Cummins Reports Strong First Quarter Earnings on 28% Sales Increase
COLUMBUS, Ind.--April 22, 2004--Fueled by strong performance in all of its business units, Cummins Inc. today reported first-quarter net earnings of $33 million, or 76 cents per share, compared to a loss of $31 million, or 79 cents a share, in the first quarter of 2003. Sales for the first quarter totaled $1.77 billion, a 28 percent increase over the same period last year."After experiencing some of the most challenging years in our Company's history, it is gratifying to see these very positive results," said Tim Solso, Cummins Chairman and Chief Executive Officer. "Along with increased sales volumes and growing interest in our numerous new products, we are seeing a payback on our intensive cost-cutting efforts.
"Our optimism about the ongoing strength of our business has caused us to increase our second quarter guidance to $1.20 to $1.30 a share from $1.00 to $1.10, and for the full year to $4.40 to $4.60 from $4.00 to $4.20," he said.
For the second quarter in a row, all four Cummins operating segments - Engine, Power Generation, Filtration and International Distributor - were profitable. This occurred even though the Power Generation and International Distributor businesses normally experience a seasonal slowdown during the first quarter of the year.
Engine sales volumes in the North American heavy-duty truck market improved faster than expected as part of a broad market recovery, and the Company expects the market to grow by more than 30 percent in 2004. Cummins market share in the heavy-duty truck segment also increased by several percentage points to date in 2004 due to the success of its new engine platforms, which comply with U.S. federal emission-control standards through 2006.
Sales of the Cummins diesel engine that powers the heavy-duty Dodge Ram pickup truck continued to increase during the first quarter from record 2003 levels. Volumes for this business are expected to grow by 10 percent for all of 2004.
Cummins Power Generation business overcame traditional seasonal weakness to post its second profitable quarter in a row, as cost-reduction efforts began taking hold and its market demand strengthened.
The Company's Filtration and Other Business posted record revenues, although rising commodity prices had an impact on profitability during the quarter and could adversely affect the group's financial results in subsequent quarters. This segment is expected to grow revenues by approximately 15 percent in 2004, and continues to deliver the highest return on sales among the Company's businesses.
The International Distributor Business grew by 26 percent, and its segment earnings before interest and taxes (EBIT) grew by 33 percent versus a year ago.
Joint venture operations continued to deliver strong results and are expected to surpass last year's earnings. Capital expenditures continue to be forecasted in the range of $125 million to $135 million for 2004, with first quarter spending atypically low due to timing.
"Cash from operations for the quarter was $56 million," Solso said. "We expect to generate significant cash flow in 2004. In addition to robust sales, our cost reduction efforts continue to pay dividends. For example, we just completed the 2,000th Six Sigma quality project since the program's inception in January 2000."
Operating Segment Results
Engine Business
Total first-quarter sales for the Engine Business were $1.1 billion, up 40 percent from first-quarter 2003 sales of $816 million. Approximately $90 million of the sales increase was due to a change in the Company's reporting of intersegment transactions. Engine Business segment EBIT was $40 million, versus a loss of $22 million during the same period of 2003. Engine segment results included a pretax charge of $5 million to write down an investment in a technology company to fair value.
Automotive market sales were up 34 percent from the first quarter a year ago, with significant improvement in the North American heavy-duty truck and global medium-duty truck markets. Industrial market revenue was up 10 percent, led by increased sales for construction equipment and strong mining demand fueled by increased prices for copper and gold. Engine shipments for the Dodge Ram pickup truck were up 21 percent from the first quarter last year, as consumer demand for Cummins new Turbo Diesel engine remained strong.
Power Generation
The Power Generation Business reported first quarter sales of $369 million, up 38 percent from a year ago. Segment EBIT improved as well, with $6 million reported in the first quarter versus a loss of $14 million in the same quarter last year.
Power Generation's commercial markets experienced solid 40 percent growth in the quarter, with increased demand in North America as well as in several international markets, including China, the Middle East and South America. Sales in the consumer markets, primarily related to recreational vehicles, were up strongly from both the previous and prior-year quarters, setting new volume records.
Filtration and Other
The Filtration and Other Segment achieved another record revenue quarter, reporting sales of $347 million, an increase of 37 percent from sales of $254 million a year ago. The change in reporting of intersegment transactions increased sales by $47 million in the first quarter. Increased North American demand for both first-fit and aftermarket filtration products drove the revenue increase, and sales of Holset turbochargers, reported as the "other" of this segment, were up 37 percent.
