Cummins Inc. Cummins Reports Sharply Higher Net Income for First Quarter; Raises 2005 Earnings Guidance
COLUMBUS, Ind.--April 21, 2005--Cummins Inc. today reported sharply higher earnings for the first quarter as a result of better margins, strong joint venture performance and increased sales in each of its business units.For the three months ending March 27, Cummins posted net income of $97 million, or $1.96 a share on a diluted basis - nearly three times the $33 million ($0.76 a share) the Company earned in the first quarter of 2004 and well above the Company's previous guidance.
Net sales of $2.21 billion were 25 percent higher than $1.77 billion for the same period a year ago. Earnings before interest and taxes (EBIT) were $163 million in the quarter, or 7.4 percent of sales. For the first quarter of 2004, Cummins reported EBIT of $78 million, or 4.4 percent of sales.
"We continued to build off our record performance in 2004 with an excellent first quarter," said Cummins Chairman and CEO Tim Solso. "Our markets across the world remain strong and these results reflect our ability to take a greater percentage of revenue to the bottom line. Our people are executing well and those efforts are paying off."
As a result of the Company's improved performance, Cummins today is raising its earnings and sales guidance for 2005. The Company now expects to earn between $9.00 and $9.20 a share for the year, up from its previous guidance of $8.00 - $8.30 a share. The Company expects to earn between $2.25 and $2.35 a share in the second quarter. The Company is now forecasting sales for the year to be 10-12 percent greater than last year, compared to its previous forecast of a 7-8 percent increase.
The Company's first quarter performance was led by the Engine Business, which saw sales rise 31 percent from a year ago and Segment EBIT nearly triple, driven by significant strength in the North American heavy duty truck market and its global mining, marine and construction markets.
The Company's Power Generation and International Distributor Business Units posted sharply higher Segment EBIT when compared to the first quarter of 2004. Likewise, Cummins continues to see strong earnings from its joint venture operations, especially in China. For the first quarter, Cummins profits from its unconsolidated joint ventures around the world were $31 million, up from $18 million for the same period a year ago. Cummins consolidated operations in China also performed extremely well, with the markets for generators, turbochargers and filtration products remaining strong.
The Company continued to strengthen its balance sheet in the first quarter by reducing its debt by $259 million.
"We're extremely proud to have been able to pay down a substantial portion of debt," said Cummins Chief Financial Officer Jean Blackwell. "Reducing our debt is a central part of Cummins strategy to strengthen its balance sheet and improve liquidity. We believe that these efforts have resulted in metrics sufficient to justify a return to investment grade."
The Company received national recognition in the first quarter for its financial performance as well as for its efforts to be a responsible corporate citizen. In addition to being named to Business Week magazine's list of top 50 performing companies for 2004, Cummins was recognized by Business Ethics magazine as its top corporate citizen for 2005. Cummins, which has made the list each of the six years it has been compiled by the magazine, previously was ranked as high as No. 2 in 2003. Cummins also was named the best company for Asian-Americans to work by Diversity Inc. magazine.
"Cummins core values go beyond delivering superior results, and we take our commitment to employees and the communities in which we operate very seriously," Solso said. "This type of recognition is gratifying, and it speaks well to the values created at Cummins over decades - values that our 28,000 employees strive to live every day."
First quarter details
Engine segment
Segment EBIT of $114 million was a 185 percent increase over $40 million for the same period in 2004. EBIT margin was 7.6 percent, compared to 3.5 percent in the first quarter 2004. Sales rose 31 percent to $1.50 billion in the first quarter.
Heavy duty truck engine revenues grew 47 percent from the first quarter of 2004. The Company also saw robust performance in its industrial engine markets, especially the mining segment. Industrial sales increased 57 percent compared to the same period last year.
Power Generation segment
Segment EBIT of $17 million was nearly three times the $6 million reported for the first quarter of 2004. Power Generation reported sales of $439 million, the best first quarter ever for the segment and 19 percent higher than first quarter 2004.
Commercial demand continues to grow, especially in the Middle East, Europe and North America, where capital spending increased in the first quarter. Overall market conditions in Asia, most notably China, are strong. Expectations for summer power shortages in China continue to drive demand for large generator sets (above 500 kva).
Filtration and Other segment
Segment sales were $403 million in the quarter, up 16 percent from the same period in 2004, while Segment EBIT was $20 million, compared to $24 million in 2004. Strong product demand in North America and Holset turbocharger sales in China helped fuel the segment's performance.
Segment EBIT declined compared to first quarter 2004 as the business continues to face commodity price pressures and supply chain inefficiencies. Margins improved, resulting in a 33 percent increase in Segment EBIT from the fourth quarter 2004, despite only a 1 percent increase in revenues quarter-to-quarter.
International Distributors segment
Segment EBIT of $12 million was a 50 percent increase from $8 million in the first quarter 2004, while sales for the quarter were 26 percent higher than the same period in 2004.
The segment posted record first quarter revenues of $215 million, led by especially strong distributor performance in Europe and the Middle East.
Presentation of Non-GAAP Financial Information
EBIT is a non-GAAP financial measure used in this release. EBIT is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBIT is a measure used internally to assess the performance of the operating units.
Webcast information
Cummins management will host a teleconference to discuss these results at 10 a.m., EST. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com.
About Cummins
Cummins Inc., a global power leader, 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 customers in more than 160 countries through its network of 550 Company-owned and independent distributor facilities and more than 5,000 dealer locations. With more than 28,000 employees worldwide, Cummins reported sales of $8.4 billion in 2004. Press releases can be found on the Web at www.cummins.com.
Forward Looking Statement Disclosure
Information provided and statements on the webcast and 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. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (a)
Three Months
Three Months Ended Ended
Millions, except per share Mar. 27, Mar. 28, Dec. 31,
amounts 2005 2004 2004
-------------------------- ---------- --------- -------------
Net sales $2,208 $1,771 $2,349
Cost of sales 1,752 1,426 1,876
---------- --------- -------------
Gross margin 456 345 473
Expense and other income
Selling and administrative
expenses 259 223 281
Research and engineering
expenses 63 56 66
Equity, royalty and other
income from investees (31) (18) (38)
Interest expense 28 27 31
Other (income) expense, net 2 6 (9)
---------- --------- -------------
Earnings before income taxes and
minority interests 135 51 142
Provision for income taxes 34 14 12
Minority interests in earnings of
consolidated subsidiaries 4 4 11
---------- --------- -------------
Net earnings $97 $33 $119
========== ========= =============
Earnings per share
Basic $2.20 $0.81 $2.73
Diluted 1.96 0.76 2.41
Cash dividends declared per share $0.30 $0.30 $0.30
Weighted average shares
outstanding
Basic 43.9 40.5 43.6
Diluted 50.8 47.3 50.7
(a) Prepared on an unaudited basis in accordance with accounting
principles generally accepted in the United States of America.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
Millions, except par value
--------------------------
Mar. 27, Dec. 31,
2005 2004
--------- ---------
ASSETS
Current assets
Cash and cash equivalents $261 $611
Marketable securities 48 62
Receivables, net 1,437 1,160
Inventories 1,065 1,016
Deferred income taxes 289 301
Prepaid expenses and other current assets 102 106
--------- ---------
Total current assets 3,202 3,256
Long-term assets
Property, plant and equipment, net 1,606 1,648
Investments in and advances to equity investees 303 286
Goodwill 354 355
Other intangible assets, net 91 93
Deferred income taxes 689 689
Other assets 180 183
--------- ---------
Total assets $6,425 $6,510
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $113 $327
Accounts payable 942 823
Accrued product coverage and marketing expenses 308 279
Other accrued expenses 644 751
--------- ---------
Total current liabilities 2,007 2,180
Long-term liabilities
Long-term debt 1,255 1,299
Pensions 487 466
Postretirement benefits other than pensions 570 570
Other long-term liabilities 396 386
--------- ---------
Total liabilities 4,715 4,901
Minority interests 216 208
Shareholders' equity
Common stock, $2.50 par value, 48.4 and 48.2
shares issued 121 121
Additional contributed capital 1,176 1,167
Retained earnings 948 866
Accumulated other comprehensive loss
Minimum pension liability (499) (499)
Other components, net (50) (41)
Common stock in treasury, at cost, 2.1 and 2.2
shares (83) (88)
Common stock held in trust for employee benefit
plans, 2.1 and 2.2 shares (102) (104)
Unearned compensation (17) (21)
--------- ---------
Total shareholders' equity 1,494 1,401
--------- ---------
Total liabilities and shareholders' equity $6,425 $6,510
========= =========
(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 2004 amounts to
conform to the 2005 presentation.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
Millions
------- Three Months Ended
Mar. 27, Mar. 28,
2005 2004
--------- ---------
Cash flows from operating activities
Net earnings $97 $33
Adjustments to reconcile net earnings to
net cash (used in) provided
by operating activities:
Depreciation and amortization 72 60
(Gain) loss on disposal of property,
plant and equipment (1) 1
Deferred income tax provision 16 --
Equity in earnings of investees, net
of dividends (19) (12)
Minority interests in earnings of
consolidated subsidiaries 4 4
Pension expense 26 22
Pension contributions (11) (23)
Stock-based compensation expense 3 9
Tax benefit on stock options
exercised 1 3
Amortization of gain on terminated
interest rate swaps (1) (2)
Translation and hedging activities (1) (13)
Changes in assets and liabilities:
Receivables (283) (119)
Inventories (53) (83)
Accounts payable 120 172
Accrued expenses (74) (6)
Other, net 42 10
--------- ---------
Net cash (used in) provided by operating
