Cummins Reports Record Earnings and Sales in Second Quarter
COLUMBUS, Ind.--July 22, 2005--Cummins Inc. today reported record earnings for the second quarter, driven by increased sales in each of its business segments as well as improved profit margins.For the quarter, the Company reported net income of $141 million, or $2.83 per diluted share - a 72 percent increase from $82 million, or $1.76 a share for the same period in 2004. Second-quarter sales of $2.49 billion also were a record and represent a 17 percent increase from $2.12 billion in the second quarter of 2004.
Earnings before interest and taxes (EBIT) were $235 million, or 9.4 percent of sales, compared to $148 million, or 7.0 percent of sales, for the same period in 2004.
For the first six months of 2005, Cummins reported net income of $238 million on sales of $4.70 billion - compared to net income of $115 million and sales of $3.90 billion for the same period of 2004.
"Sales growth in many of our markets continues to be extremely strong, but our ability to convert those sales into sharply higher earnings speaks to our cost structure improvements and the focused efforts of our employees," said Cummins Chairman and Chief Executive Officer Tim Solso. "We are well on our way to exceeding last year's record performance."
As a result of the Company's continued strong performance and the expectation for robust demand in key businesses for the remainder of the year, Cummins today has increased its earnings guidance for 2005 to $10.10-$10.30 a share, from its previous guidance of $9.00 - $9.20. The Company expects to earn between $2.40 and $2.50 a share in the third quarter.
The Company continued to strengthen its balance sheet, generating $217 million in cash from operations in the second quarter. Debt reduction also remains a focus as the Company has lowered its total debt by $258 million since the beginning of the year.
The Company's strong second-quarter performance was led by the Engine Segment, which reported a record $1.67 billion in sales in the second quarter, a 21 percent increase from $1.37 billion in the same period in 2004. Segment EBIT for the Engine Segment rose more than 70 percent, due to the higher volume, improved pricing and improvements to the segment's cost structure.
Segment EBIT for the Company's Power Generation Segment nearly doubled from the second quarter of last year on a 7 percent increase in sales, with growing demand for Cummins products both in the United States and internationally. The Company's Distribution Segment also reported higher sales and Segment EBIT for the quarter, and once again achieved its goal of growing earnings faster than sales.
The Company's joint venture operations, most notably its largest engine joint ventures in China and India, performed well in the second quarter. Cummins profits from its unconsolidated joint ventures were $35 million, compared to $29 million for the same period in 2004.
Second-quarter details
Engine Segment
Segment EBIT rose 73 percent to $156 million, from $90 million for the same period in 2004. Heavy-duty truck market revenues worldwide rose 30 percent to $553 million in the quarter, while shipments increased 27 percent. North American heavy-duty truck engine shipments rose 26 percent and international heavy-duty truck engine shipments increased 34 percent from the second quarter 2004.
Medium-duty truck and bus market revenues increased 39 percent in the quarter, led by a 46 percent increase in medium-duty truck engine shipments in the United States and Canada, and a 14 percent increase in international shipments. Global bus engines shipments also were strong, rising 38 percent from last year on improved demand at key original equipment manufacturers (OEMs) in North America, Europe, Latin America and Brazil.
Revenues from the light-duty automotive and recreational vehicle markets fell 8 percent to $269 million in the quarter, as Dodge Ram engine shipments fell 10 percent. The decrease was the result of inventory management by DaimlerChrysler in advance of the launch of its 2006 model year introduction in July of this year. Cummins and DaimlerChrysler expect an increase in Dodge Ram sales in the second half of this year, and the Company anticipates another strong year of sales to DaimlerChrysler in 2005.
Power Generation Segment
Segment revenues rose 7 percent to $493 million, while Segment EBIT was a record $35 million, compared to $18 million for the same period in 2004. The segment saw strong demand in its alternator and commercial generator set businesses worldwide.
Demand is in excess of engine capacity in most of the product ranges, which limits further growth. Margins, however, are expected to continue to improve as product price increases and cost improvements outpace commodity price inflation.
Components Segment
The Components Segment is composed of the Filtration, Emission Solutions, Fuel Systems and Holset businesses. The segment posted $511 million in revenues for the quarter, a 15 percent increase over the same period in 2004. Segment EBIT in the quarter fell to $21 million, from $24 million for the same period in 2004.
