01—Abstract
Summary
Summary of the 10-K filed February 14, 2023. Cited figures are marked; the original filing is the authoritative source.
Cummins Inc. (CMI) reported robust revenue growth in 2022, driven by the significant acquisition of Meritor and increased demand across most operating segments, particularly in North America.
The company navigated ongoing supply chain disruptions and inflationary pressures, which impacted costs but were partially offset by favorable pricing and increased volumes. Strategic investments in new power technologies, including electrification and hydrogen, continue, although the New Power segment remains in its early commercialization stages with associated losses. The company's financial performance was bolstered by the integration of Meritor, contributing significantly to the Components segment.
Despite geopolitical challenges, such as the suspension of operations in Russia, and supply chain constraints, Cummins demonstrated resilience, with net sales increasing by 17%a year-over-year. Management remains focused on integrating acquisitions, managing costs, and investing in future growth areas, while also prioritizing shareholder returns through dividends and share repurchases. Investors should note the ongoing emission-related reviews and potential recalls impacting the pick-up truck applications, as well as the company's strategic review of its filtration business.
02—Key points
Key Highlights
- Revenue increased by 17% to $28.1 billion in 2022, largely due to the Meritor acquisition and favorable pricing across segments.
- The acquisition of Meritor for $2.9 billion in August 2022 significantly boosted the Components segment and is expected to drive future growth.
- The company is investing heavily in new power technologies, including electrified powertrains and hydrogen solutions, as part of its long-term strategy, though the New Power segment is currently loss-making.
- Despite persistent supply chain disruptions and inflationary pressures, Cummins managed to increase gross margin by 0.2 percentage points to 23.9% of sales through pricing strategies and volume increases.
- The company's largest customer, PACCAR, accounted for 16% of consolidated net sales in 2022, indicating significant customer concentration.
- Cummins incurred charges related to the suspension of operations in Russia, totaling $111 million in 2022.
- The company continues to prioritize shareholder returns, repurchasing $374 million of common stock and increasing its quarterly dividend by 8% in 2022.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Cummins Inc kept $0.08.
- Revenue$28.07B100.0%
- Cost of revenue−$21.36B76.1%
- Gross profit$6.72B23.9%
- Operating costs−$3.79B13.5%
- Operating income$2.93B10.4%
- Interest, other & tax−$778.0M2.8%
- Net income$2.15B7.7%
Where FY2022 revenue went
$28.07B- Cost of revenue: $21.36B, 76% of revenue
- Net income: $2.15B, 7.7% of revenue
- R&D: $1.28B, 4.6% of revenue
- SG&A: $2.69B, 9.6% of revenue
- Interest, other & tax: $778.0M, 2.8% of revenue
Kept 7.7% as net incomeNet income $2.15B · 7.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 14, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $28.07B$24.02B | +16.9% |
| Cost of Revenue | $21.36B$18.33B | +16.5% |
| Gross Profit | $6.72B$5.70B | +18.0% |
| R&D Expenses | $1.28B$1.09B | +17.2% |
| SG&A Expenses | $2.69B$2.37B | +13.2% |
| Operating Income | $2.93B$2.71B | +8.2% |
| Interest Expense | $199.00M$111.00M | +79.3% |
| Net Income | $2.15B$2.13B | +0.9% |
| EPS (Basic) | $15.20$14.74 | +3.1% |
| EPS (Diluted) | $15.12$14.61 | +3.5% |
| Shares Outstanding (Basic) | 141.50M144.60M | −2.1% |
| Shares Outstanding (Diluted) | 142.30M145.90M | −2.5% |
05—Questions
Frequently Asked Questions
How did the Meritor acquisition impact Cummins' financial performance in 2022?
The acquisition of Meritor, completed on August 3, 2022, for $2.9 billion, significantly contributed to Cummins' revenue growth in 2022. Meritor's operations, particularly its axles and brakes business, were integrated into the Components segment, driving a 27% increase in sales for that segment. This acquisition also expanded Cummins' presence in electric powertrain technologies, contributing to the New Power segment's revenue growth.
What are the main challenges facing Cummins, according to the 10-K filing?
Cummins faces several challenges, including ongoing supply chain disruptions and increased price levels for materials and labor, which impact cost of sales. Additionally, the company is subject to stringent and evolving environmental regulations globally, which require significant investment in product development and compliance. The risk factors also highlight potential impacts from geopolitical events, trade policy changes, and the integration of acquisitions. Furthermore, the company is proactively addressing concerns raised by regulators regarding emissions control systems in certain pick-up truck applications.
How is Cummins addressing the transition to new power technologies like electrification?
Cummins is actively investing in and developing new power technologies, including battery electric, fuel cell electric, and hydrogen engine solutions. The New Power segment is dedicated to these efforts, focusing on electrolyzers for hydrogen production and electrified power systems. The company views this as a critical part of its long-term strategy to meet evolving market demands and customer needs for decarbonized solutions, complementing its traditional engine business.
What is the company's outlook for 2023, and what are the key positive trends and challenges?
For 2023, Cummins anticipates continued strong demand in North American truck markets (pick-up, medium-duty, and heavy-duty) and robust aftermarket business. Demand is also expected to remain strong in the Power Systems segment, serving mining, oil and gas, and marine markets. An improvement in China's truck market is also expected as COVID-19 restrictions ease. Key challenges include persistent increases in material and labor costs, ongoing supply chain constraints, a projected decline in China's construction market, the financial impact of the Meritor acquisition (interest expense, amortization), expenses related to the filtration business separation, and potential impacts from rising interest rates.
06—Continue