10-KPeriod: FY2023

CUMMINS INC Annual Report, Year Ended Dec 31, 2023

Filed February 12, 2024For Securities:CMI

Summary

Cummins Inc. (CMI) reported strong revenue growth in 2023, driven by the acquisition of Meritor and increased demand across most operating segments and geographic regions. However, the company recorded a significant charge of $2.036 billion related to an agreement in principle with regulatory bodies concerning emissions certification and compliance for certain pick-up truck engines. This charge heavily impacted net income, leading to a substantial decrease compared to the previous year, despite the revenue growth. The company continues to invest in future technologies, particularly in zero-emission solutions through its Accelera segment, although this segment is currently in early stages of commercialization and reported an operating loss. The Components segment, boosted by Meritor, saw significant sales growth, while the Engine and Distribution segments also experienced positive sales performance. The Power Systems segment showed solid growth driven by demand in power generation and industrial markets. Looking ahead to 2024, Cummins anticipates mixed demand trends, with continued strength in medium-duty trucks and aftermarket services, but a weakening in heavy-duty trucks in North America.

Financial Statements
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Key Highlights

  • 1Revenue increased by 21% to $34.1 billion in 2023, largely due to the Meritor acquisition and broad demand recovery.
  • 2A substantial charge of $2.036 billion was recorded in Q4 2023 to resolve emissions certification and compliance claims, significantly impacting net income which decreased by 66% to $735 million.
  • 3The Components segment showed the strongest growth, with sales up 38% primarily driven by the Meritor acquisition (axles and brakes).
  • 4The Accelera segment, focused on zero-emission technologies, saw sales more than double (up 79%) but incurred an operating loss of $443 million.
  • 5Operating cash flow improved significantly to $4.0 billion in 2023 from $2.0 billion in 2022, aided by better working capital management.
  • 6The company repurchased no shares in 2023 and maintained its quarterly dividend, increasing it by 7% to $1.68 per share.
  • 7A significant portion of the 2023 charge ($1.938 billion) is expected to be paid in 2024, impacting liquidity.

Frequently Asked Questions

The acquisition of Meritor, completed in August 2022, significantly boosted Cummins' revenue in 2023, particularly in the Components segment, contributing $2.9 billion in sales from axles and brakes. This acquisition is a key driver of the company's top-line growth.

This charge relates to an agreement in principle with U.S. regulatory bodies (EPA, CARB, DOJ, CA AG) to resolve civil claims regarding emissions certification and compliance for certain pick-up truck engines. While it significantly reduced net income for the year, it aims to resolve these issues, with a substantial portion of the payment expected in 2024.

Cummins is investing in zero-emission technologies through its Accelera segment, which includes hydrogen production and electrified powertrain solutions. While sales in this segment more than doubled in 2023, it is still in the early stages of commercialization and reported an operating loss. The company also formed a joint venture with Daimler Trucks and PACCAR to localize battery cell production in the U.S., indicating a strategic commitment to this transition.

Cummins anticipates continued strength in demand for medium-duty trucks and aftermarket services, along with stable demand in China and growth in Power Systems. However, it expects a modest weakening in demand for heavy-duty trucks in North America, particularly in the latter half of 2024, and faces ongoing challenges from increased material and labor costs and the financial implications of the emissions-related charge.