This summary is based on the first quarter fiscal 2008 earnings call conducted by Cummins Inc. (CMI) on April 30, 2008.
Management:
Director of IR: Dean Cantrell
EVP, CFO and Chief of Staff: Jean Blackwell
EVP, President, Power Generation: Tom Linebarger
Key Investors Issues
- EPS were 97 cents per share compared to 71 cents per share last year.
- Net profit of $190 million compared to $143 million in the same period in 2007.
- Sales rose 23% to $3.47 billion.
First Quarter Highlights
Sales of $3.47 billion were 23% higher than $2.82 billion in the first quarter 2007, due to a 25% increase in both the Engine and Components segments, a 44% increase in the Distribution business and a 17% rise in Power Generation sales.
- Net income rose 33% to $190 million, or 97 cents per share, compared to $143 million, or 71 cents per share, during the same period in 2007.
- EBIT of $315 million, or 9.1% of sales, was 30% higher than $243 million (8.6% of sales) a year ago.
- Cummins showed strength across all its business segments, both in the U.S. and in key international markets. Particularly strong performance in international markets – which accounted for 57% of the company’s sales – helped offset rising commodity prices and sluggishness in some U.S. consumer-related markets such as pick-up truck engines, recreational vehicle products and recreational marine engines.
First-quarter demand was particularly strong for medium-duty truck engines in the United States; for commercial generator sets in India, the United Kingdom, Asia and the Middle East; and for turbochargers and exhaust aftertreatment products in North America and Europe.
- In addition, the company’s distribution business saw considerable growth in Europe, the Middle East and Asia Pacific.
- In addition, the company’s joint venture earnings increased 86% from the same period in 2007. The improvement was primarily driven by strength in emerging markets such as China and India, and at the company’s North American distributors.
- Sales growth was led by the Engine business, the company’s largest business segment. Heavy-duty and medium-duty truck engine shipments increased 36% and 68%, respectively, primarily due to increased market share in North America.
- Through February, the latest month for which statistics are available, Cummins owned a market-leading share of 43% of the North American Class 8 truck engine market – compared to 28% at the same time last year. Cummins’ share of the Class 7 medium-duty truck market was 55% through February, compared to 23% at the same time in 2007.
- As another sign of the company’s strong financial performance, Standard & Poor’s upgraded Cummins’ investment-grade debt rating to ‘BBB'' from ''BBB-'' in March. In its announcement of the upgrade, the agency cited “improved operating performance over the past several years - including during the expected emissions-related downturn in (North American) heavy-duty truck demand in 2007 - combined with significant on- and off-balance-sheet debt reduction, reflective of moderate financial policies.""
Engine Segment sales of $2.21 billion were 25% higher than $1.77 billion for the same period in 2007.
Segment EBIT increased 52% to $194 million, or 8.8% of sales, from $128 million (7.3% of sales). In addition to sales gains in the heavy- and medium-duty markets, sales to the commercial marine engine market rose 77% from 2007. Those gains, and others, more than offset a 20% drop in light duty automotive sales.
Power Generation sales increased 17% to $787 million from $675 million in the first quarter of 2007.
- Segment EBIT of $78 million (9.9% of sales), rose from $77 million (11.4% of sales).
- Commercial generator sales rose 23%, led by strong gains in Europe/U.K., India and the Middle East. Alternator sales increased 18%, while consumer sales fell 16%, primarily due to softness in the recreational vehicle market.
Components sales increased 25% to $820 million from $657 during the same period in 2007.
- Segment EBIT rose 54% to $37 million, or 4.5% of sales, from $24 million (3.7% of sales). - Sales gains were led by a 49% increase in the company’s turbocharger business and a 63% increase in Emission Solutions.
- The turbocharger business saw improvement in both sales and profit contribution to the segment. Two of the segment’s businesses – filtration and fuel systems – performed at or above expectations. The Emission Solutions business remains an area of focus as the company works to improve its profitability as sales continue to increase.
Distribution sales of $445 million were 44% higher than $309 million for the same period in 2007, led by strong engine and power generation sales in Europe, the Middle East and Asia Pacific.
- Segment EBIT rose 26% to $49 million (11% of sales) from $39 million (12.6% of sales) in 2007.
- Much of the improvement in sales came from organic growth in markets around the world and the acquisition of a distributor business in the United States during the first quarter of 2008, which accounted for approximately one-fourth of the year-over-year quarterly sales growth. Additionally, joint venture income rose 47%, led by strong performance at the company’s North American distributors.
Fiscal 2008 Outlook
