Cummins Reports Most Profitable Quarter Ever on Strong Sales and Improved Margins
biz.yahoo.com
Thursday October 27, 7:30 am ET
COLUMBUS, Ind.--(BUSINESS WIRE)--Oct. 27, 2005--Cummins Inc. (NYSE:CMI) powered to its most profitable quarter ever, today reporting third quarter net income of $145 million, or $2.90 per diluted share, on sales of $2.47 billion. Sales were strong across the entire business and the Company's gross margins rose to their highest levels in more than eight years.
"We continued to deliver on our commitments to our customers and shareholders in the third quarter," said Cummins Chairman and Chief Executive Officer Tim Solso. "Our business outlook remains positive, and our focus on execution has significantly improved margins and strengthened the bottom line."
Net income in the third quarter rose 25 percent from $116 million in the same period in 2004, while sales increased 12 percent from the $2.19 billion reported in the third quarter of 2004.
For the first nine months of the year, Cummins has earned $383 million, or $7.70 per share, which is more than the Company earned for all of 2004 - its most profitable full year ever.
Earnings before interest and taxes (EBIT) of $240 million also were a record and, at 9.7 percent of sales, were at the high end of the Company's target range of 7 to 10 percent. The Company's gross margin of 22.7 percent was the highest since the second quarter of 1997.
In addition to setting a record for net income and EBIT, the Company achieved a number of other quarterly financial records, including:
Engine segment revenues.
Engine shipment volumes to DaimlerChrysler for the Dodge Ram.
Segment EBIT for the Power Generation segment.
Segment EBIT for the Distribution segment.
Third-quarter sales were slightly below the record set in the second quarter of 2005, but improved margins contributed to a 3 percent quarter-to-quarter increase in net income.
"These results are another sign that we are building a "New Cummins" - a company that is less cyclical, more diversified and committed to turning a greater share of its sales into profits," Solso said. "Not only have we delivered higher year-over-year quarterly earnings for seven consecutive quarters, but we also are investing in future growth and focusing on prudent cash management.
"And, as good as 2004 and 2005 have been, I am confident 2006 will be an even better year for Cummins and that we are well-positioned for the future."
Cummins today increased its full-year earnings guidance to $10.70 to $10.80 per share from its previous guidance of $10.10 to $10.30 per share, resulting in fourth-quarter guidance of $3.00 to $3.10 per share.
The Company generated cash from operations of $230 million in the quarter, just off its record set in the fourth quarter of 2004, bringing its total to $385 million for the first nine months of 2005. In addition, the Company has paid down debt by $278 million this year from operating cash.
The Company signed a number of agreements during the quarter that reflect its commitment to future growth.
Cummins announced that its Dongfeng Cummins Engine Company joint venture in China will develop a new 13-liter heavy-duty engine that is expected to be ready for production in 2009. Cummins also entered into a 50/50 joint venture with Shaanxi Automobile Group Co. to produce the Cummins 11-liter ISM engine in Xi'an, China, starting late next year. Cummins is the largest foreign investor in the China diesel engine market.
In late September, the Company announced that it has expanded its partnership with Bluebird Corp. and that the Cummins ISB engine will be available in all Bluebird school buses starting in early 2006.
Cummins also was recognized by Dow Jones for its economic, environmental and social leadership. Cummins was named to Dow Jones' Sustainability World Index for 2005, which represents the top 10 percent of the world's largest 2,500 companies in corporate sustainability metrics.
Third-quarter details
Engine Segment
The Engine Segment sales of $1.67 billion were a quarterly record and 18 percent higher than $1.42 billion in 2004. Segment EBIT rose 59 percent to $153 million from $96 million in 2004.
The segment saw double-digit growth in both on-highway and industrial markets. The introduction of the model year 2006 Dodge Ram drove record engine shipments of 42,200 that were 10 percent higher than last year and 16 percent higher than last quarter.
Heavy-duty engine shipments rose 13 percent worldwide from the same period in 2004 and 12 percent in North America, while worldwide bus engine shipments jumped 88 percent in the quarter. In the off-highway markets, Cummins experienced strong engine shipment gains in the worldwide construction market (21 percent), the oil and gas market (71 percent) and the commercial marine market (25 percent).
While third-quarter sales were slightly higher than the previous record set in the second quarter of 2005, Segment EBIT for the third quarter was just below the record EBIT of the second quarter, driven by lower joint venture income.
Power Generation Segment
Power Generation sales rose 2 percent from the same period in 2004 to $504 million, but Segment EBIT more than tripled to a record $46 million, reflecting significantly improved pricing across most markets that helped yield the Segment's highest margins in four years.
Most major markets remained strong, led by economic activity in the United States and related markets, and economic development in the Middle East. Sales in the Company's commercial markets rose 3 percent, while consumer genset sales rose 4 percent.
Marine and commercial mobile markets, as well as increases in the towable trailer business, helped offset a softening in the recreational vehicle market. This trend should continue into 2006, with double-digit sales growth expected in all consumer segments except recreational vehicles.
Components Segment
Revenues for the Components Segment were $481 million for the quarter, an 8 percent increase over the third quarter of 2004. However, the higher volume was offset by greater supply chain costs and logistics inefficiencies, and higher research and administrative expenses. As a result, Components reported Segment EBIT of $21 million compared to $23 million for the same period in 2004.
The four businesses in this segment - Fleetguard, Emission Solutions, Holset turbochargers and Fuel Systems - each experienced a quarterly growth in revenue. Holset experienced a 12 percent sales gain from 2004 largely on the strength of improved aftermarket sales worldwide.
Fleetguard and Emission Solutions reported strong aftermarket sales gains in North America and Latin America, which helped boost overall combined sales in those businesses by 6 percent.
Higher research and engineering expenses were incurred to develop products that will assist both the Company and its customers in meeting new diesel emission standards for 2006 in Europe and 2007 in the United States.
Distribution Segment
The Distribution Segment, which continues to meet its goal of growing earnings at a faster percentage rate than sales, reported sales of $295 million for the third quarter, an 18 percent increase over the same period last year. Segment EBIT was a record $28 million, a 40 percent increase from $20 million during the same period in 2004.
Segment sales remained strong across all product lines and most geographies, and were accompanied by improved gross margins. Sales in the Company's Central region - Europe, Russia, the Middle East and Africa - rose 41 percent, while Latin America sales increased 27 percent.
Engines and parts sales were particularly strong in Europe, while the Middle East distributors saw significant growth in sales of power generation products. Those gains and others helped offset weakness in East Asia and the costs associated with the acquisition of a new distributor in Belgium.
Webcast information
Cummins management will host a teleconference to discuss these results today at 10 a.m. CDT/EST (11 a.m., EDT). This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com.
Presentation of Non-GAAP Financial Information
EBIT is a non-GAAP financial measure used in this release. EBIT is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBIT is a measure used internally to assess the performance of the operating units. |
