Cummins plans to make payments on debt and pensions

October 18, 2002

COLUMBUS, Ind. Dan Hart wrting for Bloomberg repots that Cummins Inc., the maker of diesel engines that had its debt rating cut to junk status this week, plans to make payments on $125 million of bonds due in the first quarter of 2003.

The company will also meet pension obligations, Chairman Tim Solso told analysts and investors on his conference call two days after Standard & Poor's lowered the rating affecting about $925 million in debt securities because of lower sales at Cummins. The shares rose 11 percent, the biggest one-day climb since July 2000.

"Cummins basically stood up and said liquidity and pension funding aren't an issue," said Prudential Securities Inc. analyst Andrew Casey, who rates the company "buy" and doesn't own shares of the largest producer of the high-power engines. The reassurance is "driving the stock today."

Trucking companies are cutting back on purchasing new heavy-duty engines and power generators after stocking up on vehicles before U.S. emissions rules that took effect Oct. 1. Truckers were concerned that the new engines would cost more and may not last as long as earlier models.

The company will earn 40 cents to 50 cents a share for the year, spokesman Jason Rawlings said, less than the average estimate of 62 cents from analysts polled by Thomson First Call. That means a fourth-quarter loss of 5 cents to 15 cents a share, Chief Financial Officer Thomas Linebarger said in an interview. The average estimate from First Call was 11 cents a share.

The company's shares rose $2.35 to $24.35 at 4:16 p.m. in New York Stock Exchange composite trading. The stock has fallen 37 percent this year, including a 14 percent decline yesterday.

Net income rises

Third-quarter net income increased to $39 million, or $1 a share, from $3 million, or 8 cents, a year earlier, as trucking companies bought ahead of Oct. 1. Sales for the Columbus, Indiana-based company rose 17 percent to $1.65 billion. The company was expected to earn 91 cents in the most recent quarter, based on the average estimate of analysts surveyed by First Call.

"We knew the third quarter would be strong, and we're now seeing the falloff of orders in the fourth quarter," said H.C. Wainwright & Co. analyst Eli Lustgarten, who rates Cummins "market perform" and doesn't own the shares.

The company has planned to contribute $75 million annually to its U.S. pension plan each year after 2002, and will increase that to $105 million beginning in 2003, Cummins said. The company will have about $300 million in fourth-quarter costs related to its pension plan.

Cummins's engine sales rose 35 percent to $1.03 billion. Industrywide North American heavy-truck orders rose 53 percent through August to 134,485, analysts said.

In the nine months ended Sept. 30, Cummins had net income of $22 million, or 58 cents a share, compared with a net loss of $21 million, or 54 cents, in the year-earlier period. Sales rose 5.2 percent to $4.44 billion.