This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Cummins Reports Third Quarter Results, Confirms Full Year Guidance

Cummins Inc. (NYSE: CMI) today reported results for the third quarter of 2012.

Third quarter revenue of $4.1 billion decreased 11 percent from the same quarter in 2011. Revenues in North America grew 2 percent while revenues from international markets declined 21 percent.

Earnings before interest and taxes (EBIT) were $496 million or 12.0 percent of sales compared to $640 million or 13.8 percent of sales in the third quarter of 2011.

Net income attributable to Cummins in the third quarter of 2012 was $352 million ($1.86 per diluted share) compared to $452 million in the same period a year ago ($2.35 per diluted share).

“Demand has dropped sharply over the last three months, reflecting a high degree of uncertainty among customers in most geographic markets,” said Tom Linebarger, Chairman and Chief Executive Officer. “We have been responding to the conditions by delaying or cancelling projects, flexing production at some of our manufacturing plants, reducing discretionary expenses, and reducing our workforce by 1000 to 1500 people by the end of this year. We are continuing to fund projects that are important for future growth and meeting commitments to customers. We are working to respond to the conditions now to ensure the long term strength of the company and to best serve the many stakeholders who rely on Cummins long term success.”

Based on the current forecast, Cummins expects full year revenues to be $17 billion, with EBIT in the range of 13.5 percent of sales.

Other recent highlights:

  • Fitch Rating Services raised its Long-term Issuer Default Rating and long-term debt ratings for Cummins to “A”;
  • Cummins became the first engine manufacturer to receive certification for the EPA 2013 regulations and the new Greenhouse Gas rules that come into effect in the U.S. in 2014 with our ISX15 engine;
  • Cummins Power Generation’s stationary diesel generator set received EPA Tier 4 interim certification for the North American market 3 years ahead of deadline; and
  • Newsweek’s 2012 Green Rankings of businesses ranked Cummins #64 among the 500 largest public companies in the United States, which is #1 among industrial companies;

Third quarter 2012 detail (all comparisons to same period in 2011)

Engine Segment

  • Sales – $2.5 billion, down 14 percent
  • Segment EBIT – $239 million, or 9.5 percent of sales, compared to $349 million or 11.8 percent of sales
  • Lower demand in North American heavy duty truck, medium duty truck, oil and gas and mining markets, lower demand for trucks in Brazil and in the construction market in China offset stronger demand for light duty truck and construction engines in North America.

Components Segment

  • Sales - $938 million, down 8 percent
  • Segment EBIT - $89 million, or 9.5 percent of sales, compared to $113 million or 11.1 percent of sales
  • Lower demand in on-highway markets in North America, Europe and China offset higher product content in Brazil. The net impact of acquisitions and divestitures slightly increased revenues

Power Generation Segment

  • Sales – $814 million, down 7 percent
  • Segment EBIT – $73 million, or 9.0 percent of sales, compared to $92 million or 10.5 percent of sales
  • Higher revenues in North America offset by lower demand in Europe, China, the Middle East and Latin America

Distribution Segment

  • Sales – $801 million, up 2 percent, down 7 percent excluding acquisitions
  • Segment EBIT – $99 million, or 12.4 percent of sales, compared to $104 million or 13.3 percent of sales
  • Lower sales in Africa, Europe and Asia Pacific offsetting growth in North America, China and the Middle East

About Cummins

Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins employed approximately 44,000 people worldwide at the end of 2011 and serves customers in approximately 190 countries and territories through a network of more than 600 company-owned and independent distributor locations and approximately 6,500 dealer locations. Cummins earned $1.85 billion on sales of $18.0 billion in 2011. Press releases can be found on the Web at www.cummins.com.

