Cummins Reports Second Quarter Revenues Decreased 10%

Cummins' second quarter revenues decreased due to lower truck production in North America and weak global demand in the off-highway segment; full year revenues are expected to be down 8-10%.

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Cummins Inc. reports results for the second quarter of 2016.

Second quarter revenues of $4.5 billion decreased 10% from the same quarter in 2015. Lower truck production in North America and weak global demand for off-highway and power generation equipment were the most significant drivers of the decline in sales. Currency negatively impacted revenues by approximately 1% compared to last year, primarily due to a stronger U.S. dollar.

Revenues in North America decreased 13% while international sales declined by 4%. Within international markets, revenues in the Middle East, Mexico and Brazil declined the most.

Earnings before interest and taxes (EBIT) in the second quarter were $591 million, or 13.1% of sales, down from $721 million or 14.4% of sales a year ago.

Net income attributable to Cummins was $406 million ($2.40 per diluted share), compared to $471 million ($2.62 per diluted share) in the second quarter of 2015. The tax rate in the second quarter of 2016 was 25.7%.

“We made strong progress in our cost reduction initiatives in the second quarter, while continuing to invest in and launch new products that will drive profitable growth in the future,” says Tom Linebarger, Cummins Chairman and CEO. “Benefits from restructuring actions, material cost reduction initiatives, and improvements in product quality helped to mitigate the impact of weak demand in a number of our largest markets and will position the company for stronger performance when markets improve. We have returned more than $1 billion to shareholders so far this year, through a combination of dividends and share repurchases. Our Board of Directors recently approved an increase in our quarterly dividend of 5.1%, consistent with our plans to return 75% of operating cash flow to shareholders in 2016.” 

Based on the current forecast, Cummins expects full year 2016 revenues to be down 8-10%, lower than its previous guidance of down 5-9% primarily due to a lower outlook for North America truck production and weaker demand in global off-highway markets. EBIT is expected to be in the range of 11.6-12.2% of sales, unchanged from three months ago.

Other recent highlights:

  • Cummins won the 2016 Award of Excellence in Energy Management from the Clean Energy Ministerial (CEM), a high-level global forum that promotes policies and programs to advance clean energy
  • The Board of Directors approved an increase in the company's quarterly cash dividend from 97.5 cents per share to $1.025 per share
  • Cummins was recently named as one of the Top 50 Companies for Diversity by DiversityInc for the 10th consecutive year
  • The company repurchased 1.8 million shares in the second quarter

Second quarter 2016 detail (all comparisons to same period in 2015)

Engine Segment

  • Sales - $2.0 billion, down 14%
  • Segment EBIT - $206 million, or 10.3% of sales, compared to $278 million or 12.0% of sales
  • Segment EBIT reflects a $39 million charge to increase our estimate for the loss contingency recorded in the fourth quarter of 2015
  • On-highway revenues declined 15% primarily due to weaker truck production in North America

Distribution Segment

  • Sales - $1.5 billion, up 3%
  • Segment EBIT - $87 million, or 5.6% of sales, compared to $113 million or 7.6% of sales
  • Increased revenue from acquisitions was partially offset by a decline in organic sales in North America and the Middle East and the negative impact from a stronger U.S. dollar

Components Segment

  • Sales - $1.3 billion, down 8%
  • Segment EBIT - $190 million, or 14.9% of sales, compared to $223 million or 16.0% of sales
  • Revenues declined in North America due to lower industry truck production, partially offset by growth in China

Power Systems Segment

  • Sales - $921 million, down 16%
  • Segment EBIT - $90 million, or 9.8% of sales, compared to $127 million, or 11.6% of sales
  • Revenues declined in most major markets due to weak demand for power generation equipment and industrial engines