November 26, 2020

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Cummins Reports First Quarter 2020 Results

First quarter revenues of $5.0 billion; GAAP1 Net Income of $511 million First quarter EBITDA of 16.9 percent; Diluted EPS of $3.41 The company ended the quarter with cash, cash equivalents and marketable securities of $2.0 billion and committed borrowing capacity of $1.9 billion The company’s long-term credit ratings remain unchanged at A+ from Standard & Poor’s and A2 from Moody’s with stable outlooks Previously announced restructuring actions were completed in the quarter and will yield annual cost savings of $250 to $300 million in 2020 COLUMBUS, Ind.--(BUSINESS WIRE)--Cummins Inc. (NYSE: CMI) today reported results for the first quarter of 2020. First quarter revenues of $5.0 billion decreased 17 percent from the same quarter in 2019. Lower truck production in North America and weaker demand in global construction, mining, and power generation markets drove the majority of the revenue decrease. Currency negatively impacted revenues by 1 percent primarily due to a stronger US dollar. Sales in North America declined by 16 percent while international revenues decreased by 17 percent led by declines in Europe, Asia Pacific, Latin America, India, and China. Earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter were $846 million (16.9 percent of sales), compared to $1.0 billion (17.2 percent of sales) a year ago. First quarter EBITDA included a $37 million benefit to joint venture earnings resulting from recent changes to tax law in India. Net income attributable to Cummins in the first quarter was $511 million ($3.41 per diluted share) compared to $663 million ($4.20 per diluted share) in 2019. First quarter net income included a benefit of $35 million ($0.23 per diluted share) resulting from recent changes to tax law in India. The tax rate in the first quarter was 19.4 percent. Chairman and CEO, Tom Linebarger: “We delivered strong profitability in the first quarter, supported by the commitment of our employees to serve our customers and the benefit of cost reduction actions we initiated in the second half of 2019. Amidst the unprecedented COVID-19 pandemic, the health and safety of our employees and the communities in which we operate is our top priority. Our teams are working hard to support the global economy, leveraging our flexibility and strong supplier network to help our customers deliver essential products and support response efforts. Given the significant impact the pandemic will have on demand across our industry in the second quarter and beyond, we are continuing to take actions to reduce cost and boost our already strong liquidity.” “During our 100-year history, we have encountered several unforeseen crises, and I am confident we will successfully navigate this one as we have done before, to emerge stronger. Cummins enters this period of uncertainty in a position of strength with an experienced leadership team that has led through multiple cycles and a strong balance sheet. Our deep customer and supplier relationships combined with our leading positions in global markets leave us well positioned to deliver strong growth when the global economy recovers.” 2020 Outlook: Due to uncertainty related to the coronavirus pandemic, the company is not providing revenue or profitability guidance for 2020. While customer operations have begun to resume activity, the company does expect a significant impact to its second quarter results due to disruptions across customer and supplier operations and lower end market demand. For now, the company is planning for weak demand levels to persist for some time. In response to these challenges the company recently announced a set of cost reduction actions, including a temporary reduction in salaries. In addition, the company is lowering its targeted capital expenditures by more than 25 percent as compared to 2019 and will continue to closely monitor market conditions and adjust our plans accordingly. First Quarter 2020 Highlights: Cummins Foundation Issued Grants to Community Partners Addressing Urgent Childcare, Nutrition and Remote Learning Needs Caused by COVID-19 Crisis. Announced partnerships with DuPont and 3M to provide critical material for N95 masks and Powered Air Purifying Respirators. The Human Rights Campaign (HRC) announced that Cummins received a perfect score for a 15th consecutive year in its Corporate Equality Index. Cummins was named to Ethisphere’s list of the World’s Most Ethical Companies for a 13th consecutive year. 1 Generally Accepted Accounting Principles First quarter 2020 detail (all comparisons to same period in 2019): Engine Segment Sales - $2.2 billion, down 19 percent Segment EBITDA - $365 million, or 16.9 percent of sales, compared to $438 million or 16.5 percent of sales On-highway revenues decreased 17 percent and off-highway revenues decreased 23 percent, primarily due to decreased global demand in truck and construction markets Distribution Segment Sales - $1.8 billion, down 9 percent Segment EBITDA - $158 million, or 8.7 percent of sales, compared to $171 million or 8.5 