The strong sales volume led to increases in manufacturing and logistics inefficiencies. Cummins also has made incremental investment in this segment, particularly in research and engineering, to prepare components that enable the Company to meet the 2006 Euro IV and 2007 U.S. EPA emissions standards.
Distribution Segment
The segment includes the Company's international distribution business and its ownership in several of Cummins North American distributors. Sales for the segment rose 17 percent to $297 million in the quarter, while Segment EBIT grew by 30 percent to $26 million. Revenue gains were strongest in engine and service markets, particularly in Europe.
Webcast information
Cummins management will host a teleconference to discuss these results at 9 a.m. CDT/EST (10 a.m., EDT). This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com.
Historical Segment Presentations
In May 20, 200505, Cummins announced an internal reorganization that required modifications to the presentation of its segment results. On July 21, 2005, Cummins filed a Form 8-K with the U.S. Securities and Exchange Commission, which presented its historical segment results on the basis consistent with the current structure of our product lines. The 2004 information presented in this release is consistent with that 8-K filing.
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.
About Cummins Inc.
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.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (a)
Three Months Ended Six Months Ended
Millions, except per June 26, June 27, Mar. 27, June 26, June 27,
share amounts 2005 2004 2005 2005 2004
------------------------- --------------------------------------------
Net sales $ 2,490 $ 2,124 $ 2,208 $ 4,698 $ 3,895
Cost of sales 1,940 1,696 1,752 3,692 3,122
-------- -------- -------- -------- --------
Gross margin 550 428 456 1,006 773
Expense and other income
Selling and
administrative expenses 287 251 259 546 474
Research and engineering
expenses 73 59 63 136 115
Equity, royalty and
other income from
investees (35) (29) (31) (66) (47)
Interest expense 28 27 28 56 54
Other (income) expense,
net (10) (1) 2 (8) 5
-------- -------- -------- -------- --------
Total expense and other
income 343 307 321 664 601
-------- -------- -------- -------- --------
Earnings before income
taxes and minority
interests 207 121 135 342 172
Provision for income
taxes 58 34 34 92 48
Minority interests in
earnings of consolidated
subsidiaries 8 5 4 12 9
-------- -------- -------- -------- --------
Net earnings $ 141 $ 82 $ 97 $ 238 $ 115
======== ======== ======== ======== ========
Earnings per share
Basic $ 3.20 $ 1.97 $ 2.20 $ 5.40 $ 2.80
Diluted $ 2.83 $ 1.76 $ 1.96 $ 4.80 $ 2.53
Cash dividends declared
per share $ 0.30 $ 0.30 $ 0.30 $ 0.60 $ 0.60
Weighted average shares
outstanding
Basic 44.1 41.8 43.9 44.0 41.2
Diluted 51.0 48.8 50.8 50.9 48.1
(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
--------------------------
June 26, 2005 Dec. 31, 2004
------------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 404 $ 611
Marketable securities 53 62
Receivables, net 1,487 1,160
Inventories 1,095 1,016
Deferred income taxes 255 301
Prepaid expenses and other current assets 103 106
------------- -------------
Total current assets 3,397 3,256
Long-term assets
Property, plant and equipment, net 1,577 1,648
Investments in and advances to equity
investees 276 286
Goodwill 357 355
Other intangible assets, net 92 93
Deferred income taxes 689 689
Other assets 192 183
------------- -------------
Total assets $ 6,580 $ 6,510
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 121 $ 327
Accounts payable 916 823
Accrued product coverage and marketing
expenses 287 279
Other accrued expenses 759 751
------------- -------------
Total current liabilities 2,083 2,180
Long-term liabilities
Long-term debt 1,247 1,299
Pensions 445 466
Postretirement benefits other than
pensions 551 570
Other long-term liabilities 432 386
------------- -------------
Total liabilities 4,758 4,901
Minority interests 218 208
Shareholders' equity
Common stock, $2.50 par value, 48.4 and
48.2 shares issued 121 121
Additional contributed capital 1,183 1,167
Retained earnings 1,076 866
Accumulated other comprehensive loss
Minimum pension liability (499) (499)
Other components, net (81) (41)
Common stock in treasury, at cost, 2.0 and
2.2 shares (79) (88)
Common stock held in trust for employee
benefit plans, 2.1 and 2.2 shares (100) (104)
Unearned compensation (17) (21)
------------- -------------
Total shareholders' equity 1,604 1,401
------------- -------------
