This summary is based on the first quarter fiscal 2007 earnings call conducted by Cummins Inc. (CMI: chart) on April 27, 2007.

Key Investors Issues

- Earnings per share were $1.42 as against $1.35 in the prior year quarter.
- Quarterly sales grew 5.2% over last year to $2.82 billion.
- For fiscal 2007, the company expects revenue to grow between 5% and 7%.

First Quarter Fiscal 2007 Financial Highlights

For the quarter, the company reported sales of $2.82 billion, up 5.2% from $2.68 billion during the same period in 2006.

Net income of $143 million or $1.42 per share increased 5.9% from $135 million or 1.35 per share in prior year.

Net earnings grew benefiting from lower interest expense as a result of debt reductions over the last few years. The company had also focused on strengthening its balance sheet and lowering costs. All earnings per share amounts reflect the two-for-one stock split distributed on April 9, 2007.

Earnings before interest and taxes (EBIT) decreased 4.7% to $243 million during the first quarter.

This reflects lower sales in the North American heavy-duty truck market, investment in global growth opportunities and costs associated with introducing 2007 emissions-compliant products.

Strong demand for the company’s products globally and an improved cost structure allowed the firm to deliver earnings before interest and taxes of 8.6% of sales, within its targeted range of 7% to 10%.

Gross margins were slightly lower than the first quarter of last year, declining from 21.1% of sales to 19.6% of sales.

Improved gross margins in power generation and strong performance in distribution offset some of the lower gross margins in the engine segment. Gross margins will improve throughout the year particularly in the engine and component segment as the company increases volumes and gain manufacturing experience with its new products. Product coverage was lower in the first quarter as the firm’s pre2007, heavy duty engines continue to perform well and warranty rates continue to decline. The firm expects higher product coverage as a percent of sales for the full year as the mix of new 2007 engines increases. These emission compliant engines carry a higher accrual rate initially until the firm gains experience in the marketplace.

Total selling, administrative, and research and engineering costs in the first quarter were 12.9% of sales, down from 13.1% in the first quarter of last year.

The firm expects to continue this trend of growing SAR slower than sales during the year. Research and engineering spent will continue to be about 3% of sales as the company supports the profitable growth opportunities it has announced over the last several quarters.

Income from joint ventures grew on strong performance from the distributor joint venture in North America.

As a result of stronger distributor orders for Power Generation equipment, the firm now expects joint venture income in 2007 to increase nearly 10% over 2006.

The growth in inventory at the end of the quarter was not unexpected as the firm’s primary focus was on delivery of new products to its customers.

In addition, accounts receivables grew because of the very strong third month of the quarter. In addition to higher pension contributions and an increase in working capital, the firm invested in new distributors, acquired the remaining equity of Tata Holset joint venture, and built capacity for future growth. The company also paid down some footable debt and repurchased more of its shares. The company will continue to use its cash wisely to invest in profitable growth opportunities and improve the return to shareholders.

The first quarter results reflect the benefits of Cummins diversified business model.

The international markets provided the balance needed for success in this quarter. Nearly every market outside of the United States was significantly up this quarter. The firm’s industrial engine and power generation markets performed well and offset a $300 million decline in the on highway markets. Industrial and power generation markets are prospering in the United States as well as in Europe, Middle East, India and China.