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 for the second quarter of 2012, as well as the full year. 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: the adoption and implementation of global emission standards; the price and availability of energy; the pace of infrastructure development; increasing global competition among our customers; general economic, business and financing conditions; governmental action; changes in our customers’ business strategies; competitor pricing activity; expense volatility; labor relations; and other risks detailed from time to time in our Securities and Exchange Commission filings, including particularly in the Risk Factors section of our 2011 Annual Report on Form 10-K. 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 Securities and Exchange Commission, 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

EBIT 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 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 today at 11 a.m. EDT. 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 INCOME
(Unaudited) (a)
       
Three months ended
September 30, July 1,

September 25,

In millions, except per share amounts 2012 2012 2011
NET SALES $ 4,118 $ 4,452 $ 4,626
Cost of sales   3,076   3,242   3,438
GROSS MARGIN 1,042 1,210 1,188
 
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 456 487 489
Research, development and engineering expenses 186 187 164
Equity, royalty and interest income from investees (Note 1) 94 104 102
Gain on sale of businesses - 6 -
Other operating income (expense), net   (1)   2   2
OPERATING INCOME 493 648 639
 
Interest income 5 7 9
Interest expense 9 8 11
Other income (expense), net   (2)   14   (8)
INCOME BEFORE INCOME TAXES 487 661 629
 
Income tax expense (Note 2)   117   166   157
CONSOLIDATED NET INCOME 370 495 472
 
Less: Net income attributable to noncontrolling interests   18   26   20
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 352 $ 469 $ 452
 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

Basic $ 1.87 $ 2.47 $ 2.35
Diluted $ 1.86 $ 2.47 $ 2.35
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 188.6 189.8 192.1
Diluted 189.0 190.1 192.7
 
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.50 $ 0.40 $ 0.40
 

(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 INCOME
(Unaudited) (a)
     
Nine months ended
In millions, except per share amounts

September 30, 2012

September 25, 2011

NET SALES $ 13,042 $ 13,127
Cost of sales   9,592   9,779
GROSS MARGIN 3,450 3,348
 
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 1,418 1,341
Research, development and engineering expenses 554 450
Equity, royalty and interest income from investees (Note 1) 302 315
Gain on sale of businesses 6 68
Other operating income (expense), net   3   (4)
OPERATING INCOME 1,789 1,936
 
Interest income 20 25
Interest expense 25 34
Other income (expense), net   14   (14)
INCOME BEFORE INCOME TAXES 1,798 1,913
 
Income tax expense (Note 2)   458   539
CONSOLIDATED NET INCOME 1,340 1,374
 
Less: Net income attributable to noncontrolling interests   64   74
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 1,276 $ 1,300
 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

Basic $ 6.73 $ 6.71
Diluted $ 6.72 $ 6.69
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 189.6 193.8
Diluted 190.0 194.4
 
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 1.30 $ 0.925
 

(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)
  September 30,   December 31,
In millions, except par value 2012 2011
ASSETS
Current assets
  Cash and cash equivalents $ 1,033 $ 1,484
Marketable securities   239   277
  Total cash, cash equivalents and marketable securities 1,272 1,761
Accounts and notes receivable, net 2,503 2,526
Inventories 2,570 2,141
Prepaid expenses and other current assets   770   663
  Total current assets   7,115   7,091
Long-term assets
Property, plant and equipment 5,691 5,245
Accumulated depreciation   (3,134)   (2,957)
Property, plant and equipment, net   2,557   2,288
Investments and advances related to equity method investees 962 838
Goodwill 443 339
Other intangible assets, net 365 227
Other assets   972   885
  Total assets $ 12,414 $ 11,668
 
LIABILITIES
Current liabilities
Loans payable $ 54 $ 28
Accounts payable (principally trade) 1,460 1,546
Current portion of accrued product warranty 406 422
Accrued compensation, benefits and retirement costs 388 511
Deferred revenue 208 208
Taxes payable (including taxes on income) 172 282
Other accrued expenses   621   660
Total current liabilities   3,309   3,657
Long-term liabilities
Long-term debt 670 658
Postretirement benefits other than pensions 417 432
Other liabilities and deferred revenue   1,184   1,090
Total liabilities   5,580   5,837
 