activities (62) 56
--------- ---------
Cash flows from investing activities
Capital expenditures (31) (9)
Investments in internal use software (6) (8)
Proceeds from disposals of property,
plant and equipment 10 1
Investments in and advances to equity
investees (5) (18)
Investments in marketable securities -
acquisitions (26) (25)
Investments in marketable securities -
liquidations 39 30
Other, net 1 --
--------- ---------
Net cash used in investing activities (18) (29)
--------- ---------
Cash flows from financing activities
Proceeds from borrowings 25 2
Payments on borrowings and capital lease
obligations (294) (15)
Net borrowings under short-term credit
agreements 10 1
Distributions to minority shareholders (5) --
Proceeds from issuing common stock 7 22
Dividend payments on common stock (14) (13)
Other, net 3 --
--------- ---------
Net cash used in financing activities (268) (3)
--------- ---------
Effect of exchange rate changes on cash
and cash equivalents (2) (1)
--------- ---------
Net (decrease) increase in cash and cash
equivalents (350) 23
Cash and cash equivalents at beginning of
the year 611 108
--------- ---------
Cash and cash equivalents at end of the
period $261 $131
========= =========
(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 2004 amounts to
conform to the 2005 presentation.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
Filtrat- Internat-
Power ion ional
Gener- and Distri- Eliminat- Total
Millions Engine ation Other butor ions
-------- ------- ------ -------- --------- --------- ------
Three Months Ended
Mar. 27, 2005
------------------
Net sales $1,495 $439 $403 $215 $(344) $2,208
Segment EBIT 114 17 20 12 -- 163
Net assets 1,358 623 808 205 -- 2,994
Three Months Ended
Mar. 28, 2004
------------------
Net sales $1,139 $369 $347 $171 $(255) $1,771
Segment EBIT 40 6 24 8 -- 78
Net assets 1,069 507 767 196 -- 2,539
The table below reconciles the segment information to the
corresponding amounts in the Consolidated Financial Statements.
Three Months Ended
Mar. 27, Mar. 28,
Millions 2005 2004
-------- --------- ---------
Segment EBIT $163 $78
Less:
Interest expense 28 27
Provision for income taxes 34 14
Minority interest in earnings of consolidated
subsidiaries 4 4
--------- ---------
Net earnings $97 $33
========= =========
Net assets for operating segments $2,994 $2,539
Liabilities deducted in computing net assets 3,252 2,811
Minimum pension liability excluded from net
assets (826) (698)
Deferred tax assets not allocated to segments 978 858
Debt-related costs not allocated to segments 27 69
--------- ---------
Total assets $6,425 $5,579
========= =========
NON-GAAP FINANCIAL MEASURES (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
Three Months Ended Ended
Mar. 27, Mar. 28, Dec. 31,
Millions 2005 2004 2004
-------- --------- --------- ----------
Earnings before interest, income taxes
and minority interests $163 $78 $173
EBIT as a percentage of net sales 7.4% 4.4% 7.4%
Less:
Interest expense 28 27 31
Provision for income taxes 34 14 12
Minority interests in earnings of
consolidated subsidiaries 4 4 11
--------- --------- ----------
Net earnings $97 $33 $119
========= ========= ==========
Net earnings as a percentage of net
sales 4.4% 1.9% 5.1%
-- 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.
Supplemental Data
-----------------
Sales
$Millions Q1 Q2 Q3 Q4 YTD
-------- -------- -------- -------- --------
2005
Engine Business
Heavy-Duty Truck 502 502
Medium Duty Truck+Bus 195 195
Light Duty Auto+RV 260 260
Industrial 408 408
Stationary Power 130 130
-------- -------- -------- -------- --------
TOTAL ENGINE
BUSINESS 1,495 - - - 1,495
Power Generation 439 439
Filtration / Other 403 403
Int'l. Distributors 215 215
Eliminations (344) (344)
-------- -------- -------- -------- --------
TOTAL 2,208 - - - 2,208
======== ======== ======== ======== ========
2004
Engine Business
Heavy-Duty Truck 341 445 466 491 1,743
Medium Duty Truck+Bus 165 192 195 221 773
Light Duty Auto+RV 274 304 299 299 1,176
Industrial 260 324 334 368 1,286
Stationary Power 99 128 144 151 522
-------- -------- -------- -------- --------
TOTAL ENGINE
BUSINESS 1,139 1,393 1,438 1,530 5,500
Power Generation 369 468 502 538 1,877
Filtration / Other 347 369 369 399 1,484
Int'l. Distributors 171 220 215 250 856
Eliminations (255) (326) (330) (368) (1,279)
-------- -------- -------- -------- --------
TOTAL 1,771 2,124 2,194 2,349 8,438
======== ======== ======== ======== ========
Engine Shipments
Units Q1 Q2 Q3 Q4 YTD
-------- -------- -------- -------- --------
2005
Midrange 90,900 90,900
Heavy-duty 24,900 24,900
High Horsepower 3,100 3,100
-------- -------- -------- -------- --------
TOTAL 118,900 0 0 0 118,900
======== ======== ======== ======== ========
2004
Midrange 79,700 91,400 88,200 88,700 348,000
Heavy-duty 15,900 22,100 23,200 26,000 87,200
High Horsepower 2,200 3,100 3,200 3,600 12,100
-------- -------- -------- -------- --------
TOTAL 97,800 116,600 114,600 118,300 447,300
======== ======== ======== ======== ========