01—Abstract
Summary
Summary of the 10-Q filed July 28, 2011. Cited figures are marked; the original filing is the authoritative source.
Cummins Inc. reported a strong second quarter and first half of 2011, driven by a significant recovery in North American on-highway markets and continued robust growth in emerging markets.
Net sales for the second quarter of 2011 reached $4.64 billiona, a 45% increase compared to the prior year, with diluted EPS rising to $2.60 from $1.25. For the first half of the year, net sales grew 50% to $8.50 billion, and diluted EPS more than doubled to $4.34. The company benefited from improved demand across all segments, including Engine, Power Generation, Components, and Distribution.
Profitability was further boosted by improved gross margins and a gain on the sale of the exhaust business. Cummins also generated substantial operating cash flow and continued to return capital to shareholders through dividends and share repurchases, while maintaining a strong balance sheet and credit rating.
02—Key points
Key Highlights
- Net sales for Q2 2011 surged by 45% year-over-year to $4.64 billion, reflecting broad market recovery, particularly in North American on-highway markets.
- Diluted EPS more than doubled to $2.60 in Q2 2011, up from $1.25 in Q2 2010, indicating significant operational leverage and profitability improvement.
- All operating segments (Engine, Power Generation, Components, Distribution) experienced substantial sales growth, demonstrating the widespread positive market trends.
- Gross margins improved significantly, expanding by 2.4 percentage points in Q2 2011 to 25.9% of sales, driven by higher volumes and pricing.
- The company generated $744 million in operating cash flow for the first half of 2011, a substantial increase from $427 million in the prior year, strengthening liquidity.
- Cummins repurchased $373 million of its common stock in the first six months of 2011 under its enhanced share repurchase program, returning capital to shareholders.
- The company announced an increase in its quarterly dividend to $0.40 per share, signaling confidence in its financial health and future performance.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2011, Cummins Inc kept $0.11.
- Revenue$4.64B100.0%
- Cost of revenue−$3.44B74.1%
- Gross profit$1.20B25.9%
- Operating costs−$435.0M9.4%
- Operating income$768.0M16.5%
- Interest, other & tax−$263.0M5.7%
- Net income$505.0M10.9%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2011filed July 28, 2011Financial Statements
Q2 FY2011 against Q2 FY2010
| Line item | Q2 FY2011Q2 FY2010 | Change |
|---|---|---|
| Revenue | $4.64B$3.21B | +44.7% |
| Cost of Revenue | $3.44B$2.46B | +40.0% |
| Gross Profit | $1.20B$753.00M | +59.8% |
| R&D Expenses | $157.00M$96.00M | +63.5% |
| SG&A Expenses | $463.00M$354.00M | +30.8% |
| Operating Income | $768.00M$396.00M | +93.9% |
| Interest Expense | $13.00M$9.00M | +44.4% |
| Net Income | $505.00M$246.00M | +105.3% |
| EPS (Basic) | $2.61$1.25 | +108.8% |
| EPS (Diluted) | $2.60$1.25 | +108.0% |
| Shares Outstanding (Basic) | 193.80M196.90M | −1.6% |
| Shares Outstanding (Diluted) | 194.40M197.30M | −1.5% |
05—Questions
Frequently Asked Questions
What was the primary driver for the significant increase in sales and earnings in the second quarter of 2011?
The primary driver was the strong recovery in the North American on-highway markets, coupled with continued robust growth in emerging markets. This demand rebound benefited all of Cummins' operating segments, leading to a substantial increase in net sales and profitability.
How did the company's profitability improve, beyond just increased sales?
Profitability was enhanced by a significant improvement in gross margins, which increased by 2.4 percentage points in Q2 2011 due to higher volumes and improved pricing. Additionally, Cummins recognized a pre-tax gain of $68 million from the sale of its exhaust business, further boosting earnings.
What is the company's outlook for the remainder of 2011?
Cummins anticipates continued demand improvement throughout the second half of 2011, with emerging markets expected to remain strong, albeit at a potentially slower pace in China. Developed markets, particularly North America, are expected to continue their recovery. Challenges include increased investment in new product development and potential pressure from rising commodity costs.
How is Cummins managing its capital and returning value to shareholders?
The company generated strong operating cash flow ($744 million in H1 2011) and maintained a solid balance sheet. Cummins continued its share repurchase program, buying back $373 million in the first six months of 2011, and also announced an increase in its quarterly dividend to $0.40 per share, reflecting its financial strength and commitment to shareholder returns.
06—Continue