This summary is based on the second quarter fiscal 2008 earnings call conducted by Cummins Inc. (CMI) on July 30, 2008.
Management:
Director of IR: Dean A. Cantrell
Chairman and CEO: T. M. (Tim) Solso
VP and CFO: Patrick (Pat) J. Ward
President and COO: Joe Loughrey
EVP and President - Power Generation Business: Tom Linebarger
Key Investors Issues
- EPS were $1.49 a share compared to $1.06 a share last year.
- Net income increased 37% to $293 million compared to $214 million in 2007.
- Sales grew 16% to $3.89 billion, from $3.34 billion during the same period in 2007.
Second Quarter Highlights
Sales grew 16% to $3.89 billion, from $3.34 billion during the same period in 2007.
- Net income increased 37% to $293 million, or $1.49 a share, compared to $214 million, or $1.06 a share, in 2007.
- Earnings before interest and taxes of $469 million (12.1% of sales), was a 32% improvement over $354 million (10.6% of sales) during the same period a year ago.
The company experienced broad gains in product and geographic markets around the world, including:
- Strong sales growth and market share in the North American heavy-duty engine market. Despite high fuel prices and weakness in the U.S. economy, Cummins posted gains in this market, compared to 2007 when changes in emissions regulations led to sharply lower demand – especially in the first half of the year.
- Strong medium-duty truck engine sales, especially in Brazil and Mexico.
- Increased demand in the company’s commercial generator business, most notably in the Middle East, Latin America, China and the United Kingdom.
- Strong sales growth in North America, Europe and China for turbochargers.
- Sales gains for the company’s Emission Solutions products in North America and Europe, driven by new emissions regulations.
- Higher income from the company’s joint ventures worldwide, led by Dongfeng Cummins Engine company in China, which saw large gains as result of a pre-buy in the on-highway truck market in advance of new emissions standards.
- A 58% increase in the company’s Distribution Business sales, led by strong organic growth in Europe, the South Pacific and Middle East and the acquisition of a majority interest in a previously independent distributor in the United States.
- The company’s strong second quarter performance came in the face of continued economic weakness in the United States, which has affected the company’s consumer-related markers. Engine sales to Chrysler for the Dodge Ram heavy-duty pickup fell more than 60% from the same period in 2007. RV engine sales fell nearly 40% and the company’s consumer power generation sales were off more than 30% from a year ago.
The company announced a 40% increase in the quarterly dividend to 17.5 cents a share.
- In June, severe flooding in southern Indiana affected a number of Cummins facilities. A large manufacturing plant was partially flooded and the Cummins Technical Center in Columbus experienced severe flooding, resulting in its engine test cells being out of operation for approximately five weeks. The second quarter results include a charge of approximately $6 million related to the flooding, but the company is confident that it has insurance coverage to limit the impact of this event.
- Fitch Rating Services upgraded the company’s senior unsecured long-term debt to BBB+, from BBB, citing recent market share gains and improvement in Cummins’ geographic and business diversification.
- Cummins entered in a new revolving credit facility that expands its capacity from $650 million to $1.1 billion.
Engine Segment sales of $2.39 billion increased 13% from $2.11 billion in the same period in 2007, while Segment EBIT of $221 million, or 9.3% of sales, rose 19% from $186 million, or 8.8% of sales.
- Heavy-duty truck engine sales increased 42%, while medium-duty truck and bus engine sales rose 32%– offsetting the large drop in sales to the light-duty automotive and RV markets.
- Sales to industrial markets grew 21%, fueled by stronger international demand particularly in the construction, mining and marine segments.
Power Generation sales of $938 million rose 22% from $769 million in the second quarter of 2007.
- Segment EBIT increased 31% to $115 million, or 12.3% of sales, compared to $88 million, or 11.4% of sales, in 2007.
- The commercial generator business, the segment’s largest, saw its sales increase 35% in the quarter, with strong demand in the Middle East, Latin America, the U.K. and China. Alternator sales increased 14% and were strongest in the same international regions. In addition to the higher volumes, improved pricing led to the higher Segment EBIT.
Components segment sales of $855 million were 13% higher than $757 million for the same period in 2007.
- Segment EBIT was sharply higher, improving by 60% to $77 million, or 9% of sales, from $48 million, or 6.3% of sales. The Segment EBIT gains were the result of higher sales volumes, improved pricing and increased manufacturing efficiencies across many of the businesses.
- Sales gains were led by a 24% increase in turbocharger revenue, a 21% gain in fuel systems sales and a 17% rise in emission aftertreatment sales. Sales in the filtration business - the segment’s largest business - were essentially flat as comparisons were negatively affected by the discontinuation of a product line last year and the sale of its Universal Silencer division at the end of 2007.
Distribution sales rose 58% to $581 million, from $368 million during the same period in 2007.
