This is a summary of the fourth quarter fiscal 2006 earnings call conducted by Cummins, Inc (CMI) on January 29, 2007
Management:
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Director – Investor Relations: Dean Cantrell
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President – Cummins Power Generation: Tom Linebarger
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Chairman and Chief Executive Officer: Tim Solso
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Chief Financial Officer: Jean Blackwell
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Chief Operating Officer: Joe Loughrey
Key Investors Issues:
- Cummins eclipsed $3 billion in quarterly sales for the first time.
- Earnings increased 13% to $189 million, or $3.75 per share, from $167 million, or $3.31 a share in the prior year.
- The company repurchased $121 million of own shares and paid higher dividends than in past years.
Full Year Highlights:
- Sales were $11.36 billion, up 15% from $9.92 billion in 2005.
- Net earnings rose 30% to $715 million or $14.21 a share, from $550 million or $11.01 a share in 2005.
Fourth Quarter Highlights:
The firm reported sales of $3.03 billion, a 10% increase from $2.75 billion in the same period in 2005 driven primarily by generation equipment in the Middle East, Europe, and the South Pacific.
- EBIT rose 13% to $303 million (10% of sales), from $269 million (9.8% of sales).
- Net earnings increased 13% to $189 million, or $3.75 per diluted share, from $167 million, or $3.31 per diluted share in the prior year on revenue growth.
- Gross margin was 22.1%, down slightly from 22.5% in the prior year as price realization of nearly 4% is expected to offset higher new product introduction costs and higher product coverage expense related to the new products.
- Total selling, admin and research and engineering spending was 13.6% of sales, down from 13.9% in 2005.
- Income from joint ventures and alliances increased 25% in 2005.
Cash flow from operating activities was an inflow of $227 million this quarter, lower than the record-setting quarter of last year of $375 million.
- Cash flow from operations increased 21% for the full-year.
- The company reduced debt by $556 million including $310 million in cash.
- It contributed $266 million to the global pension plan and invested $249 million in capital expenditures.
-The company repurchased $121 million of own shares and paid higher dividends than in past years.
Segmental Analysis:
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Engine segment sales of $1.95 billion were a quarterly record and 6% higher than $1.84 billion during the same period in 2005.
- EBIT increased 16% to $181 million, or 9.3% of sales, from $156 million, or 8.5% of sales, a year ago.
- North American heavy-duty truck engine shipments rose 14% and North American medium-duty engine shipments increased 57% in advance of the 2007 emissions changes, offsetting a 15% drop in shipments to Chrysler during the quarter.
- Shipments to the international construction markets rose 18% from the same period in 2005.
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Power Generation: sales of $658 million rose 14% from $575 million, while EBIT increased 27% to $62 million, or 9.4% of sales, from $49 million or 8.5% of sales.
- Commercial sales rose 18% and alternator sales jumped 30%, more than offsetting a drop in consumer sales.
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Distribution: sales of $386 million rose 12% from $346 million in the same period in 2005.
- EBIT increased 18% to $39 million, or 10.1% of sales, from $33 million, or 9.5% of sales in 2005.
- Sales of power generation products were strong in the Middle East and Europe.
- Joint venture income rose 45%, led by improved performance at North American distributors.
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Components: sales rose 12% to $599 million, from $535 million for the same period in 2005.
- EBIT fell slightly to $23 million, or 3.8% of sales, from $24 million, or 4.5% of sales, in the fourth quarter of 2005.
- Performance was led by the Filtration and Fuel System businesses, which reported improved sales and gross margin while the turbocharger and Emission Solutions businesses were adversely affected by costs associated with introducing new products
Fiscal 2007 Outlook;
- The Company expects to earn between $11 and $11.50 a share in 2007, despite the forecasted emissions-related downturn in the North American heavy-duty truck engine market.
- Cummins expects strength in medium-duty and high-horsepower engine sales, power generation and distribution to help offset lower North American heavy-duty sales.
- The Company anticipates an increase in its turbocharger sales to other engine manufacturers and sees significant growth opportunities in the sale of advanced exhaust after treatment and filtration products to meet changing emissions standards around the world.
- Cummins is forecasting continued profitable growth in key emerging markets such as China and India, and international sales are expected to exceed U.S. sales in 2007.
Shipments to the global light duty automotive and RV markets to increase nearly 5% in 2007 through new product offerings and increased availability of products at key OEMs.
- The Brazilian market is expected to remain flat in 2007 while the European shipments will benefit from the new supply relationships with Nissan.
- The company expects sales to increase between 7% and 10% in 2007, while it is adding two distributors in Europe early in 2007.
- Full-year margins are expected to be slightly below or equal to the bottom end of the targeted range of 7% to 10% of sales.
