
Basic 38.5 38.2
Diluted 38.5 38.2
Cummins Inc.
Consolidated Statement of Earnings
for the Second Quarter and First Half
Ended June 30, 2002 and June 24, 2001
Unaudited
Second Quarter First Half First Quarter
Millions, except per
share amounts 2002 2001 2002 2001 2002
Net sales $1,458 $1,461 $2,791 $2,810 $1,333
Cost of goods sold 1,184 1,192 2,291 2,309 1,107
Gross margin 274 269 500 501 226
Selling and
administrative expenses 186 183 372 366 186
Research and engineering
expenses 55 58 111 111 56
Joint ventures and
alliances income (7) (3) (7) (5) -
Interest expense 17 23 31 46 14
Other (income) expense,
net (5) - (6) 4 (1)
Restructuring, asset
impairment and other
non-recurring charges (1) 125 (1) 125 -
Earnings (loss) before
income taxes 29 (117) - (146) (29)
Provision (benefit) for
income taxes 6 (39) (3) (46) (9)
Minority interest 5 4 8 8 3
Dividends on preferred
securities of subsidiary
trust 5 - 11 - 6
Net earnings (loss) $ 13 $ (82) $ (16) $ (108) $ (29)
Basic earnings (loss)
per share $ .33 $ (2.14) $ (.42) $ (2.82) $ (.75)
Diluted earnings (loss)
per share .33 (2.14) (.42) (2.82) (.75)
Average number of shares:
Basic EPS 38.5 38.2 38.5 38.2 38.5
Diluted EPS 39.0 38.2 38.5 38.2 38.5
Cash dividends declared
per share $ .30 $ .30 $ .60 $ .60 $ .30
Cummins Inc.
Consolidated Statement of Financial Position
Unaudited
Millions June 30, 2002 Dec. 31, 2001
Assets
Current assets:
Cash and cash equivalents $ 101 $ 92
Receivables, net of allowance of $11
and $9 843 656
Inventories 721 688
Other current assets 221 199
1,886 1,635
Investment in and advances to joint
ventures and alliances 248 216
Property, plant and equipment 2,959 3,008
Less accumulated depreciation 1,614 1,603
1,345 1,405
Goodwill 344 343
Other intangibles 99 109
Deferred income taxes 422 422
Other assets 189 205
Total assets $4,533 $4,335
Liabilities and shareholders' investment
Current liabilities:
Loans payable $ 68 $ 21
Current maturities of long-term debt 134 9
Accounts payable 498 366
Other accrued expenses 590 574
1,290 970
Long-term debt 789 915
Other liabilities 1,050 1,051
Minority interest 87 83
Cummins-obligated mandatorily redeemable
convertible preferred securities of
subsidiary trust holding solely
convertible subordinated debentures of
Cummins 291 291
Shareholders' investment:
Common stock, $2.50 par value, 150
million shares authorized, 48.3 and
48.6 shares issued... 121 121
Additional contributed capital 1,123 1,131
Retained earnings 526 567
Accumulated other comprehensive income (297) (326)
Common stock in treasury, at cost, 7.0
and 7.2 shares (280) (289)
Common stock held in trust for
employee benefit plans, 2.8 and 2.9
shares (135) (140)
Unearned compensation (32) (39)
1,026 1,025
Total liabilities and shareholders'
investment $4,533 $4,335
Cummins Inc.
Consolidated Statement of Cash Flows
Unaudited
First Half Ended
Millions June 30, 2002 June 24, 2001
Cash flows from operating activities:
Net loss $ (16) $ (108)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization 108 118
Restructuring and other
non-recurring actions (8) 111
Equity in losses of joint ventures
and alliances 3 3
Changes in assets and liabilities:
Receivables (193) (42)
Net proceeds (reductions) from
receivables sold 15 (103)
Inventories (38) 37
Accounts payable and accrued expenses 148 80
Income taxes payable (16) (50)
Other 21 11
Total adjustments 40 165
Net cash provided by operating activities 24 57
Cash flows provided by (used in) investing
activities:
Property, plant and equipment:
Additions (34) (122)
Disposals 3 2
Proceeds from sale-leaseback - 119
Investments in and advances to joint
ventures and alliances (38) (19)
Acquisition of businesses (5) -
Disposition of businesses 38 1
Other - 1
Net cash used in investing activities (36) (18)
Net cash provided by (used in) operating
and investing activities (12) 39
Cash flows provided by (used in) financing
activities:
Proceeds from borrowings 3 -
Payments on borrowings (12) (6)
Net payments (borrowings) under
short-term credit agreements 53 (247)
Dividend payments on common stock (25) (25)
Issuance of mandatorily redeemable
preferred securities - 292
Other 1 (10)
Net cash provided by financing activities 20 4
Effect of exchange rate changes on cash
and cash equivalents 1 (1)
Net change in cash and cash equivalents 9 42
Cash and cash equivalents at the
beginning of the year 92 62
Cash and cash equivalents at the end of
the first half $ 101 $ 104
Cummins Inc.
Segment Information
Unaudited
Power Filt- Inter- Elimin-
Millions Engine Genera- ration national ations Total
tion And Other Distributor
Second Quarter
Ended June 30,
2002
Net sales $ 850 $ 304 $ 243 $ 145 $ (84) $1,458
Earnings (loss)
before interest,
income taxes
and special
charges 14 (2) 23 10 45
Special charges (6) 1 - 4 (1)
Earnings (loss)
before interest
and income
taxes 20 (3) 23 6 46
Net assets 772 311 637 185 1,905
Second Quarter
Ended June 24,
2001
Net sales $ 786 $ 384 $ 225 $ 143 $ (77) $1,461
Earnings (loss)
before interest,
income taxes
and special
charges (24) 32 16 7 31
Special charges 118 5 1 1 125
Earnings (loss)
before interest
and income
taxes (142) 27 15 6 (94)
Net assets 1,050 421 664 190 2,325
First Half Ended
June 30, 2002
Net sales $1,626 $ 587 $ 471 $ 269 $ (162) $2,791
Earnings (loss)
before interest,
income taxes
and special
charges (5) (17) 41 11 30
Special charges (6) 1 - 4 (1)
Earnings (loss)
before interest
and income taxes 1 (18) 41 7 31
First Half Ended
June 24, 2001
Net sales $1,554 $ 693 $ 440 $ 276 $ (153) $2,810
Earnings (loss)
before interest,
income taxes
and special
charges (58) 40 32 11 25
Special charges 118 5 1 1 125
Earnings (loss)
before interest
and income
taxes (176) 35 31 10 (100)
Product Revenues as Percent of Total Sales
------------------------------------------
% of Consolidated Sales Q1 Q2 Q3 Q4 YTD
2002:
Engines 44 46 45
Non-Engine Products 56 54 55
2001:
Engines 47 44 45 43 45
Non-Engine Products 53 56 55 57 55
Sales
-----
$Millions Q1 Q2 Q3 Q4 YTD
2002:
Engine Business
Heavy-Duty Truck 219 265 484
Medium Duty Truck+Bus 138 157 295
Light Duty Auto+RV 157 179 336
Industrial 262 249 511
TOTAL ENGINE BUSINESS 776 850 1,626
Power Generation 283 304 587
Int'l. Distributors 124 145 269
Filtration / Other 228 243 471
Eliminations (78) (84) (162)
TOTAL 1,333 1,458 2,791
2001:
Engine Business
Heavy-Duty Truck 236 235 222 247 940
Medium Duty Truck+Bus 144 147 135 151 577
Light Duty Auto+RV 121 151 165 139 576
Industrial 267 253 245 263 1,028
TOTAL ENGINE BUSINESS 768 786 767 800 3,121
Power Generation 309 384 371 358 1,422
Int'l. Distributors 133 143 136 150 562
Filtration / Other 215 225 211 238 889
Eliminations (76) (77) (77) (83) (313)
TOTAL 1,349 1,461 1,408 1,463 5,681
Engine Shipments
----------------
Units Q1 Q2 Q3 Q4 YTD
----- -- -- -- -- ---
2002:
Midrange 60,500 67,000 127,500
Heavy-duty 11,200 14,700 25,900
High Horsepower 2,100 2,100 4,200
TOTAL 73,800 83,800 157,600
2001:
Midrange 58,300 66,500 61,500 57,200 243,500
Heavy-duty 14,600 14,400 14,000 14,400 57,400
High Horsepower 2,800 2,800 2,800 2,600 11,000
TOTAL 75,700 83,700 78,300 74,200 311,900