This summary is based on the third quarter fiscal 2008 earnings call conducted by Cummins, Inc. (CMI) on October 31, 2008.
Management:
Director of IR: Dean A. Cantrell
Chairman and CEO: Tim Solso
VP and CFO: Pat Ward
President and COO: Tom Linebarger
Key Investors Issues
- EPS were $1.17 per share compared to 92 cents per share last year.
- Cummins earned $229 million compared to $184 million for the same quarter last year.
- Sales rose 9.5% to $3.69 billion from $3.37 million in the year-ago period.
Third Quarter Highlights
Sales were $3.69 billion were 10% higher than $3.37 billion during the same period in 2007.
- Net income rose 24% to $229 million, or $1.17 a share, compared to $184 million, or 92 cents a share a year ago.
- Earnings Before Interest and Taxes (EBIT) increased 24% to $380 million, from $306 million in the third quarter of 2007.
- All four of the company’s business segments improved their sales and Segment EBIT compared to the same period in 2007. Power Generation and Distribution had the largest percentage sales gains compared to last year, while the Components and Power Generation segments both saw their Segment EBIT as a percentage of sales increase significantly in the quarter.
- Non-U.S. sales accounted for 61% of the company’s revenues compared to 52% a year ago. Cummins’ international business was particularly strong in the Power Generation segment, where sales grew 29% outside North America, and the Distribution segment, which saw a 28% increase outside North America.
- Cummins improved its market share in the North American heavy-duty truck and bus markets.
- The company continued to see strong international demand for its medium-duty truck engines, especially in Latin America.
- Cummins Power Generation experienced growth in China, India, Africa, the Middle East and Latin America, compared to the same period in 2007.
- Sales of exhaust aftertreatment products made by Cummins Emission Solutions showed strong growth, especially in North America.
- Joint venture income of $66 million is the highest ever.
- Cummins repurchased 1.4 million shares of stock and increased its dividend by 40%.
- Revenue from the light-duty automotive and recreational vehicle markets fell 56%, compared to the same period in 2007, as engine shipments to Chrysler for the heavy-duty Dodge Ram pickup fell 75%. Within Power Generation, sales in the consumer line of business fell 34% in the quarter, driven primarily by sharply lower sales to the recreational vehicle and residential standby generator markets in the U.S.
Engine Segment sales were $2.28 billion were 6% higher than $2.15 billion in the same period in 2007, while Segment EBIT increased 3% to $160 million, or 7% of sales, from $155 million, or 7.2% of sales.
Sales to the heavy duty truck market increased 21%, driven by market share gains in North America. Medium-duty truck and bus market sales rose 13%, led by strong demand in Brazil and share gains in the North American bus engine market. Sales to the industrial engine markets increased 19%. The increases in these and other markets were partially offset by the dramatic drop in sales in the North American light-duty automotive and recreational vehicle markets.
Power Generation sales were $888 million increased 14% from $776 million a year ago.
- Segment EBIT rose 30% to $108 million, or 12.2% of sales, from $83 million, or 10.7% of sales.
- Sales to the commercial power generation markets, the largest business in the segment, increased 25%, led by a 90% growth in sales in China, 42% growth in Latin America and 36% sales growth in India. The alternator and rental businesses also had strong sales gains.
Components sales were $801 million were 8% higher than $741 million during the third quarter of 2007, as Segment EBIT increased 79% to $61 million, or 7.6% of sales, from $34 million, or 4.6% of sales.
The segment continued to see strong sales gains from the turbocharger and Emission Solutions businesses, and profitability improvements from all four lines of business as pricing and manufacturing efficiency improved. Emission Solutions sales increased 27% in the quarter, while turbocharger sales rose 9%.
Distribution sales rose 47% to $581 million, from $395 million in the same period in 2007.
- The increase reflects $80 million from the acquisition of three previously independent Cummins distributors; absent the acquisitions sales increased 27%.
- Strong engine sales in Europe and Africa, power generation in the South Pacific and Singapore, and service revenue gains in the South Pacific - primarily for mining equipment – led the organic growth.
- Segment EBIT increased 33% to $61 million, or 10.5% of sales, from $46 million, or 11.6% of sales, a year ago. Segment EBIT gains due to stronger sales and improved margins were partially offset by unfavorable currency translation.
Fiscal 2008 Outlook
- Despite the continuing economic softness in some markets, Cummins expects revenue to grow in 2008 by 12% from last year, down from earlier guidance of 15%, and to earn an EBIT margin of 10% on its sales.
- Despite its strong overall performance, the company is experiencing declines in some of its consumer markets as the U.S. economy continues to deteriorate.