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.2 shares issued 2,046 2,001
Retained earnings 7,068 6,038
Treasury stock, at cost, 32.3 and 30.2 shares (1,809) (1,587)
Common stock held by employee benefits trust, at cost, 1.6 and 1.8 shares (19) (22)
Accumulated other comprehensive loss
Defined benefit postretirement plans (694) (724)
Other   (114)   (214)
Total accumulated other comprehensive loss   (808)   (938)
Total Cummins Inc. shareholders’ equity 6,478 5,492
Noncontrolling interests   356   339
Total equity   6,834   5,831
Total liabilities and equity $ 12,414 $ 11,668
 

(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)
      Nine months ended
September 30,   September 25,
In millions 2012 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 1,340 $ 1,374
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization 262 243
Gain on sale of businesses (6) (68)
Gain on fair value adjustment for consolidated investee (7) -
Deferred income taxes 91 148
Equity in income of investees, net of dividends (51) 7
Pension contributions in excess of expense (74) (71)
Other post-retirement benefits payments in excess of expense (16) (10)
Stock-based compensation expense 29 28
Excess tax benefits on stock-based awards (12) (4)
Translation and hedging activities 16 (14)
Changes in current assets and liabilities, net of acquisitions and divestitures:
Accounts and notes receivable 66 (469)
Inventories (367) (367)
Other current assets (54) (5)
Accounts payable (145) 317
Accrued expenses (398) 173
Changes in other liabilities and deferred revenue 154 93
Other, net   (41)   (7)
Net cash provided by operating activities   787   1,368
 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (424) (377)
Investments in internal use software (62) (31)
Investments in and advances to equity investees (92) (104)
Proceeds from sale of business, net of cash sold 10 111
Acquisition of businesses, net of cash acquired (215) -
Investments in marketable securities—acquisitions (433) (538)
Investments in marketable securities—liquidations 475 572
Cash flows from derivatives not designated as hedges 13 4
Other, net   9   7
Net cash used in investing activities   (719)   (356)
 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 64 96
Payments on borrowings and capital lease obligations (120) (174)
Net borrowings under short-term credit agreements 5 (5)
Distributions to noncontrolling interests (50) (50)
Dividend payments on common stock (246) (178)
Repurchases of common stock (231) (546)
Excess tax benefits on stock-based awards 12 4
Other, net   16   13
Net cash used in financing activities   (550)   (840)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   31   (30)
Net increase (decrease) in cash and cash equivalents (451) 142
Cash and cash equivalents at beginning of year   1,484   1,023
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,033 $ 1,165
 

(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)

             
Engine Components

Power Generation

Distribution

Non-segment Items (1)

Total
In millions
Three months ended September 30, 2012
External sales $ 2,131 $ 663 $ 526 $ 798 $ - $ 4,118
Intersegment sales 396 275 288 3 (962)   -
  Total sales 2,527 938 814 801 (962) 4,118
Depreciation and amortization (2) 48 21 12 8 - 89
Research, development and engineering expenses 115 51 19 1 - 186
Equity, royalty and interest income from investees 25 7 12 50 - 94
Interest income 2 1 2 - - 5
Segment EBIT 239 89 73 99 (4) 496
 
Three months ended July 1, 2012
External sales $ 2,381 $ 710 $ 572 $ 789 $ - $ 4,452
Intersegment sales 460   326   337   5   (1,128)   -
Total sales 2,841 1,036 909 794 (1,128) 4,452
Depreciation and amortization (2) 47 19 11 8 - 85
Research, development and engineering expenses 115 51 19 2 - 187
Equity, royalty and interest income from investees 37 8 10 49 - 104
Interest income 3 1 3 - - 7
Segment EBIT 376 116 94 92 (9) 669
 
Three months ended September 25, 2011
External sales $ 2,539 $ 704 $ 604 $ 779 $ - $ 4,626
Intersegment sales 416 311 270 4 (1,001)   -
Total sales 2,955 1,015 874 783 (1,001) 4,626
Depreciation and amortization (2) 46 19 11 6 - 82
Research, development and engineering expenses 103 46 14 1 - 164
Equity, royalty and interest income from investees 35 7 16 44 - 102
Interest income 5 1 2 1 - 9
Segment EBIT 349 113 92 104 (18) 640
 
