10-QPeriod: Q2 FY2010

CUMMINS INC Quarterly Report for Q2 Ended Jun 27, 2010

Filed July 30, 2010For Securities:CMI

Summary

Cummins Inc. (CMI) reported a significant rebound in its second-quarter 2010 financial results compared to the same period in 2009, reflecting a recovering global economy. Net sales increased by 32% to $3.2 billion, driven by stronger demand in emerging markets and a modest recovery in developed markets across its Engine, Components, and Distribution segments. The company's profitability saw a substantial improvement, with net income attributable to Cummins Inc. rising to $246 million, or $1.25 per diluted share, from $56 million, or $0.28 per diluted share, in the prior year. This performance was bolstered by higher sales volumes, improved gross margins, and the absence of significant restructuring charges recorded in 2009. Operationally, Cummins demonstrated strong execution, with gross margin expanding by 5.1 percentage points to 23.5% of sales. The company also managed its expenses effectively, with SG&A and R&D expenses increasing at a slower pace than sales growth. Looking ahead, Cummins anticipates continued demand improvement throughout 2010, particularly in emerging markets, and expects further recovery in developed markets. The company also recently secured a new four-year, $1.24 billion revolving credit facility, underscoring its robust liquidity position.

Financial Highlights

53 data points
Beta

Revenue

$3.21B

23.5% Gross Margin

Net Income

$246.00M

7.7% Net Margin

EPS (Diluted)

$1.25

Total Assets

$9.21B

Cash & Equivalents

$924.00M

Free Cash Flow

$257.00M

Financial Statements
Beta
Revenue$3.21B
Cost of Revenue$2.46B
Gross Profit$753.00M
R&D Expenses$96.00M
SG&A Expenses$354.00M
Operating Income$396.00M
Interest Expense$9.00M
Net Income$246.00M
EPS (Basic)$1.25
EPS (Diluted)$1.25
Shares Outstanding (Basic)196.90M
Shares Outstanding (Diluted)197.30M

Key Highlights

  • 1Net sales surged by 32% year-over-year to $3.2 billion for the second quarter of 2010, indicating a strong recovery in demand.
  • 2Net income attributable to Cummins Inc. dramatically increased to $246 million ($1.25 per diluted share) from $56 million ($0.28 per diluted share) in the prior year's quarter.
  • 3Gross margin improved significantly, expanding by 5.1 percentage points to 23.5% of sales, driven by higher volumes, better pricing, and lower warranty expenses.
  • 4The Engine, Components, and Distribution segments all experienced substantial sales growth, reflecting broad-based recovery across key markets.
  • 5The company successfully managed operating expenses, with SG&A and R&D growing at a slower rate than sales.
  • 6Cummins secured a new $1.24 billion revolving credit facility, enhancing its liquidity and financial flexibility.
  • 7Emerging markets showed strong recovery, while developed markets exhibited signs of modest, albeit uneven, improvement.

Frequently Asked Questions

The primary drivers for the substantial increase in net sales and income were the recovery in emerging markets, leading to higher demand across most of Cummins' business segments, coupled with cost reductions and the absence of significant restructuring charges that were incurred in the prior year's comparable period. Improved gross margins also contributed significantly to the profit increase.

All key segments showed improvement. The Engine segment saw a 45% sales increase driven by international industrial and North American light-duty markets. Components segment sales rose by 45% due to demand in turbo technologies, emission solutions, and filtration. The Distribution segment experienced a 24% sales increase, boosted by an acquisition and growth in all geographic regions. The Power Generation segment also saw an 8% increase in sales, primarily from commercial products.

Cummins anticipates continued demand improvement throughout 2010, with emerging markets expected to remain strong. While North American heavy-duty truck demand saw a temporary dip due to emissions standard changes, the company expects it to improve in the second half of the year. Overall, order trends are improving and consistent with expectations for organic revenue growth.

Cummins' financial condition and liquidity remain strong. As of June 27, 2010, the company had $924 million in cash and cash equivalents and $269 million in marketable securities. Furthermore, it secured a new $1.24 billion revolving credit facility and had approximately $246 million available under other credit facilities, providing ample financial flexibility for operations, capital expenditures, and other corporate purposes.