percent of sales Revenues in North America were down 11 percent and international sales declined by 6 percent Demand declined in all lines of business and a stronger US dollar negatively impacted revenues by 1 percent Components Segment Sales - $1.5 billion, down 19 percent Segment EBITDA - $279 million, or 18.6 percent of sales, compared to $325 million or 17.5 percent of sales Revenues in North America decreased by 24 percent and international sales declined by 12 percent, both due to weaker global truck demand Power Systems Segment Sales - $884 million, down 18 percent Segment EBITDA - $77 million, or 8.7 percent of sales, compared to $138 million, or 12.8 percent of sales Power generation revenues decreased by 8 percent while industrial revenues decreased 30 percent New Power Segment Sales - $10 million Segment EBITDA loss - $43 million Costs associated with development of new products and current low adoption rates of new technology are contributing to EBITDA losses About Cummins Inc. Cummins Inc., a global power leader, is a corporation of complementary business segments that design, manufacture, distribute and service a broad portfolio of power solutions. The company’s products range from diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 61,600 people committed to powering a more prosperous world through three global corporate responsibility priorities critical to healthy communities: education, environment and equality of opportunity. Cummins serves its customers online, through a network of company-owned and independent distributor locations, and through thousands of dealer locations worldwide and earned about $2.3 billion on sales of $23.6 billion in 2019. See how Cummins is powering a world that’s always on by accessing news releases and more information at https://www.cummins.com/always-on. Forward-looking disclosure statement Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward-looking statements include, without limitation, statements relating to our plans and expectations for our revenues and EBITDA. Our 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: market slowdown due to the impacts from COVID-19 pandemic, other public health crises, epidemics or pandemics; impacts to manufacturing and supply chain abilities from an extended shutdown or disruption of our operations due to the COVID-19 pandemic; supply shortages and supplier financial risk, particularly from any of our single-sourced suppliers, including suppliers that may be impacted by the COVID-19 pandemic; aligning our capacity and production with our demand, including impacts of COVID-19; a major customer experiencing financial distress, particularly related to the COVID-19 pandemic; any adverse results of our internal review into our emissions certification process and compliance with emission standards; increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world; disruptions in global credit and financial markets as the result of the COVID-19 pandemic; adverse impacts from government actions to stabilize credit markets and financial institutions and other industries; product recalls; the development of new technologies that reduce demand for our current products and services; policy changes in international trade; a slowdown in infrastructure development and/or depressed commodity prices; the U.K.'s decision to end its membership in the European Union (EU); labor relations or work stoppages; reliance on our executive leadership team and other key personnel; lower than expected acceptance of new or existing products or services; changes in the engine outsourcing practices of significant customers; our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions; exposure to potential security breaches or other disruptions to our information technology systems and data security; challenges or unexpected costs in completing cost reduction actions and restructuring initiatives; failure to realize expected results from our investment in Eaton Cummins Automated Transmission Technologies joint venture; political, economic and other risks from operations in numerous countries; competitor activity; increasing competition, including increased global competition among our customers in emerging markets; foreign currency exchange rate changes; variability in material and commodity costs; the actions of, and income from, joint ventures and other investees that we do not directly control; changes in taxation; global legal and ethical compliance costs and risks; product liability claims; increasingly stringent environmental laws and regulations; the performance of our pension plan assets and volatility of discount rates, particularly those related to the sustained slowdown of the global economy due to the COVID-19 pandemic; future bans or limitations on the use of diesel-powered products; the price and availability of energy; our sales mix of products; protection and validity of our patent and other intellectual property rights; the outcome of pending and future litigation and governmental proceedings; continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and other risks detailed from time to time in our SEC filings, including particularly in the Risk Factors section of our 2019 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website. Presentation of Non-GAAP Financial Information EBITDA is a non-GAAP measure used in this release and 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 EBITDA 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 today 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. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference. CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME (Unaudited) (a) Three months ended In millions, except per share amounts March 29,2020 March 31,2019 NET SALES $ 5,011 $ 6,004 Cost of sales 3,717 4,472 GROSS MARGIN 1,294 1,532 OPERATING EXPENSES AND INCOME Selling, general and administrative expenses 546 593 Research, development and engineering expenses 238 237 Equity, royalty and interest income from investees 129 92 Other operating (expense) income, net (5 ) 5 OPERATING INCOME 634 799 Interest income 7 12 Interest expense 23 32 Other income, net 37 66 INCOME BEFORE INCOME TAXES 655 845 Income tax expense 127 176 CONSOLIDATED NET INCOME 528 669 Less: Net income attributable to noncontrolling interests 17 6 NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 511 $ 663 EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC. Basic $ 3.42 $ 4.22 Diluted $ 3.41 $ 4.20 WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING Basic 149.3 157.2 Diluted 149.7 157.7 (a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America. CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (a) In millions, except par value March 29,2020 December 31,2019 ASSETS Current assets Cash and cash equivalents $ 1,691 $ 1,129 Marketable securities 339 341 Total cash, cash equivalents and marketable securities 2,030 1,470 Accounts and notes receivable, net 3,505 3,670 Inventories 3,579 3,486 Prepaid expenses and other current assets 676 761 Total current assets 9,790 9,387 Long-term assets Property, plant and equipment, net 4,128 4,245 Investments and advances related to equity method investees 1,304 1,237 Goodwill 1,283 1,286 Other intangible assets, net 965 1,003 Pension assets 989 1,001 Other assets 1,617 1,578 Total assets $ 20,076 $ 19,737 LIABILITIES Current liabilities Accounts payable (principally trade) $ 2,648 $ 2,534 Loans payable 121 100 Commercial paper 1,617 660 Accrued compensation, benefits and retirement costs 322 560 Current portion of accrued product warranty 743 803 Current portion of deferred revenue 527 533 Other accrued expenses 971 1,039 Current maturities of long-term debt 33 31 Total current liabilities 6,982 6,260 Long-term liabilities Long-term debt 1,580 1,576 Pensions and other postretirement benefits 588 591 Accrued product warranty 640 645 Deferred revenue 837 821 Other liabilities 1,431 1,379 Total liabilities $ 12,058 $ 11,272 EQUITY Cummins Inc. shareholders’ equity Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued $ 2,335 $ 2,346 Retained earnings 14,728 14,416 Treasury stock, at cost, 74.9 and 71.7 shares (7,744 ) (7,225 ) Common stock held by employee benefits trust, at cost, 0.1 and 0.2 shares (1 ) (2 ) Accumulated other comprehensive loss (2,250 ) (2,028 ) Total Cummins Inc. shareholders’ equity 7,068 7,507 Noncontrolling interests 950 958 Total equity $ 8,018 $ 8,465 Total liabilities and equity $ 20,076 $ 19,737 (a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America. CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (a) Three months ended In millions March 29,2020 March 31,2019 CASH FLOWS FROM OPERATING ACTIVITIES Consolidated net income $ 528 $ 669 Adjustments to reconcile consolidated net income to net cash provided by operating activities Depreciation and amortization 168 157 Deferred income taxes (11 ) 11 Equity in income of investees, net of dividends (78 ) (64 ) Pension and OPEB expense 27 18 Pension contributions and OPEB payments (60 ) (47 ) Stock-based compensation expense 4 9 Restructuring payments (48 ) — Gain on corporate owned life insurance (17 ) (37 ) Foreign currency remeasurement and transaction exposure 3 79 Changes in current assets and liabilities Accounts and notes receivable 107 (135 ) Inventories (171 ) (107 ) Other current assets 79 67 Accounts payable 171 166 Accrued expenses (321 ) (293 ) Changes in other liabilities 28 64 Other, net (30 ) (145 ) Net cash provided by operating activities 379 412 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (75 ) (109 ) Investments in internal use software (8 ) (20 ) Investments in and advances to equity investees (7 ) (10 ) Investments in marketable securities—acquisitions (116 ) (121 ) Investments in marketable securities—liquidations 95 103 Cash flows from derivatives not designated as hedges 6 55 Other, net 6 31 Net cash used in investing activities (99 ) (71 ) CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (payments) of commercial paper 957 (71 ) Payments on borrowings and finance lease obligations (10 ) (10 ) Net borrowings under short-term credit agreements 25 15 Distributions to noncontrolling interests (13 ) (13 ) Dividend payments on common stock (195 ) (179 ) Repurchases of common stock (550 ) (100 ) Other, net 20 11 Net cash provided by (used in) financing activities 234 (347 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 48 31 Net increase in cash and cash equivalents 562 25 Cash and cash equivalents at beginning of year 1,129 1,303 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,691 $ 1,328 (a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America. CUMMINS INC. AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) In millions Engine Distribution Components Power Systems New Power Total Segments Intersegment Eliminations (1) Total Three months ended March 29, 2020 External sales $ 1,579 $ 1,807 $ 1,115 $ 500 $ 10 $ 5,011 $ — $ 5,011 Intersegment sales 579 7 387 384 — 1,357 (1,357 ) — Total sales 2,158 1,814 1,502 884 10 6,368 (1,357 ) 5,011 Research, development and engineering expenses 80 7 68 54 29 238 — 238 Equity, royalty and interest income from investees 78 21 21 9 — 129 — 129 Interest income (2) 4 1 1 1 — 7 — 7 Segment EBITDA 365 158 279 77 (43 ) 836 10 846 Depreciation and amortization (3) 53 31 48 32 4 168 — 168 Segment EBITDA as a percentage of total sales 16.9 % 8.7 % 18.6 % 8.7 % NM 13.1 % 16.9 % Three months ended March 31, 2019 External sales $ 1,984 $ 1,993 $ 1,401 $ 623 $ 3 $ 6,004 $ — $ 6,004 Intersegment sales 669 8 460 454 — 1,591 (1,591 ) — Total sales 2,653 2,001 1,861 1,077 3 7,595 (1,591 ) 6,004 Research, development and engineering expenses 78 7 75 56 21 237 — 237 Equity, royalty and interest income from investees 56 11 10 15 — 92 — 92 Interest income (2) 4 4 2 2 — 12 — 12 Segment EBITDA 438 171 325 138 (29 ) 1,043 (10 ) 1,033 Depreciation and amortization (3) 50 29 46 29 2 156 — 156 EBITDA as a percentage of total sales 16.5 % 8.5 % 17.5 % 12.8 % NM 13.7 % 17.2 % "NM" - not meaningful information (1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended March 29, 2020 and March 31, 2019. (2) "Interest income" is managed at the corporate level and allocated to each operating segment. (3) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs was less than $1 million and $1 million for the three month ended March 29, 2020 and March 31, 2019, respectively. A portion of depreciation expense is included in "Research, development and engineering expenses." CUMMINS INC. AND SUBSIDIARIES RECONCILIATION OF SEGMENT INFORMATION (Unaudited) A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Net Income is shown in the table below: Three months ended In millions March 29,2020 March 31,2019 Total EBITDA $ 846 $ 1,033 Less: Depreciation and amortization 168 156 Interest expense 23 32 Income before income taxes $ 655 $ 845 CUMMINS INC. AND SUBSIDIARIES SELECT FOOTNOTE DATA (Unaudited) INCOME TAXES Our effective tax rate for the three months ended March 29, 2020, was 19.4 percent. Our effective tax rate for the three months ended March 31, 2019, was 20.8 percent and contained immaterial discrete items. The three months ended March 29, 2020, contained $18 million of favorable net discrete tax items, primarily due to tax changes within India's 2020-2021 Union Budget of India (India Tax Law Change) passed in March of 2020. The India Tax Law Change eliminated the dividend distribution tax and replaced it with a lower rate withholding tax as the burden shifted from the dividend payor to the dividend recipient for a net favorable income statement impact of $35 million, or $0.23 per share. The India Tax Law Change resulted in the following adjustments to the Income Statement in the first quarter of 2020: March 29,2020 In millions Favorable (Unfavorable) Equity, royalty and interest income from investees $ 37 Income tax expense (1) 17 Less: Net income attributable to noncontrolling interests (19 ) Net income statement impact $ 35 (1) The adjustment to Income tax expense includes $15 million of discrete items. RISKS AND UNCERTAINTIES During the first quarter of 2020, the outbreak of the coronavirus disease of 2019 (COVID-19) spread throughout the world and became a global pandemic. The pandemic triggered a significant downturn in our markets globally and these challenging market conditions could continue for an extended period of time. In an effort to contain the spread of COVID-19, maintain the well-being of our employees and stakeholders, match the reduced demand from our customers and in accordance with governmental requirements, we closed or partially shut down certain office, manufacturing and distribution facilities around the world.Contacts Jon Mills Director – External Communications (317) 658-4540 [email protected] Read full story here
  • First quarter revenues of $5.0 billion; GAAP1 Net Income of $511 million
  • First quarter EBITDA of 16.9 percent; Diluted EPS of $3.41
  • The company ended the quarter with cash, cash equivalents and marketable securities of $2.0 billion and committed borrowing capacity of $1.9 billion
  • The company’s long-term credit ratings remain unchanged at A+ from Standard & Poor’s and A2 from Moody’s with stable outlooks
  • Previously announced restructuring actions were completed in the quarter and will yield annual cost savings of $250 to $300 million in 2020

