01—Abstract
Summary
Summary of the 10-Q filed October 27, 2011. Cited figures are marked; the original filing is the authoritative source.
Cummins Inc. reported strong third-quarter and year-to-date results for the period ending September 25, 2011, demonstrating significant growth across its key business segments.
Net sales surged by 36%a for the quarter and 44% for the nine-month period, driven by a robust recovery in North American on-highway markets and continued strong demand in emerging markets, particularly China, India, and Brazil. The company's Engine and Components segments showed substantial year-over-year improvements, reflecting increased demand and improved product mix. Profitability also saw a significant boost, with diluted earnings per share more than doubling for both the quarter and the year-to-date period, benefiting from higher volumes, improved gross margins, and a lower effective tax rate.
Operationally, Cummins is experiencing a strong rebound in its core markets, especially in heavy-duty and medium-duty trucks in North America. The company also highlighted investments in new product development and a disciplined approach to managing expenses, even as R&D and SG&A increased to support growth.
Financially, Cummins maintained a strong liquidity position with substantial cash and cash equivalents and available credit facilities, enabling continued share repurchases and a recent increase in quarterly dividends. The company's outlook for the remainder of 2011 remains positive, anticipating continued strength in North American on-highway markets and global oil, gas, and mining sectors, though it acknowledges potential softening in certain emerging markets and pressures from increasing commodity costs.
02—Key points
Key Highlights
- Significant revenue growth: Net sales increased by 36% year-over-year for the quarter to $4.6 billion and by 44% for the nine-month period to $13.1 billion.
- Robust earnings per share growth: Diluted EPS rose to $2.35 for the quarter (up from $1.44) and $6.69 for the nine months (up from $3.43), reflecting strong operational performance.
- Market recovery driving sales: Strong rebound in North American on-highway markets, coupled with demand in emerging economies, fueled sales growth across most segments.
- Improved gross margins: Gross margin expanded by 1.3 percentage points to 25.7% for the quarter and 1.5 percentage points to 25.5% for the nine months, driven by higher volumes and price realization.
- Strategic divestiture and gain: Completed the sale of the exhaust business in Q2 2011, recognizing a pre-tax gain of $68 million.
- Strengthened balance sheet and liquidity: Increased cash and cash equivalents to $1.2 billion, maintained a strong debt-to-capital ratio of 12.6%, and had $1.2 billion available under its revolving credit facility.
- Increased shareholder returns: Raised the quarterly dividend to $0.40 per share and continued aggressive share repurchases, buying back $546 million in the first nine months of 2011.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2011, Cummins Inc kept $0.10.
- Revenue$4.63B100.0%
- Cost of revenue−$3.44B74.3%
- Gross profit$1.19B25.7%
- Operating costs−$549.0M11.9%
- Operating income$639.0M13.8%
- Interest, other & tax−$187.0M4.0%
- Net income$452.0M9.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2011filed October 27, 2011Financial Statements
Q3 FY2011 against Q3 FY2010
| Line item | Q3 FY2011Q3 FY2010 | Change |
|---|---|---|
| Revenue | $4.63B$3.40B | +36.0% |
| Cost of Revenue | $3.44B$2.57B | +33.7% |
| Gross Profit | $1.19B$830.00M | +43.1% |
| R&D Expenses | $164.00M$103.00M | +59.2% |
| SG&A Expenses | $489.00M$375.00M | +30.4% |
| Operating Income | $639.00M$435.00M | +46.9% |
| Interest Expense | $11.00M$11.00M | 0.0% |
| Net Income | $452.00M$283.00M | +59.7% |
| EPS (Basic) | $2.35$1.45 | +62.1% |
| EPS (Diluted) | $2.35$1.44 | +63.2% |
| Shares Outstanding (Basic) | 192.10M195.80M | −1.9% |
| Shares Outstanding (Diluted) | 192.70M196.30M | −1.8% |
05—Questions
Frequently Asked Questions
What were the main drivers of the significant increase in net sales for Cummins in the third quarter of 2011?
The substantial increase in net sales, up 36% to $4.6 billion, was primarily driven by the strong recovery in North American on-highway markets, particularly for heavy-duty and medium-duty trucks. Additionally, continued robust demand in emerging markets like China, India, and Brazil, along with improved performance in the company's Engine and Components segments, contributed significantly to the top-line growth.
How did Cummins' profitability change in the third quarter compared to the prior year?
Profitability saw a marked improvement. Net income attributable to Cummins Inc. increased by 60% to $452 million, and diluted earnings per share rose by 63% to $2.35. This growth was fueled by higher sales volumes, significantly improved gross margins (up 1.3 percentage points to 25.7%), and a lower effective tax rate. The company also benefited from a $68 million pre-tax gain on the sale of its exhaust business recognized in the nine-month period.
What is the company's financial health and liquidity position as of September 25, 2011?
Cummins maintained a strong financial position. Cash and cash equivalents stood at $1.2 billion, with an additional $273 million in marketable securities. The company's debt-to-capital ratio improved to 12.6%, reflecting a healthy balance sheet. Liquidity was further supported by $1.2 billion available under its revolving credit facility, ensuring the company's ability to fund operations, capital expenditures, and shareholder returns.
What is Cummins' outlook for the remainder of 2011 and beyond?
The company anticipates continued strength in the North American on-highway truck markets and global oil, gas, and mining sectors for the remainder of 2011. However, it notes potential slowing growth in certain emerging markets and faces challenges from increasing commodity costs. Long-term, Cummins remains confident in opportunities for profitable growth, supported by its global presence and product diversity.
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