10-QPeriod: Q3 FY2009

CUMMINS INC Quarterly Report for Q3 Ended Sep 27, 2009

Filed October 30, 2009For Securities:CMI

Summary

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 billion 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 million 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.

Financial Highlights

49 data points
Beta

Revenue

$2.53B

19.9% Gross Margin

Net Income

$95.00M

3.8% Net Margin

EPS (Diluted)

$0.48

Total Assets

$8.36B

Cash & Equivalents

$686.00M

Free Cash Flow

$344.00M

Financial Statements
Beta
Revenue$2.53B
Cost of Revenue$2.03B
Gross Profit$503.00M
R&D Expenses$90.00M
SG&A Expenses$304.00M
Operating Income$147.00M
Interest Expense$9.00M
Net Income$95.00M
EPS (Basic)$0.48
EPS (Diluted)$0.48
Shares Outstanding (Basic)197.40M
Shares Outstanding (Diluted)197.80M

Key Highlights

  • 1Significant 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.
  • 2Net 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.
  • 3The 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.
  • 4Effective working capital management led to an 18% reduction in inventory and a slight decrease in total debt from the end of 2008.
  • 5Despite weak demand, the company maintained strong liquidity with $834 million in cash, cash equivalents, and marketable securities, and significant available credit facilities.
  • 6Emerging markets like China, India, and Brazil showed signs of improvement, and North American on-highway markets experienced a pre-emission standards increase in demand.
  • 7The company continues to invest in critical technologies and products for future growth, focusing on 2010 and beyond.

Frequently Asked Questions

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.

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.

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.

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.