COLUMBUS, Ind.–(BUSINESS WIRE)–Cummins Inc. (NYSE: CMI) today reported results for the first quarter of 2020.

First quarter revenues of $5.0 billion decreased 17 percent from the same quarter in 2019. Lower truck production in North America and weaker demand in global construction, mining, and power generation markets drove the majority of the revenue decrease. Currency negatively impacted revenues by 1 percent primarily due to a stronger US dollar.

Sales in North America declined by 16 percent while international revenues decreased by 17 percent led by declines in Europe, Asia Pacific, Latin America, India, and China.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter were $846 million (16.9 percent of sales), compared to $1.0 billion (17.2 percent of sales) a year ago. First quarter EBITDA included a $37 million benefit to joint venture earnings resulting from recent changes to tax law in India.

Net income attributable to Cummins in the first quarter was $511 million ($3.41 per diluted share) compared to $663 million ($4.20 per diluted share) in 2019. First quarter net income included a benefit of $35 million ($0.23 per diluted share) resulting from recent changes to tax law in India. The tax rate in the first quarter was 19.4 percent.

Chairman and CEO, Tom Linebarger:

“We delivered strong profitability in the first quarter, supported by the commitment of our employees to serve our customers and the benefit of cost reduction actions we initiated in the second half of 2019. Amidst the unprecedented COVID-19 pandemic, the health and safety of our employees and the communities in which we operate is our top priority. Our teams are working hard to support the global economy, leveraging our flexibility and strong supplier network to help our customers deliver essential products and support response efforts. Given the significant impact the pandemic will have on demand across our industry in the second quarter and beyond, we are continuing to take actions to reduce cost and boost our already strong liquidity.”

“During our 100-year history, we have encountered several unforeseen crises, and I am confident we will successfully navigate this one as we have done before, to emerge stronger. Cummins enters this period of uncertainty in a position of strength with an experienced leadership team that has led through multiple cycles and a strong balance sheet. Our deep customer and supplier relationships combined with our leading positions in global markets leave us well positioned to deliver strong growth when the global economy recovers.”

2020 Outlook:

Due to uncertainty related to the coronavirus pandemic, the company is not providing revenue or profitability guidance for 2020. While customer operations have begun to resume activity, the company does expect a significant impact to its second quarter results due to disruptions across customer and supplier operations and lower end market demand. For now, the company is planning for weak demand levels to persist for some time. In response to these challenges the company recently announced a set of cost reduction actions, including a temporary reduction in salaries. In addition, the company is lowering its targeted capital expenditures by more than 25 percent as compared to 2019 and will continue to closely monitor market conditions and adjust our plans accordingly.

First Quarter 2020 Highlights:

  • Cummins Foundation Issued Grants to Community Partners Addressing Urgent Childcare, Nutrition and Remote Learning Needs Caused by COVID-19 Crisis.
  • Announced partnerships with DuPont and 3M to provide critical material for N95 masks and Powered Air Purifying Respirators.
  • The Human Rights Campaign (HRC) announced that Cummins received a perfect score for a 15th consecutive year in its Corporate Equality Index.
  • Cummins was named to Ethisphere’s list of the World’s Most Ethical Companies for a 13th consecutive year.

1

Generally Accepted Accounting Principles

First quarter 2020 detail (all comparisons to same period in 2019):

Engine Segment

  • Sales – $2.2 billion, down 19 percent
  • Segment EBITDA – $365 million, or 16.9 percent of sales, compared to $438 million or 16.5 percent of sales
  • On-highway revenues decreased 17 percent and off-highway revenues decreased 23 percent, primarily due to decreased global demand in truck and construction markets

Distribution Segment

  • Sales – $1.8 billion, down 9 percent
  • Segment EBITDA – $158 million, or 8.7 percent of sales, compared to $171 million or 8.5 percent of sales
  • Revenues in North America were down 11 percent and international sales declined by 6 percent
  • Demand declined in all lines of business and a stronger US dollar negatively impacted revenues by 1 percent

Components Segment

  • Sales – $1.5 billion, down 19 percent
  • Segment EBITDA – $279 million, or 18.6 percent of sales, compared to $325 million or 17.5 percent of sales
  • Revenues in North America decreased by 24 percent and international sales declined by 12 percent, both due to weaker global truck demand

Power Systems Segment

  • Sales – $884 million, down 18 percent
  • Segment EBITDA – $77 million, or 8.7 percent of sales, compared to $138 million, or 12.8 percent of sales
  • Power generation revenues decreased by 8 percent while industrial revenues decreased 30 percent

New Power Segment

  • Sales – $10 million
  • Segment EBITDA loss – $43 million
  • Costs associated with development of new products and current low adoption rates of new technology are contributing to EBITDA losses

About Cummins Inc.

Cummins Inc., a global power leader, is a corporation of complementary business segments that design, manufacture, distribute and service a broad portfolio of power solutions. The company’s products range from diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 61,600 people committed to powering a more prosperous world through three global corporate responsibility priorities critical to healthy communities: education, environment and equality of opportunity. Cummins serves its customers online, through a network of company-owned and independent distributor locations, and through thousands of dealer locations worldwide and earned about $2.3 billion on sales of $23.6 billion in 2019. See how Cummins is powering a world that’s always on by accessing news releases and more information at https://www.cummins.com/always-on.

Forward-looking disclosure statement

Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward-looking statements include, without limitation, statements relating to our plans and expectations for our revenues and EBITDA. Our 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: market slowdown due to the impacts from COVID-19 pandemic, other public health crises, epidemics or pandemics; impacts to manufacturing and supply chain abilities from an extended shutdown or disruption of our operations due to the COVID-19 pandemic; supply shortages and supplier financial risk, particularly from any of our single-sourced suppliers, including suppliers that may be impacted by the COVID-19 pandemic; aligning our capacity and production with our demand, including impacts of COVID-19; a major customer experiencing financial distress, particularly related to the COVID-19 pandemic; any adverse results of our internal review into our emissions certification process and compliance with emission standards; increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world; disruptions in global credit and financial markets as the result of the COVID-19 pandemic; adverse impacts from government actions to stabilize credit markets and financial institutions and other industries; product recalls; the development of new technologies that reduce demand for our current products and services; policy changes in international trade; a slowdown in infrastructure development and/or depressed commodity prices; the U.K.'s decision to end its membership in the European Union (EU); labor relations or work stoppages; reliance on our executive leadership team and other key personnel; lower than expected acceptance of new or existing products or services; changes in the engine outsourcing practices of significant customers; our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions; exposure to potential security breaches or other disruptions to our information technology systems and data security; challenges or unexpected costs in completing cost reduction actions and restructuring initiatives; failure to realize expected results from our investment in Eaton Cummins Automated Transmission Technologies joint venture; political, economic and other risks from operations in numerous countries; competitor activity; increasing competition, including increased global competition among our customers in emerging markets; foreign currency exchange rate changes; variability in material and commodity costs; the actions of, and income from, joint ventures and other investees that we do not directly control; changes in taxation; global legal and ethical compliance costs and risks; product liability claims; increasingly stringent environmental laws and regulations; the performance of our pension plan assets and volatility of discount rates, particularly those related to the sustained slowdown of the global economy due to the COVID-19 pandemic; future bans or limitations on the use of diesel-powered products; the price and availability of energy; our sales mix of products; protection and validity of our patent and other intellectual property rights; the outcome of pending and future litigation and governmental proceedings; continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and other risks detailed from time to time in our SEC filings, including particularly in the Risk Factors section of our 2019 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information

EBITDA is a non-GAAP measure used in this release and 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 EBITDA 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 today 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. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited) (a)

Three months ended

In millions, except per share amounts

March 29,
2020

March 31,
2019

NET SALES

$

5,011

$

6,004

Cost of sales

3,717

4,472

GROSS MARGIN

1,294

1,532

OPERATING EXPENSES AND INCOME

Selling, general and administrative expenses

546

593

Research, development and engineering expenses

238

237

Equity, royalty and interest income from investees

129

92

Other operating (expense) income, net

(5

)

5

OPERATING INCOME

634

799

Interest income

7

12

Interest expense

23

32

Other income, net

37

66

INCOME BEFORE INCOME TAXES

655

845

Income tax expense

127

176

CONSOLIDATED NET INCOME

528

669

Less: Net income attributable to noncontrolling interests

17

6

NET INCOME ATTRIBUTABLE TO CUMMINS INC.

