10-QPeriod: Q2 FY2011

CUMMINS INC Quarterly Report for Q2 Ended Jun 26, 2011

Filed July 28, 2011For Securities:CMI

Summary

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 billion, 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.

Financial Highlights

52 data points
Beta

Revenue

$4.64B

25.9% Gross Margin

Net Income

$505.00M

10.9% Net Margin

EPS (Diluted)

$2.60

Total Assets

$11.31B

Cash & Equivalents

$1.11B

Free Cash Flow

$532.00M

Financial Statements
Beta
Revenue$4.64B
Cost of Revenue$3.44B
Gross Profit$1.20B
R&D Expenses$157.00M
SG&A Expenses$463.00M
Operating Income$768.00M
Interest Expense$13.00M
Net Income$505.00M
EPS (Basic)$2.61
EPS (Diluted)$2.60
Shares Outstanding (Basic)193.80M
Shares Outstanding (Diluted)194.40M

Key Highlights

  • 1Net 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.
  • 2Diluted EPS more than doubled to $2.60 in Q2 2011, up from $1.25 in Q2 2010, indicating significant operational leverage and profitability improvement.
  • 3All operating segments (Engine, Power Generation, Components, Distribution) experienced substantial sales growth, demonstrating the widespread positive market trends.
  • 4Gross margins improved significantly, expanding by 2.4 percentage points in Q2 2011 to 25.9% of sales, driven by higher volumes and pricing.
  • 5The 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.
  • 6Cummins repurchased $373 million of its common stock in the first six months of 2011 under its enhanced share repurchase program, returning capital to shareholders.
  • 7The company announced an increase in its quarterly dividend to $0.40 per share, signaling confidence in its financial health and future performance.

Frequently Asked Questions

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.

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.

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.

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.