01—Abstract
Summary
Summary of the 10-K filed February 11, 2020. Cited figures are marked; the original filing is the authoritative source.
Cummins Inc. reported full-year 2019 results with net sales of $23.6 billiona, a slight decrease of 1% compared to the prior year, largely attributed to a 6% decline in international sales driven by weaker demand in key markets like Europe and China, and unfavorable foreign currency impacts.
Despite the revenue dip, net income attributable to Cummins Inc. increased by 6% to $2.3 billionb, driven by improved gross margins due to lower warranty costs and favorable pricing, partially offset by restructuring charges and higher R&D expenses. The company demonstrated a strong cash flow generation of $3.2 billion from operations, enabling significant shareholder returns through $1.3 billion in stock repurchases and a 15% dividend increase. The company also made strategic investments, notably the acquisition of Hydrogenics Corporation, signaling a commitment to future growth in new power technologies.
Key risks highlighted include ongoing investigations into emissions certification processes for pick-up truck applications, potential market slowdowns, supply chain disruptions (especially related to COVID-19 impacts in China at the time of the report), and the transition to new technologies like electrification. The company is actively managing these risks through a new Product Compliance and Regulatory Affairs organization and continued investment in R&D for future growth areas. Cummins is also undertaking restructuring initiatives to optimize costs in response to market headwinds.
02—Key points
Key Highlights
- Cummins Inc. reported 2019 net sales of $23.6 billion, down 1% year-over-year, primarily due to a 6% decline in international sales.
- Net income attributable to Cummins Inc. increased by 6% to $2.3 billion, driven by improved gross margins and lower warranty costs.
- Operating cash flow remained strong at $3.2 billion.
- The company returned significant capital to shareholders through $1.3 billion in stock repurchases and a 15% dividend increase.
- Strategic investment was made in the New Power segment with the acquisition of Hydrogenics Corporation.
- Significant risk factors include an ongoing emissions certification review for pick-up truck applications, market slowdowns, and potential supply chain disruptions.
- Restructuring actions were initiated in Q4 2019 to reduce global workforce in response to market deterioration, resulting in an $119 million charge.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Cummins Inc kept $0.10.
- Revenue$23.57B100.0%
- Cost of revenue−$17.59B74.6%
- Gross profit$5.98B25.4%
- Operating costs−$3.28B13.9%
- Operating income$2.70B11.5%
- Interest, other & tax−$440.0M1.9%
- Net income$2.26B9.6%
Where FY2019 revenue went
$23.57B- Cost of revenue: $17.59B, 75% of revenue
- Net income: $2.26B, 9.6% of revenue
- R&D: $1.00B, 4.2% of revenue
- SG&A: $2.45B, 10% of revenue
- Interest, other & tax: $440.0M, 1.9% of revenue
Kept 9.6% as net incomeNet income $2.26B · 9.6%Interest, other & tax $440.0M · 1.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 11, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $23.57B$23.77B | −0.8% |
| Cost of Revenue | $17.59B$18.03B | −2.5% |
| Gross Profit | $5.98B$5.74B | +4.2% |
| R&D Expenses | $1.00B$902.00M | +11.0% |
| SG&A Expenses | $2.45B$2.44B | +0.7% |
| Operating Income | $2.70B$2.79B | −3.1% |
| Interest Expense | $109.00M$114.00M | −4.4% |
| Net Income | $2.26B$2.14B | +5.6% |
| EPS (Basic) | $14.54$13.20 | +10.2% |
| EPS (Diluted) | $14.48$13.15 | +10.1% |
| Shares Outstanding (Basic) | 155.40M162.20M | −4.2% |
| Shares Outstanding (Diluted) | 156.10M162.80M | −4.1% |
05—Questions
Frequently Asked Questions
What was the overall financial performance of Cummins in 2019?
In 2019, Cummins Inc. reported net sales of $23.6 billion, a slight decrease of 1% compared to 2018. However, net income attributable to Cummins Inc. increased by 6% to $2.3 billion. This was primarily driven by improved gross margins resulting from lower warranty costs and favorable pricing, partially offset by restructuring charges and increased R&D spending. The company generated strong operating cash flow of $3.2 billion.
What are the major risks highlighted in the filing?
Key risks identified include an ongoing formal internal review of the company's emissions certification process and compliance with emission standards for pick-up truck applications, which could have a material adverse impact. Other risks include potential sustained slowdowns or downturns in the company's markets, supply chain disruptions (such as those related to the coronavirus outbreak), product recalls, the development of new technologies that could reduce demand for current products, and policy changes in international trade. The company is also actively addressing increasingly stringent emission standards globally.
How is Cummins investing for the future?
Cummins is investing in future growth areas, particularly in new power technologies. A key strategic move in 2019 was the acquisition of an 81% interest in Hydrogenics Corporation, consolidating it into the New Power segment. This segment focuses on electrified power, fuel cells, and hydrogen production technologies. The company also continued to invest in research and development, with R&D expenses increasing to $998 million in 2019, focusing on new product development, emission compliance, fuel economy improvements, and alternative power solutions.
What is the company's approach to shareholder returns?
Cummins demonstrated a commitment to shareholder returns in 2019. The company repurchased $1.3 billion of its common stock under its authorized share repurchase programs. Additionally, the Board of Directors authorized a 15% increase in the quarterly dividend, raising it to $1.311 per share. The company expects to fund future dividend payments with cash from operations.
06—Continue