$

511

$

663

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

Basic

$

3.42

$

4.22

Diluted

$

3.41

$

4.20

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING

Basic

149.3

157.2

Diluted

149.7

157.7

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (a)

In millions, except par value

March 29,
2020

December 31,
2019

ASSETS

Current assets

Cash and cash equivalents

$

1,691

$

1,129

Marketable securities

339

341

Total cash, cash equivalents and marketable securities

2,030

1,470

Accounts and notes receivable, net

3,505

3,670

Inventories

3,579

3,486

Prepaid expenses and other current assets

676

761

Total current assets

9,790

9,387

Long-term assets

Property, plant and equipment, net

4,128

4,245

Investments and advances related to equity method investees

1,304

1,237

Goodwill

1,283

1,286

Other intangible assets, net

965

1,003

Pension assets

989

1,001

Other assets

1,617

1,578

Total assets

$

20,076

$

19,737

LIABILITIES

Current liabilities

Accounts payable (principally trade)

$

2,648

$

2,534

Loans payable

121

100

Commercial paper

1,617

660

Accrued compensation, benefits and retirement costs

322

560

Current portion of accrued product warranty

743

803

Current portion of deferred revenue

527

533

Other accrued expenses

971

1,039

Current maturities of long-term debt

33

31

Total current liabilities

6,982

6,260

Long-term liabilities

Long-term debt

1,580

1,576

Pensions and other postretirement benefits

588

591

Accrued product warranty

640

645

Deferred revenue

837

821

Other liabilities

1,431

1,379

Total liabilities

$

12,058

$

11,272

EQUITY

Cummins Inc. shareholders’ equity

Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued

$

2,335

$

2,346

Retained earnings

14,728

14,416

Treasury stock, at cost, 74.9 and 71.7 shares

(7,744

)

(7,225

)

Common stock held by employee benefits trust, at cost, 0.1 and 0.2 shares

(1

)

(2

)

Accumulated other comprehensive loss

(2,250

)

(2,028

)

Total Cummins Inc. shareholders’ equity

7,068

7,507

Noncontrolling interests

950

958

Total equity

$

8,018

$

8,465

Total liabilities and equity

$

20,076

$

19,737

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (a)

Three months ended

In millions

March 29,
2020

March 31,
2019

CASH FLOWS FROM OPERATING ACTIVITIES

Consolidated net income

$

528

$

669

Adjustments to reconcile consolidated net income to net cash provided by operating activities

Depreciation and amortization

168

157

Deferred income taxes

(11

)

11

Equity in income of investees, net of dividends

(78

)

(64

)

Pension and OPEB expense

27

18

Pension contributions and OPEB payments

(60

)

(47

)

Stock-based compensation expense

4

9

Restructuring payments

(48

)

Gain on corporate owned life insurance

(17

)

(37

)

Foreign currency remeasurement and transaction exposure

3

79

Changes in current assets and liabilities

Accounts and notes receivable

107

(135

)

Inventories

(171

)

(107

)

Other current assets

79

67

Accounts payable

171

166

Accrued expenses

(321

)

(293

)

Changes in other liabilities

28

64

Other, net

(30

)

(145

)

Net cash provided by operating activities

379

412

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures

(75

)

(109

)

Investments in internal use software

(8

)

(20

)

Investments in and advances to equity investees

(7

)

(10

)

Investments in marketable securities—acquisitions

(116

)

(121

)

Investments in marketable securities—liquidations

95

103

Cash flows from derivatives not designated as hedges

6

55

Other, net

6

31

Net cash used in investing activities

(99

)

(71

)

CASH FLOWS FROM FINANCING ACTIVITIES

Net borrowings (payments) of commercial paper

957

(71

)

Payments on borrowings and finance lease obligations

(10

)

(10

)

Net borrowings under short-term credit agreements

25

15

Distributions to noncontrolling interests

(13

)

(13

)

Dividend payments on common stock

(195

)

(179

)

Repurchases of common stock

(550

)

(100

)

Other, net

20

11

Net cash provided by (used in) financing activities

234

(347

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

48

31

Net increase in cash and cash equivalents

562

25

Cash and cash equivalents at beginning of year

1,129

1,303

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

1,691

$

1,328

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

In millions

Engine

Distribution

Components

Power Systems

New Power

Total Segments

Intersegment

Eliminations (1)

Total

Three months ended March 29, 2020

External sales

$

1,579

$

1,807

$

1,115

$

500

$

10

$

5,011

$

$

5,011

Intersegment sales

579

7

387

384

1,357

(1,357

)

Total sales

2,158

1,814

1,502

884

10

6,368

(1,357

)

5,011

Research, development and engineering expenses

80

7

68

54

29

238

238

Equity, royalty and interest income from investees

78

21

21

9

129

129

Interest income (2)

4

1

1

1

7

7

Segment EBITDA

365

158

279

77

(43

)

836

10

846

Depreciation and amortization (3)

53

31

48

32

4

168

168

Segment EBITDA as a percentage of total sales

16.9

%

8.7

%

18.6

%

8.7

%

NM

13.1

%

16.9

%

Three months ended March 31, 2019

External sales

$

1,984

$

1,993

$

1,401

$

623

$

3

$

6,004

$

$

6,004

Intersegment sales

669

8

460

454

1,591

(1,591

)

Total sales

2,653

2,001

1,861

1,077

3

7,595

(1,591

)

6,004

Research, development and engineering expenses

78

7

75

56

21

237

237

Equity, royalty and interest income from investees

56

11

10

15

92

92

Interest income (2)

4

4

2

2

12

12

Segment EBITDA

438

171

325

138

(29

)

1,043

(10

)

1,033

Depreciation and amortization (3)

50

29

46

29

2

156

156

EBITDA as a percentage of total sales

16.5

%

8.5

%

17.5

%

12.8

%

NM

13.7

%

17.2

%

"NM" – not meaningful information

(1)

Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended March 29, 2020 and March 31, 2019.

(2)

"Interest income" is managed at the corporate level and allocated to each operating segment.

(3)

Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs was less than $1 million and $1 million for the three month ended March 29, 2020 and March 31, 2019, respectively. A portion of depreciation expense is included in "Research, development and engineering expenses."

CUMMINS INC. AND SUBSIDIARIES

RECONCILIATION OF SEGMENT INFORMATION

(Unaudited)

A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Net Income is shown in the table below:

Three months ended

In millions

March 29,
2020

March 31,
2019

Total EBITDA

$

846

$

1,033

Less:

Depreciation and amortization

168

156

Interest expense

23

32

Income before income taxes

$

655

$

845

CUMMINS INC. AND SUBSIDIARIES

SELECT FOOTNOTE DATA

(Unaudited)

INCOME TAXES

Our effective tax rate for the three months ended March 29, 2020, was 19.4 percent. Our effective tax rate for the three months ended March 31, 2019, was 20.8 percent and contained immaterial discrete items.

The three months ended March 29, 2020, contained $18 million of favorable net discrete tax items, primarily due to tax changes within India's 2020-2021 Union Budget of India (India Tax Law Change) passed in March of 2020. The India Tax Law Change eliminated the dividend distribution tax and replaced it with a lower rate withholding tax as the burden shifted from the dividend payor to the dividend recipient for a net favorable income statement impact of $35 million, or $0.23 per share.

The India Tax Law Change resulted in the following adjustments to the Income Statement in the first quarter of 2020:

March 29,
2020

In millions

Favorable

(Unfavorable)

Equity, royalty and interest income from investees

$

37

Income tax expense (1)

17

Less: Net income attributable to noncontrolling interests

(19

)

Net income statement impact

$

35

(1) The adjustment to Income tax expense includes $15 million of discrete items.

RISKS AND UNCERTAINTIES

During the first quarter of 2020, the outbreak of the coronavirus disease of 2019 (COVID-19) spread throughout the world and became a global pandemic. The pandemic triggered a significant downturn in our markets globally and these challenging market conditions could continue for an extended period of time. In an effort to contain the spread of COVID-19, maintain the well-being of our employees and stakeholders, match the reduced demand from our customers and in accordance with governmental requirements, we closed or partially shut down certain office, manufacturing and distribution facilities around the world.

Contacts

Jon Mills

Director – External Communications

(317) 658-4540

[email protected]

Read full story here

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