The Filtration and Other Business had segment EBIT of $24 million for the quarter versus $20 million a year ago. Rising prices of steel, used in manufacturing filters and exhaust systems, adversely affected profitability for the quarter and could adversely affect the group's financial results in subsequent quarters.
International Distributor
The Company's International Distributor Business continued its strong growth in the first quarter, with revenues up 26 percent, approximately half of which was due to the positive impact of currency. Sales in the first quarter of 2004 grew across nearly all regions, led by strong contributions from Europe, the South Pacific, India, the Middle East and Africa. For the quarter, the segment reported EBIT of $8 million compared with $6 million in the first quarter last year.
New Accounting Standards
On March 28, 2004, Cummins adopted the provisions of FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities," which were effective in the first quarter. As a result, three operating companies previously reported under the equity method of accounting have been consolidated in the March 28, 2004, balance sheet. This consolidation increased the company's debt and total assets by $106 million and $411 million, respectively. Consolidation of these entities will have no impact to the Company's net income or earnings per share in future periods.
About Cummins Inc.
Cummins Inc., a global power leader with headquarters in Columbus, Indiana (USA), 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 its customers through more than 680 company-owned and independent distributor locations in 137 countries and territories. Cummins also provides service through a dealer network of more than 5,000 facilities worldwide. With more than 24,000 employees worldwide, Cummins reported sales of $6.3 billion in 2003. Press releases can be found by accessing the Cummins home page at www.cummins.com.
Forward Looking Statement Disclosure
Information provided and statements in this release that are not 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. It 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.
CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited
First Fourth
Quarter Quarter
-------------------- ----------
Millions, except per share amounts 2004 2003 2003
---------------------------------- ---------- --------- ----------
Net sales $1,771 $1,387 $1,736
Cost of goods sold 1,426 1,169 1,400
---------- --------- ----------
Gross margin 345 218 336
Expense and other income:
Selling and administrative expenses 223 195 227
Research and engineering expenses 56 47 52
Equity, royalty and other income
from investees (18) (7) (26)
Interest expense 27 20 25
Other (income) expense, net 6 (7) (1)
---------- --------- ----------
Earnings (loss) before income taxes,
minority interests, dividends on
preferred securities of subsidiary
trust and the cumulative effect of
accounting change 51 (30) 59
Provision (benefit) for income taxes 14 (9) 7
Minority interests in earnings of
consolidated subsidiaries 4 4 5
Dividends on preferred securities of
subsidiary trust - 6 -
---------- --------- ----------
Net earnings (loss) before cumulative
effect of accounting change 33 (31) 47
Cumulative effect of accounting
change, net of tax - - (4)
---------- --------- ----------
Net earnings (loss) $33 $(31) $43
========== ========= ==========
Earnings (loss) per share:
Basic
Net earnings (loss) before
cumulative effect of accounting
change $0.81 $(0.79) $1.17
Cumulative effect of accounting
change, net of tax - - (0.09)
---------- --------- ----------
Net earnings (loss) $0.81 $(0.79) $1.08
========== ========= ==========
Diluted
Net earnings (loss) before
cumulative effect of accounting
change $0.76 $(0.79) $1.07
Cumulative effect of accounting
change, net of tax - - (0.07)
---------- --------- ----------
Net earnings (loss) $0.76 $(0.79) $1.00
========== ========= ==========
Cash dividends declared per share $0.30 $0.30 $0.30
Weighted average shares outstanding:
Basic 40.5 38.9 40.1
Diluted 47.3 38.9 46.7
CUMMINS INC.