Nine months ended September 30, 2012
External sales $ 6,924 $ 2,147 $ 1,614 $ 2,357 $ - $ 13,042
Intersegment sales 1,303 926 889 13 (3,131)   -
Total sales 8,227 3,073 2,503 2,370 (3,131) 13,042
Depreciation and amortization (2) 142 59 34 23 - 258
Research, development and engineering expenses 341 153 56 4 - 554
Equity, royalty and interest income from investees 100 23 32 147 - 302
Interest income 9 3 7 1 - 20
Segment EBIT 996 348 243 285 (49) 1,823
 
Nine months ended September 25, 2011
External sales $ 7,021 $ 2,105 $ 1,810 $ 2,191 $ - $ 13,127
Intersegment sales 1,225 866 768 19 (2,878)   -
Total sales 8,246 2,971 2,578 2,210 (2,878) 13,127
Depreciation and amortization (2) 135 55 32 17 - 239
Research, development and engineering expenses 285 126 37 2 - 450
Equity, royalty and interest income from investees 126 24 37 128 - 315
Interest income 14 3 6 2 - 25
Segment EBIT 1,016 338 286 299 8 1,947
 
(1)   Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended September 30, 2012 and September 25, 2011. The three months ended July 1, 2012, and nine months ended September 30, 2012, include a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures. The nine months ended September 25, 2011, include a $68 million gain ($37 million after-tax) related to the sale of certain assets and liabilities of our exhaust business from the Components segment. The gains have been excluded from segment results as they were not considered in our evaluation of operating results for the corresponding periods. There were no other significant unallocated corporate expenses.
(2) Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount that is included in the Condensed Consolidated Statements of Income as “Interest expense.”
 

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 Income is shown in the table below:

 
Three months ended Nine months ended
September 30,   July 1,   September 25, September 30,   September 25,
In millions 2012 2012 2011 2012 2011
Segment EBIT $ 496 $ 669 $ 640 $ 1,823 $ 1,947
Less: Interest expense   9   8   11   25   34
Income before income taxes $ 487 $ 661 $ 629 $ 1,798 $ 1,913
 

CUMMINS INC. AND SUBSIDIARIES SELECTED FOOTNOTE DATA (Unaudited)

 

NOTE 1.  EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

 
Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the interim reporting periods was as follows:
 
      Three months ended   Nine months ended
September 30,   July 1,   September 25, September 30,   September 25,
In millions 2012 2012 2011 2012 2011
Distribution Entities
North American distributors $ 37 $ 38 $ 35 $ 115 $ 100
Komatsu Cummins Chile, Ltda. 9 6 6 20 16
All other distributors - 2 1 3 3
Manufacturing Entities
Chongqing Cummins Engine Company, Ltd. 14 17 20 49 51
Dongfeng Cummins Engine Company, Ltd. 9 17 15 42 64
Shanghai Fleetguard Filter Co., Ltd. 3 4 4 10 12
Beijing Foton Cummins Engine Co., Ltd. 3 2 (2) 3 (5)
Cummins Westport, Inc. 2 4 4 11 8
Valvoline Cummins, Ltd. 2 2 2 6 6
Tata Cummins, Ltd. - 3 2 7 9
Komatsu manufacturing alliances (1) 1 - (1) 1
All other manufacturers   7   (1)   7   7   19
Cummins share of net income 85 95 94 272 284
Royalty and interest income   9   9   8   30   31
Equity, royalty and interest income from investees $ 94 $ 104 $ 102 $ 302 $ 315
 

NOTE 2. INCOME TAXES

Our effective tax rate for the year is expected to approximate 26.5 percent, absent any discrete period activity. Our tax rate is generally less than the 35 percent U.S. income tax rate primarily due to lower tax rates on foreign income. The tax rates for the three and nine month periods ended September 30, 2012, were 24.1 percent and 25.5 percent, respectively. These tax rates include a $16 million tax benefit for third quarter discrete tax adjustments, $6 million of which related to a dividend distribution of accumulated foreign income earned in prior years. These discrete tax adjustments also included a discrete tax benefit of $13 million for prior year tax return true-up adjustments and a discrete tax charge of $3 million related to the third quarter enactment of U.K. tax law changes.

Stock quotes in this article: CMI 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs