Cummins Holds Annual Meeting
7 April 1999
Cummins Holds Annual Meeting; Expects First Quarter Earnings of Approximately 63 Cents Per Share
COLUMBUS, Ind.--April 6, 1999--Speaking at the annual shareholders meeting today, Cummins Chairman and Chief Executive Officer Jim Henderson said that Cummins expects to report first-quarter earnings next week 5 cents per share above current estimates, or approximately 63 cents per share."Our expected first-quarter earnings will reflect a modest but important step towards improving profitability after a year of peak expenses associated with the introduction of our new products, which are already giving us a comparative advantage around the world," said Henderson. "We expect improved earnings in the second quarter as our revenues increase in line with seasonal upturns in our North American markets, and our cost reduction efforts continue to build momentum."
1998 Shareholders Meeting
"Cummins is the world's largest producer of diesel engines above 200 horsepower, ranking number one in market share in North America for heavy-duty trucks, transit bus, recreational vehicles and pleasure marine boats," President and Chief Operating Officer Tim Solso told shareholders. "Cummins is also the market share leader in engines for heavy-duty trucks in Australia, Mexico and South Africa. Cummins' Power Generation business ranks number one in the world for recreational vehicle generator sets; our Newage subsidiary is the global market leader for alternators; and our heavy-duty filtration business is number one in North America, Australia and Mexico."
Solso acknowledged that 1998 was a challenging year for Cummins. Last year, Cummins launched a record six new engine products and two new fuel systems, all of which were well received in the marketplace. 1998 was also a peak year of expenses associated with the introduction of these new products, and these costs, combined with economic uncertainty in markets around the world, caused Cummins to fall short of its financial targets for the year. "1998 was also a year in which we laid the foundation for improvements in profitability and cash flow," said Solso.
Cummins reported record sales in 1998 of $6.3 billion, up 18 percent in North America primarily on the strength of the North American heavy-duty truck market and a record 99,000 engines shipped for the pickup truck market. 1998 international sales accounted for $2.7 billion, or 43 percent of Cummins' total revenues. Solso said that these sales records were achieved despite declines in Asia, down 31 percent for the year. Excluding special charges, profit before interest and taxes for the year was $282 million. Special charges in 1998 of $217 million for adding to product coverage reserves, a settlement with the Environmental Protection Agency, and restructuring resulted in a net loss of $21 million for the year.
"Our work to streamline and consolidate operations and to reduce administrative costs has begun to pay off," said Solso. In 1998, Cummins reduced its selling, administrative and research costs to 16.6 percent of sales, down from 17.8 percent of sales in 1997. Cummins' power generation business also showed a dramatic turnaround in 1998 - although sales were relatively flat, profits, before special charges, improved by $27 million over 1997. Capital spending was also down significantly, from 1997's high of $405 million to $271 million in 1998. Free cash flow in the last three quarters of the year was positive.
Solso said that Cummins is committed to improving its financial performance and outlined a road map to increasing profitability and building shareholder value by improving gross margin to 25 percent. This will happen, Solso said, by improving quality and reducing product coverage and new product introduction costs, by focusing on reductions in the costs of purchased materials and services, and by completing restructuring activities. Solso also reiterated Cummins' commitment to improving joint venture financial results and building on synergies with Fleetguard/Nelson. Nelson was accretive to earnings in its first year of integration and Fleetguard won both the Tennessee Quality Governor's Award and the first Tennessee Global Excellence Award for demonstrating leadership in the international marketplace. Finally, Cummins will continue to improve cash flow by reducing working capital and capital spending to reduce debt and interest expense.
"For the last five years, we have focused on expanding and renewing our product line so that it is the best in the world, ranging from the 60 horsepower B3.3 engine for the industrial markets to the 4700 horsepower CW200 engine for the power generation and marine markets," said Solso. "In 1999, we will focus on executing our strategies to expand margins and improve shareholder value."
Board of Directors elected, Auditors appointed
At the meeting today, shareholders elected the following directors: Henderson, Solso, Harold Brown, Robert J. Darnall, John M. Deutch, Walter Y. Elisha, Hanna H. Gray, James A. Johnson, William I. Miller, William D. Ruckelshaus, Henry B. Schacht, Franklin A. Thomas and J. Lawrence Wilson. Shareholders also approved the appointment of Arthur Andersen LLP as the company's auditors.
Cummins, headquartered in Columbus, Ind., is the world's largest producer of diesel engines above 200 horsepower. The company provides products for customers in its key markets: engines, including automotive and industrial, power generation and filtration. Cummins reported record sales of $6.3 billion in 1998. Press releases by fax may be requested by calling (toll free) News on Demand at 888-329-2305. Cummins' home page on the Internet can be found at http://www.cummins.com.
Certain information included in this press release is forward-looking and involves risks and uncertainties, including general economic and competitive conditions that could significantly affect expected results.