Total liabilities and shareholders' equity $ 6,580 $ 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
-------- Six Months Ended
June 26, 2005 June 27, 2004
----------------------------
Cash flows from operating activities
Net earnings $ 238 $ 115
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 144 128
Loss on disposal of property, plant
and equipment -- 7
Deferred income tax provision
(benefit) 54 (12)
Equity in earnings of investees, net
of dividends 1 4
Minority interests in earnings of
consolidated subsidiaries 12 9
Pension expense 54 46
Pension contributions (55) (53)
Stock-based compensation expense 7 7
Tax benefit on stock options exercised 2 10
Amortization of gain on terminated
interest rate swaps (1) (3)
Translation and hedging activities 1 (8)
Changes in assets and liabilities:
Receivables (363) (239)
Inventories (88) (148)
Accounts payable 106 257
Accrued expenses (3) 127
Other, net 46 5
-------------- -------------
Net cash provided by operating activities 155 252
-------------- -------------
Cash flows from investing activities
Capital expenditures (78) (37)
Investments in internal use software (15) (16)
Proceeds from disposals of property, plant
and equipment 13 5
Investments in and advances to equity
investees (4) (21)
Acquisition of businesses, net of cash
acquired (2) (18)
Investments in marketable securities -
acquisitions (60) (63)
Investments in marketable securities -
liquidations 69 71
Other, net 1 1
-------------- -------------
Net cash used in investing activities (76) (78)
-------------- -------------
Cash flows from financing activities
Proceeds from borrowings 41 10
Payments on borrowings and capital lease
obligations (319) (28)
Net borrowings under short-term credit
agreements 20 15
Distributions to minority shareholders (9) --
Proceeds from issuing common stock 12 72
Dividend payments on common stock (28) (26)
Other, net 3 (2)
-------------- -------------
Net cash (used in) provided by financing
activities (280) 41
-------------- -------------
Effect of exchange rate changes on cash
and cash equivalents (6) (1)
-------------- -------------
Net (decrease) increase in cash and cash
equivalents (207) 214
Cash and cash equivalents at beginning of
the year 611 108
-------------- -------------
Cash and cash equivalents at end of the
period $ 404 $ 322
============== =============
(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)
Power
Gener- Compo- Distri- Elimina-
Millions Engine ation nents bution tions Total
----------------------------------------------------------------------
Three Months Ended
June 26, 2005
Net sales $1,667 $ 493 $ 511 $ 297 $ (478) $2,490
Equity, royalty and
other income from
investees 22 3 2 8 -- 35
Segment EBIT 156 35 21 26 (3) 235
Net assets for
operating segments 1,220 647 962 314 -- 3,143
----------------------------------------------------------------------
Three Months Ended
June 27, 2004
Net sales $1,374 $ 460 $ 445 $ 253 $ (408) $2,124
Equity, royalty and
other income from
investees 19 2 2 6 -- 29
Segment EBIT 90 18 24 20 (4) 148
Net assets for
operating segments 1,013 594 879 253 -- 2,739
----------------------------------------------------------------------
Six Months Ended
June 26, 2005
Net sales $3,147 $ 920 $ 984 $ 550 $ (903) $4,698
Equity, royalty and
other income from
investees 44 4 4 14 -- 66
Segment EBIT 273 50 44 46 (15) 398
----------------------------------------------------------------------
Six Months Ended
June 27, 2004
Net sales $2,501 $ 829 $ 860 $ 424 $ (719) $3,895
Equity, royalty and
other income from
investees 31 1 4 11 -- 47
Segment EBIT 132 23 48 31 (8) 226
----------------------------------------------------------------------
The table below reconciles the segment information to the
corresponding amounts in the Consolidated Financial Statements.
Three Months Ended Six Months Ended
June 26, June 27, June 26, June 27,
Millions 2005 2004 2005 2004
-------- --------- --------- --------- ---------
Segment EBIT $ 235 $ 148 $ 398 $ 226
Less:
Interest expense 28 27 56 54
Provision for income taxes 58 34 92 48
Minority interest in earnings
of consolidated subsidiaries 8 5 12 9
--------- --------- --------- ---------
Net earnings $ 141 $ 82 $ 238 $ 115
========= ========= ========= =========
Net assets for operating
segments $ 3,143 $ 2,739
Liabilities deducted in
computing net assets 3,292 2,986
Minimum pension liability
excluded from net assets (826) (698)
Deferred tax assets not
allocated to segments 943 855
Debt-related costs not
allocated to segments 28 70
--------- ---------
Total assets $ 6,580 $ 5,952
========= =========
Certain reclassifications have been made to 2004 amounts to conform to
the 2005 presentation.
