01—Abstract
Summary
Summary of the 10-Q filed October 30, 2009. Cited figures are marked; the original filing is the authoritative source.
Cummins Inc. (CMI) reported its third-quarter and year-to-date results for 2009, reflecting the significant impact of the global economic downturn.
Net sales for the third quarter decreased by 31% to $2.53 billiona from $3.69 billion in the prior year, and for the nine-month period, sales were down 33% to $7.40 billion from $11.05 billion. This substantial decline in revenue directly impacted profitability, with net income attributable to Cummins Inc. falling to $95 million ($0.48 per diluted share) for the quarter, a significant decrease from $229 million ($1.17 per diluted share) in Q3 2008. For the nine months, net income was $158 million ($0.80 per diluted share), down from $712 million ($3.62 per diluted share) in the prior year.
The company has been actively managing costs and capacity to align with reduced customer demand, implementing workforce reductions and closing facilities, which resulted in restructuring and other charges of $22 millionb for the quarter and $95 million year-to-date. Despite the challenging operating environment, Cummins demonstrated effective working capital management, with inventories reduced by 18% and total debt decreasing slightly. The company maintained access to liquidity, with substantial cash reserves and available credit facilities, allowing it to navigate the downturn and position itself for eventual market recovery.
02—Key points
Key Highlights
- Significant revenue decline across all segments due to the global economic downturn, with Q3 sales down 31% and nine-month sales down 33% year-over-year.
- Net income attributable to Cummins Inc. saw a substantial decrease: $95 million in Q3 2009 vs. $229 million in Q3 2008, and $158 million for the nine months vs. $712 million in the prior year.
- The company incurred substantial restructuring and other charges ($22 million in Q3, $95 million year-to-date) related to workforce reductions and facility closures aimed at aligning costs with demand.
- Effective working capital management led to an 18% reduction in inventory and a slight decrease in total debt from the end of 2008.
- Despite weak demand, the company maintained strong liquidity with $834 million in cash, cash equivalents, and marketable securities, and significant available credit facilities.
- Emerging markets like China, India, and Brazil showed signs of improvement, and North American on-highway markets experienced a pre-emission standards increase in demand.
- The company continues to invest in critical technologies and products for future growth, focusing on 2010 and beyond.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2009, Cummins Inc kept $0.04.
- Revenue$2.53B100.0%
- Cost of revenue−$2.03B80.1%
- Gross profit$503.0M19.9%
- Operating costs−$356.0M14.1%
- Operating income$147.0M5.8%
- Interest, other & tax−$52.0M2.1%
- Net income$95.0M3.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2009filed October 30, 2009Financial Statements
Q3 FY2009 against Q3 FY2008
| Line item | Q3 FY2009Q3 FY2008 | Change |
|---|---|---|
| Revenue | $2.53B$3.69B | −31.5% |
| Cost of Revenue | $2.03B$2.87B | −29.4% |
| Gross Profit | $503.00M$820.00M | −38.7% |
| R&D Expenses | $90.00M$113.00M | −20.4% |
| SG&A Expenses | $304.00M$388.00M | −21.6% |
| Operating Income | $147.00M$383.00M | −61.6% |
| Interest Expense | $9.00M$10.00M | −10.0% |
| Net Income | $95.00M$229.00M | −58.5% |
| EPS (Basic) | $0.48$1.18 | −59.3% |
| EPS (Diluted) | $0.48$1.17 | −59.0% |
| Shares Outstanding (Basic) | 197.40M194.90M | +1.3% |
| Shares Outstanding (Diluted) | 197.80M196.50M | +0.7% |
05—Questions
Frequently Asked Questions
What was the primary driver behind the significant decrease in sales and net income for the third quarter of 2009?
The primary driver for the significant decrease in sales and net income was the widespread global economic downturn, which led to substantially lower demand across most of Cummins' businesses. This resulted in a 31% decrease in net sales and a significant drop in profitability compared to the same period in the prior year.
How is Cummins managing its costs and operations in response to the challenging economic environment?
Cummins has implemented several measures to manage costs and operations. These include global workforce reductions (both professional and hourly employees), downsizing and closing manufacturing facilities and distributor locations, and reducing discretionary spending. These actions resulted in restructuring and other charges, but are intended to align costs with reduced customer demand and maintain profitability through the downturn.
What is the company's liquidity position and access to capital?
Cummins maintains a strong liquidity position. As of September 27, 2009, the company had $834 million in cash, cash equivalents, and marketable securities. Additionally, it had approximately $1.07 billion available under its revolving credit facility and $173 million under international credit facilities. This robust liquidity is expected to fund working capital, capital expenditures, debt service, and other obligations.
Are there any signs of market recovery or improvement?
While demand remained weak in most markets, Cummins observed signs of stabilization at lower levels and noted improvement in emerging markets, including China, India, and Brazil. Additionally, the North American on-highway markets experienced an increase in demand in the second half of the year, driven by customers stocking up ahead of the 2010 emissions standards changes, which is consistent with historical patterns.
06—Continue