Cummins Announces Fourth Quarter and Full Year 2018 Results

Cummins Inc. has reported results for the fourth quarter of 2018. 

Fourth quarter revenues of $6.1 billion increased 12% from the same quarter in 2017. Increased truck production in North America and stronger demand in global construction and power generation markets drove the majority of the revenue increase. Currency negatively impacted revenues by 2% primarily due to a stronger U.S. dollar.

Fourth quarter sales in North America improved by 17% while international revenues increased by 6% led by growth in Europe, Asia Pacific, and Latin America.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the fourth quarter were $896 million, or 14.6% of sales, compared to $769 million or 14.0% of sales a year ago, or $808 million and 14.8% of sales excluding the impact of tax legislation. Fourth quarter results included EBITDA loss of $58 million related to a write-off of an investment in an electronic logging device or ELD business, and the mark to market impact on assets related to our non-qualified benefit plans.

Net income attributable to Cummins in the fourth quarter was $579 million ($3.63 per diluted share), compared to a net loss of $274 million ($1.65 per diluted share), or $503 million ($3.03 per diluted share) excluding the impact of tax legislation in the fourth quarter of 2017. Fourth quarter results were positively impacted by $25 million in discrete tax items and the impact of tax reform. Excluding these items, net income attributable to Cummins in the fourth quarter was $554 million ($3.48 per diluted share). The tax rate in the fourth quarter was 14.1%.

Revenues for the full year were a record $23.8 billion, 16% higher than 2017. Revenues in North America increased 19% and international sales grew 12%, with growth in all major regions. EBITDA for the year was a record $3.5 billion or 14.6% of sales. This compares to $3.0 billion or 14.8% of sales in 2017, or $3.1 billion or 15.0% of sales excluding the impact of tax legislation.

Net income attributable to Cummins for the full year was $2.1 billion ($13.15 per diluted share), compared to a net income of $999 million ($5.97 per diluted share), or $1.8 billion ($10.62 per diluted share) excluding the impact of tax legislation. The tax rate for the full year was 20.6%, or 21.1% excluding the favorable impact of discrete tax items.

“I want to thank the more than 60,000 global employees who made our 2018 record sales and profits a reality,” says Chairman and CEO Tom Linebarger. “2019 is an historic year for Cummins as we celebrate the 100th anniversary of our company, and project another record year of financial results. Our financial strength allows us to continue investing and innovating across our broad portfolio of power solutions to remain a global technology leader for the next 100 years while continuing to return significant capital to investors.”

2019 Outlook

Based on the current forecast, Cummins projects full year 2019 revenues to be flat to up 4%, and EBITDA to be in the range of 15.75-16.25% of sales. The company expects to return 75% of Operating Cash Flow to shareholders in 2019 in the form of dividends and share repurchases.

2018 Highlights

• The company returned $1.9 billion or 78% of Operating Cash Flow to shareholders in the form of dividends and share repurchases
• On International Women’s Day 2018, Cummins launched the Cummins Powers Women program, our commitment to the advancement and prosperity of women and girls around the world
• Cummins was named to Ethisphere’s 2018 list of World’s Most Ethical Companies for a 11th consecutive year by the Ethisphere Institute
• DiversityInc named Cummins one of the Top 50 Companies for Diversity for a 12th consecutive year. Cummins ranked No. 12 on the 2018 annual list, which included more than 1,000 participating companies
• 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
• Announced the creation of the Electrified Power Business Segment and completed the acquisition of Silicon Valley-based Efficient Drivetrains Inc. (EDI), which designs and produces hybrid and fully- electric power solutions for commercial vehicle markets, and Johnson Matthey Battery Systems.

Fourth quarter 2018 detail (all comparisons to same period in 2017)

Engine Segment

• Sales - $2.7 billion, up 18%
• Segment EBITDA - $393 million, or 14.6% of sales, compared to $271 million or 11.8% of sales
• On-highway revenues increased 17%, and off-highway revenues increased 21% primarily due to increased global demand in truck and constructions markets

Distribution Segment

• Sales - $2.1 billion, up 6%
• Segment EBITDA - $140 million, or 6.8% of sales, compared to $123 million or 6.3% of sales
• Revenues in North America increased by 6% and international sales grew by 5%
• Strong demand for power generation equipment and growth in parts and service were partially offset by lower demand in oil and gas markets and unfavorable impact of 2% from a stronger U.S. dollar

Components Segment

• Sales - $1.8 billion, up 14%
• Segment EBITDA - $278 million , or 15.7% of sales, compared to $214 million or 13.7% of sales
• The Eaton Cummins Automated Transmission joint venture recorded sales of $135 million and an EBITDA loss of $7 million in the fourth quarter
• Revenues in North America increased by 23%, and international sales grew by 3%

Power Systems Segment

• Sales - $1.2 billion, up 9%
• Segment EBITDA - $123 million, or 10.3% of sales, compared to $125 million, or 11.3% of sales
• Power generation revenues increased by 13% while industrial revenues were flat

Electrified Power Segment

• Sales - $2 million
• Segment EBITDA loss - $29 million