01—Abstract
Summary
Summary of the 10-Q filed July 30, 2010. Cited figures are marked; the original filing is the authoritative source.
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 billiona, 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%b 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 billionc revolving credit facility, underscoring its robust liquidity position.
02—Key points
Key Highlights
- Net sales surged by 32% year-over-year to $3.2 billion for the second quarter of 2010, indicating a strong recovery in demand.
- Net 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.
- Gross margin improved significantly, expanding by 5.1 percentage points to 23.5% of sales, driven by higher volumes, better pricing, and lower warranty expenses.
- The Engine, Components, and Distribution segments all experienced substantial sales growth, reflecting broad-based recovery across key markets.
- The company successfully managed operating expenses, with SG&A and R&D growing at a slower rate than sales.
- Cummins secured a new $1.24 billion revolving credit facility, enhancing its liquidity and financial flexibility.
- Emerging markets showed strong recovery, while developed markets exhibited signs of modest, albeit uneven, improvement.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2010, Cummins Inc kept $0.08.
- Revenue$3.21B100.0%
- Cost of revenue−$2.46B76.5%
- Gross profit$753.0M23.5%
- Operating costs−$357.0M11.1%
- Operating income$396.0M12.3%
- Interest, other & tax−$150.0M4.7%
- Net income$246.0M7.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2010filed July 30, 2010Financial Statements
Q2 FY2010 against Q2 FY2009
| Line item | Q2 FY2010Q2 FY2009 | Change |
|---|---|---|
| Revenue | $3.21B$2.43B | +32.0% |
| Cost of Revenue | $2.46B$1.98B | +23.8% |
| Gross Profit | $753.00M$448.00M | +68.1% |
| R&D Expenses | $96.00M$79.00M | +21.5% |
| SG&A Expenses | $354.00M$287.00M | +23.3% |
| Operating Income | $396.00M$121.00M | +227.3% |
| Interest Expense | $9.00M$10.00M | −10.0% |
| Net Income | $246.00M$56.00M | +339.3% |
| EPS (Basic) | $1.25$0.28 | +346.4% |
| EPS (Diluted) | $1.25$0.28 | +346.4% |
| Shares Outstanding (Basic) | 196.90M197.10M | −0.1% |
| Shares Outstanding (Diluted) | 197.30M197.40M | −0.1% |
05—Questions
Frequently Asked Questions
What was the primary driver for the significant increase in net sales and income in the second quarter of 2010?
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.
How did the different operating segments perform in the second quarter of 2010?
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.
What is Cummins' outlook for the remainder of 2010?
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.
What is the company's financial health and liquidity situation?
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.
06—Continue