See the Company's 8-K filing dated July 21, 2005, for more information
on the changes to the Company's operating segment structure and
related historical results.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
EARNINGS PER SHARE INFORMATION
(Unaudited)
The following is a reconciliation of net earnings and
weighted-average common shares outstanding for purposes of calculating
basic and diluted net earnings per share:
Three Months Ended Six Months Ended
Millions, except per June 26, June 27, March 27, June 26, June 27,
share amounts 2005 2004 2005 2005 2004
----------------------------------------------------------------------
Net earnings for basic
EPS $ 141.2 $ 82.4 $ 96.6 $ 237.8 $ 115.3
Dilutive effect of
preferred securities
dividends, net of tax 3.2 3.3 3.2 6.5 6.5
----------------------------------------------------------------------
Net earnings for diluted
EPS $ 144.4 $ 85.7 $ 99.8 $ 244.3 $ 121.8
======================================================================
Weighted average shares
outstanding:
Basic 44.1 41.8 43.9 44.0 41.2
Dilutive effect of
stock compensation
awards 0.6 0.7 0.6 0.6 0.6
Dilutive effect of
junior convertible
subordinated
debentures 6.3 6.3 6.3 6.3 6.3
----------------------------------------------------------------------
Diluted 51.0 48.8 50.8 50.9 48.1
======================================================================
Earnings per share:
Basic $ 3.20 $ 1.97 $ 2.20 $ 5.40 $ 2.80
Diluted $ 2.83 $ 1.76 $ 1.96 $ 4.80 $ 2.53
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
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 Ended Six Months Ended
June 26, June 27, March 27, June 26, June 27,
Millions 2005 2004 2005 2005 2004
---------------------- -------- -------- --------- --------- ---------
Earnings before
interest, income
taxes and minority
interests $ 235 $ 148 $ 163 $ 398 $ 226
EBIT as a percentage
of net sales 9.4% 7.0% 7.4% 8.5% 5.8%
Less:
Interest expense 28 27 28 56 54
Provision for income
taxes 58 34 34 92 48
Minority interests in
earnings of
consolidated
subsidiaries 8 5 4 12 9
-------- -------- --------- --------- ---------
Net earnings $ 141 $ 82 $ 97 $ 238 $ 115
======== ======== ========= ========= =========
Net earnings as a
percentage of net
sales 5.7% 3.9% 4.4% 5.1% 3.0%
-- 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 494 553 1,047
Medium Duty
Truck+Bus 191 228 419
Light Duty
Auto+RV 255 269 524
Industrial 399 458 857
Stationary
Power 141 159 300
----------------------------------------
TOTAL ENGINE
BUSINESS 1,480 1,667 0 0 3,147
Power Generation 427 493 920
Components 473 511 0 0 984
Distributors 253 297 550
Eliminations (425) (478) (903)
----------------------------------------
TOTAL 2,208 2,490 0 0 4,698
========================================
2004
Engine Business
Heavy-Duty
Truck 342 427 455 476 1,700
Medium Duty
Truck+Bus 145 164 182 202 693
Light Duty
Auto+RV 271 291 288 279 1,129
Industrial 273 360 350 397 1,380
Stationary
Power 96 132 144 150 522
----------------------------------------
TOTAL ENGINE
BUSINESS 1,127 1,374 1,419 1,504 5,424
Power Generation 369 460 493 520 1,842
Components 415 445 445 478 1,783
Distributors 171 253 249 300 973
Eliminations (311) (408) (412) (453) (1,584)
----------------------------------------
TOTAL 1,771 2,124 2,194 2,349 8,438
========================================
Engine Shipments
Units Q1 Q2 Q3 Q4 YTD
---- ---- ---- ---- -----
2005
Midrange 90,900 101,800 192,700
Heavy-duty 24,900 27,500 52,400
High
Horsepower 3,100 3,800 6,900
----------------------------------------
TOTAL 118,900 133,100 0 0 252,000
========================================
2004
Midrange 79,700 98,300 94,000 96,700 368,700
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 97,800 123,500 120,400 126,300 468,000
========================================