CONSOLIDATED BALANCE SHEETS
Unaudited
Millions Mar. 28, 2004 Dec. 31, 2003
-------- --------------- ---------------
Assets
Current assets:
Cash and cash equivalents $ 131 $ 108
Marketable securities 83 87
Receivables, net 1,083 929
Inventories 863 733
Other current assets 295 273
-------- --------
Total current assets 2,455 2,130
Long-term assets:
Property, plant and equipment, net 1,544 1,347
Investments in and advances to equity
investees 265 339
Goodwill 356 344
Other intangible assets 92 92
Deferred income taxes 663 663
Other assets 213 211
-------- --------
Total assets $ 5,588 $ 5,126
======== ========
Liabilities and shareholders' equity
Current liabilities:
Loans payable $ 41 $ 28
Current maturities of long-term debt 254 21
Accounts payable 765 557
Accrued product coverage and
marketing expenses 281 246
Other current liabilities 544 539
-------- --------
Total current liabilities 1,885 1,391
Long-term liabilities:
Long-term debt 1,225 1,380
Pensions 447 446
Postretirement benefits other than
pensions 565 577
Other liabilities 269 260
-------- --------
Total liabilities 4,391 4,054
Minority interests 187 123
Shareholders' equity
Common stock, $2.50 par value, 48.2
and 48.3 shares issued 121 121
Additional contributed capital 1,118 1,113
Retained earnings 588 569
Minimum pension liability (435) (434)
Accumulated other comprehensive loss,
excluding minimum pension liability (49) (58)
Common stock in treasury, at cost,
5.1 and 5.6 million shares (202) (225)
Common stock held in trust for
employee benefit plans 2.3
and 2.3 million shares (110) (113)
Unearned compensation (ESOP) (21) (24)
-------- --------
Total shareholders' equity 1,010 949
-------- --------
Total liabilities and shareholders'
equity $ 5,588 $ 5,126
======== ========
CUMMINS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
First Quarter Ended
---------------------------------
Millions March 28, 2004 March 30, 2003
-------- ---------------- ----------------
Cash flows from operating activities:
Net earnings (loss) $ 33 $ (31)
Adjustments to reconcile net
earnings (loss) to net cash
provided by
(used in) operating activities:
Depreciation and amortization 60 55
Undistributed earnings of
equity investees (12) (7)
Minority interests in earnings
of consolidated subsidiaries 4 4
Non-cash compensation 12 -
Amortization of gain on
terminated interest rate swaps (2) -
Translation and hedging
activities (13) (2)
Changes in assets and liabilities:
Receivables (119) (59)
Inventories (83) (53)
Accounts payable and accrued
expenses 165 11
Other 11 4
----- -----
Net cash provided by (used in)
operating activities 56 (78)
----- -----
Cash flows from investing activities:
Capital expenditures (9) (16)
Investments in internal use
software (8) (6)
Proceeds from disposals 1 3
Investments in and advances to
equity investees (18) (6)
Purchases of marketable securities (29) (29)
Proceeds from sale of marketable
securities 34 28
----- -----
Net cash used in investing
activities (29) (26)
----- -----
Cash flows from financing activities:
Proceeds from borrowings 6 1
Payments on borrowings (19) (117)
Net borrowings under short term
credit agreements 1 75
Dividend payments on common stock (13) (12)
Proceeds from issuance of common
stock 22 -
Other - (2)
----- -----
Net cash used in financing
activities (3) (55)
----- -----
Effect of exchange rate changes on
cash and cash equivalents (1) 1
----- -----
Net change in cash and cash
equivalents 23 (158)
Cash and cash equivalents at the
beginning of the year 108 224
----- -----
Cash and cash equivalents at the end
of the quarter $131 $ 66
===== =====
CUMMINS INC.
SEGMENT INFORMATION
Unaudited
Power Filtration International
Millions Engine Generation And Other Distributor Eliminations Total
-------- ------ ---------- ---------- --------------------------------
First Quarter
Ended
March 28,
2004(a)
--------
Net
sales $1,139 $ 369 $ 347 $ 171 $ (255) $1,771
Segment
EBIT 40 6 24 8 - 78
Net
assets 1,078 507 767 196 - 2,548
First Quarter
Ended
March 30,
2003
--------
Net
sales $ 816 $ 267 $ 254 $ 136 $ (86) $1,387
Segment
EBIT (22) (14) 20 6 - (10)
Net
assets 835 481 648 165 - 2,129
(a) As previously disclosed in our 2003 Form 10-K, prior to January 1,
2004, inter-segment transactions between the Engine segment and
the Power Generation segment and between the Filtration and Other
segment and the Engine segment have been reported as a transfer at
cost and no sale reported by the transferor segment. Beginning
January 1, 2004, such inter-segment activity is reflected at a
transfer price which is based upon market pricing discounted for
certain items. As a result of the change in methodology in the
first quarter of 2004, sales in the Engine segment increased $89
million, sales in the Power Generation segment decreased $9
million, sales in the Filtration and Other segment increased $47
million and eliminations increased $127 million. The impact on
segment EBIT was immaterial for each segment.