Cummins Announces Financial Results for the Fourth Quarter and Full Year 2015

Cummins reports revenue in the fourth quarter decreased 6% and for the full year decreased 1%; the company anticipates 2016 to be down 5-9%.

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Cummins Inc. has reported results for the fourth quarter and full year of 2015.

Fourth quarter revenues of $4.8 billion decreased 6% from the same quarter in 2014, with the impact of currency, primarily a stronger U.S. dollar, negatively impacting sales by 4%.

Revenues in North America declined 2% while international sales declined by 12%. Within international markets, sales in Latin America declined the most.

Earnings before interest and taxes (EBIT) in the fourth quarter of 2015 were $531 million, or 11.1% of sales, excluding charges for impairments of $211 million and restructuring of $90 million. This compares to $661 million or 13.0% of sales a year ago, excluding $32 million of expense related to cost reduction activities in the Power Generation segment in 2014.

“As a result of weakening market conditions in the fourth quarter of 2015, the company reviewed its global manufacturing footprint and now expects to scale back the range of light-duty engines it plans to manufacture in North America,” says Rich Freeland, President and Chief Operating Officer. “This change in plans, combined with the uncertainty of winning additional customers for the V8 light-duty engine, caused the company to reassess the book value of its light-duty manufacturing assets in North America. As a result, a non-cash, pre-tax impairment charge of $211 million was recorded to adjust the assets to fair value. We are disappointed that we had to record the charge, but we remain committed to our light-duty engine customers and are confident in the growth potential of our global light-duty engine business, including the V8 engine in North America.”

The company incurred a pre-tax charge for restructuring of $90 million associated with a reduction in professional employees, and also recorded a loss contingency of $60 million in the fourth quarter of 2015.

Net income attributable to Cummins was $161 million ($0.92 per diluted share), or $355 million ($2.02 per diluted share) excluding impairment and restructuring charges in the fourth quarter of 2015. This compares to $465 million ($2.56 per diluted share) in 2014 excluding one-time items. The tax rate in the fourth quarter of 2015, including discrete items, was 16.0%.

Revenues for the full year 2015 were $19.1 billion, 1% lower than 2014. Revenues in North America increased 7%, but international sales declined 11% due to lower sales in Latin America, Europe and Asia Pacific.

EBIT for the year was $2.09 billion or 10.9% of sales. Excluding impairments and restructuring, EBIT was $2.39 billion or 12.5% of sales. This compares to $2.53 billion or 13.2% of sales in 2014, excluding one-time items.

Net income attributable to Cummins for the full year 2015 was $1.4 billion ($7.84 per diluted share) in 2015, or $1.59 billion ($8.93 per diluted share) excluding impairment and restructuring charges, down from $1.67 billion ($9.13 per diluted share) in 2014, excluding one-time items. The full year tax rate was 27.4% in 2015.

“We made significant progress in a number of our key initiatives in 2015, including gaining market share with our new products in China, successfully acquiring and integrating our North American distributors, improving the quality of our products and reducing material costs,” says Chairman and CEO Tom Linebarger. “However, a combination of weak end markets and a stronger U.S. dollar presented significant challenges to our performance. As demand weakened in the third quarter we moved quickly to lower costs. Through a combination of restructuring and other staffing actions, we reduced headcount by more than 2,000 people in the fourth quarter, and launched a number of initiatives within our manufacturing operations to reduce costs.

“The benefits of restructuring, material cost reduction initiatives and quality improvements combined with the launch of new and improved products in 2016, should position the company for stronger performance in the future, despite the challenges of a weak macroeconomic environment. We plan to return 75% of operating cash flow to shareholders in the form of dividends and share repurchase in 2016, building on our actions in 2015 when we returned a record $1.5 billion to shareholders,” concludes Linebarger.

Based on its current forecast, Cummins expects full year 2016 revenues to decline between 5 and 9% and EBIT to be in the range of 11.6-12.2% of sales.

2015 highlights:

  • The company increased its dividend by 25% and repurchased 7.2 million shares
  • For the eighth consecutive year, Cummins was named one of the world’s most ethical companies by the Ethisphere Institute
  • Diversity Inc. named Cummins as one of the Top 50 companies for diversity for the seventh consecutive year
  • The company was named as a winner of the Golden Peacock Award for Excellence in Corporate Governance
  • Cummins was named to the 2015 Dow Jones North American Sustainability Index for the 10th consecutive year

Fourth quarter 2015 detail (all comparisons to same period in 2014) excluding restructuring and impairment charges in 2015 and excluding one-time items in 2014.

Engine Segment

  • Sales - $2.5 billion, down 11%
  • Segment EBIT - $189 million, or 7.5% of sales, compared to $315 million or 11.1% of sales
  • Segment EBIT reflects a $60 million charge for a loss contingency
  • Weak demand in global industrial markets and a decline in heavy-duty truck production in North America were partially offset by strong demand in North American medium-duty truck and bus markets

Distribution Segment

  • Sales - $1.7 billion, up 1%
  • Segment EBIT - $111 million, or 6.5% of sales, compared to $158 million or 9.3% of sales
  • Increased revenues from acquisitions were partially offset by a 6% negative impact from currency and a 2% decline in organic sales

Components Segment

  • Sales - $1.2 billion, down 6%
  • Segment EBIT - $175 million , or 14.2% of sales, compared to $160 million or 12.1% of sales
  • Reduced sales in on-highway markets in North America and Brazil along with a negative foreign currency impact of 4%, were partially offset by increased revenue from China

Power Generation Segment

  • Sales - $654 million, down 14%
  • Segment EBIT - $27 million, or 4.1% of sales, compared to $54 million, or 7.1% of sales
  • Revenue declined in North America by 12% and by 15% in international markets. Currency movements negatively impacting revenue by 3%. Growth in India and Europe was more than offset by declines in all other regions.