Cummins Inc. has reported results for the first quarter of 2018.
First quarter revenues of $5.6 billion increased 21% from the same quarter in 2017. Strong demand for trucks, construction and mining equipment drove the majority of the revenue increase. Currency favorably impacted revenues by 2%, primarily due to a weaker US dollar.
Sales in North America improved by 22% while international revenues increased by 20% led by strong growth in Europe, Latin America, China and India.
“Improving demand in a number of the company’s core markets, combined with our strong global market share and the success of new products aimed at lowering emissions, resulted in sales growth of 21% in the first quarter,” says Chairman and CEO Tom Linebarger.
During the first quarter, the company recorded a pre-tax charge of $187 million for the expected costs of a product campaign. This campaign is part of a proactive plan to address the performance of an aftertreatment component in certain on-highway products produced between 2010 and 2015 in North America. The company is in the process of finalizing the details of the campaign and, as is customary, the campaign is subject to regulatory approval.
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter were $700 million, or 12.6% of sales, down from $705 million or 15.4% of sales a year ago. Excluding the impact of the campaign charge, EBITDA for the first quarter of 2018 was $887 million or 15.9% of sales.
Net income attributable to Cummins in the first quarter was $325 million ($1.96 per diluted share), compared to $396 million ($2.36 per diluted share). First quarter results included $78 million in discrete tax charges, primarily related to U.S. tax reform. Excluding the discrete tax charges, net income attributable to Cummins in the first quarter was $403 million ($2.43 per diluted share), reflecting a 23% tax rate.
“Cummins delivered solid operating performance in the first quarter led by strong incremental margins in the Power Systems segment,” continues Linebarger. “As a result of rising demand and continued benefits from cost reduction initiatives, we have raised our full year outlook for sales and EBITDA.”
Based on the current forecast, Cummins expects full year 2018 revenues to be up 10-14%, compared to prior guidance of up 4-8%. EBITDA is projected to be in the range of 15.4-15.8% of sales, down from 15.8-16.2% of sales. Excluding the impact of the first quarter charge for the product campaign, full year EBITDA is expected to be in the range of 16.2-16.6%, reflecting strong incremental EBITDA of 28% at the midpoint, compared to 2017.
The company returned $341 million to shareholders in the form of dividends and share repurchases in the first quarter, consistent with its plan to return at least 50 percent of Operating Cash Flow in 2018.
First Quarter 2018 Highlights:
- Cummins was named one of the world’s Most Ethical Companies by the Ethisphere Institute, a leader in defining and advancing the standards of ethical business practices. This is the 11th consecutive year Cummins has made Ethisphere’s list.
- Cummins received the highest ranking possible for its environmental and social performance from Institutional Shareholder Services (ISS), a key source of information for institutional investors. This is the first time ISS has reviewed companies on an environmental and social basis.
- The new Cummins Westport ISX12N engine, manufactured at the Jamestown Engine Plant, became the world’s first Class 8 on-highway truck engine certified by the California Air Resources Board to their near-zero emissions standard.
First quarter 2018 detail (all comparisons to same period in 2017)
Engine Segment
- Sales - $2.4 billion, up 21%
- Segment EBITDA - $286 million, or 11.7% of sales, compared to $273 million or 13.5% of sales
- Segment EBITDA reflects a charge of $93 million reflecting the expected costs of a campaign to address the performance of an aftertreatment component
- On-highway revenues increased 20%, and off-highway revenues increased 23% primarily due to increased global demand in truck and construction markets
Distribution Segment
- Sales - $1.9 billion, up 13%
- Segment EBITDA - $123 million, or 6.6% of sales, compared to $130 million or 7.9% of sales
- Revenues in North America increased by 15% and in international markets by 8%
Components Segment
- Sales - $1.8 billion, up 30%
- Segment EBITDA - $227 million, or 12.9% of sales, compared to $216 million or 16.1% of sales
- Segment EBITDA reflects a charge of $94 million which represents the expected costs of a campaign to address the performance of an aftertreatment component
- The Eaton Cummins Automated Transmission joint venture recorded sales of $117 million and an EBITDA loss of $3 million in the first quarter
- Revenues in North America increased by 35%, and international sales grew by 25% due to higher commercial truck production in North America as well as additional content in India with the introduction of Bharat Stage IV in 2017 and a weak U.S. dollar
Power Systems Segment
- Sales - $1.1 billion, up 22%
- Segment EBITDA - $142 million, or 13.2% of sales, compared to $85 million, or 9.6% of sales
- Increased demand in mining, oil and gas and power generation markets drove the growth in sales
Electrified Power Segment
- Sales - $2 million
- Segment EBITDA loss: $10 million
