Cummins Second Quarter Revenues Increased 12%

Cummins Inc. reports results for the second quarter of 2017.

Second quarter revenues of $5.1 billion increased 12% from the same quarter in 2016. Higher demand for trucks and construction equipment in North America and China, and stronger sales to mining, and oil & gas customers were the main drivers of revenue growth. Currency negatively impacted revenues by approximately 1% compared to last year, primarily due to the appreciation of the U.S. dollar. Revenues in North America increased 13% and international sales grew 11% due to strong demand in China and India.

Net income attributable to Cummins in the second quarter was $424 million ($2.53 per diluted share), compared to $406 million ($2.40 per diluted share) in the same quarter a year ago. The tax rate in the second quarter of 2017 was 26.4%.

Earnings before interest and taxes (EBIT) was $620 million, or 12.2% of sales, compared to $591 million or 13.1% of sales a year ago.

“We delivered strong revenue growth in all four operating segments in the second quarter due to improving conditions in a number of important markets where we also have leading share. Earnings increased due to solid operational performance, partially offset by higher warranty costs that resulted in second quarter EBIT that was below our expectations,” says Chairman and CEO Tom Linebarger. “As a result of stronger than expected orders in truck and construction markets in North America and China, and improving demand from global mining customers we have raised our 2017 full year outlook.”

Through the end of the second quarter, the company has returned $463 million to shareholders in the form of dividends and share repurchase and recently raised its quarterly cash dividend by 5.4%. Cummins plans to return 50% of its Operating Cash Flow to shareholders in 2017.

The company continues to execute its strategy to be the leading global powertrain supplier. Cummins and power management company Eaton have successfully completed the formation of the Eaton Cummins Automated Transmission Technologies joint venture that was announced on April 10, 2017. Cummins and Eaton each own 50% of the global joint venture which will design, manufacture, sell and support all future medium-duty and heavy-duty automated transmissions for the commercial vehicle market. Eaton’s current medium-duty automated transmission, Procision, and next generation heavy-duty automated transmissions, will be part of the business which will also market, sell, and support Eaton’s current generation of automated heavy-duty transmissions to OEM customers in North America. Today (August 1) marks the first day of operations for the joint venture and the financial results will be consolidated within Cummins’ Components Segment. The company is still in the process of completing the purchase accounting associated with its investment in this new venture, as required by GAAP, but does not currently expect the joint venture to have a material impact on Cummins’ financial results in 2017.

Based on the current forecast, Cummins expects full year 2017 revenues to be up 9-11%, higher than the prior forecast of up 4-7%. EBIT is expected to be in the range of 11.75-12.5% of sales, unchanged from prior guidance. This forecast excludes the impact of the new Eaton Cummins Automated Transmission Technologies joint venture.

Other recent highlights:

• Cummins announced the election of two new members to its Board of Directors - Karen Quintos, Chief Customer Officer, Dell Technologies and Rich Freeland, Cummins President and Chief Operating Officer
• DiversityInc named Cummins one of the Top 50 Companies for Diversity for the eleventh consecutive year. Cummins ranked No. 21 on the 2017 annual list, which included more than 1,000 participating companies

Second quarter 2017 detail (all comparisons to same period in 2016)

Engine Segment

• Sales - $2.3 billion, up 15%.
• Segment EBIT - $277 million, or 12% of sales, compared to 206 million or 10.3% of sales a year ago
• On-highway revenues increased by 14%, and off-highway revenues increased 20% primarily due to increased demand in global truck and construction markets

Distribution Segment

• Sales - $1.7 billion, up 12%
• Segment EBIT - $96 million, or 5.6% of sales, compared to $87 million or 5.6% of sales
• Organic sales increased 7% and revenue from the acquisition completed in the fourth quarter of 2016 added 6% with a negative foreign currency impact of 1%

Components Segment

• Sales - $1.5 billion, up 14%.
• Segment EBIT - $190 million , or 13.1% of sales, compared to $190 million or 14.9% of sales
• EBIT in the second quarter of 2017 reflects a $26m unfavorable change in estimate of warranty liability
• International revenue increased 25%, primarily due to China and India, in addition to a 6% sales increase in North America due to higher heavy and medium-duty truck production

Power Systems Segment

• Sales - $1.0 billion, up 10%
• Segment EBIT - $61 million, or 6% of sales, compared to $90 million, or 9.8% of sales
• EBIT in the second quarter of 2017 reflects a $31 million accrual for the estimated costs of a quality campaign
• Increased demand in mining and oil & gas markets was the primary driver of revenue growth