10-QPeriod: Q2 FY2012

CUMMINS INC Quarterly Report for Q2 Ended Apr 1, 2012

Filed May 2, 2012For Securities:CMI

Summary

Cummins Inc. (CMI) reported a strong first quarter for 2012, with net sales increasing by 16% to $4.47 billion and net income attributable to Cummins Inc. rising 33% to $455 million. Diluted earnings per share (EPS) also saw a significant jump to $2.38 from $1.75 in the prior year period. This performance was driven by robust demand in North American on-highway markets, improved gross margins, and a lower effective tax rate. The company's Engine and Components segments showed particularly strong growth. Despite a slight slowdown in some emerging markets and ongoing economic uncertainty in Europe, Cummins' diversified business model and global reach have helped mitigate these pressures. The company maintains a strong liquidity position with over $1.5 billion in cash and marketable securities and a low debt-to-capital ratio of 10.9%. Management expressed confidence in the company's ability to fund ongoing operations, capital expenditures, and strategic initiatives, including a planned acquisition in the emissions solutions space. Investors should note the positive sales momentum, particularly in key North American segments, and the company's continued investment in new product development to meet future emission standards.

Financial Highlights

52 data points
Beta

Revenue

$4.47B

26.8% Gross Margin

Net Income

$455.00M

10.2% Net Margin

EPS (Diluted)

$2.38

Total Assets

$12.12B

Cash & Equivalents

$1.32B

Free Cash Flow

-$105.00M

Financial Statements
Beta
Revenue$4.47B
Cost of Revenue$3.27B
Gross Profit$1.20B
R&D Expenses$181.00M
SG&A Expenses$475.00M
Operating Income$648.00M
Interest Expense$8.00M
Net Income$455.00M
EPS (Basic)$2.39
EPS (Diluted)$2.38
Shares Outstanding (Basic)190.40M
Shares Outstanding (Diluted)190.80M

Key Highlights

  • 1Net sales increased 16% to $4.47 billion in Q1 2012 compared to Q1 2011.
  • 2Net income attributable to Cummins Inc. grew 33% to $455 million.
  • 3Diluted EPS increased significantly to $2.38 from $1.75 in the prior year period.
  • 4North American on-highway markets, especially heavy-duty truck demand, showed substantial growth.
  • 5Gross margin improved by 2.0 percentage points to 26.8% of sales.
  • 6The company has a strong liquidity position with $1.57 billion in cash and marketable securities.
  • 7An acquisition of doser technology for approximately $200 million was announced in late April 2012.

Frequently Asked Questions

The primary drivers of Cummins' sales growth in the first quarter of 2012 were increased demand in the North American on-highway markets (heavy-duty, medium-duty, and light-duty trucks), improved sales in the Components segment driven by emission solutions, and strong growth in the Distribution segment across various product lines and regions. Increased volumes, favorable product mix, and improved pricing also contributed to higher gross margins.

Cummins maintained a strong financial position with $1.3 billion in cash and cash equivalents and $252 million in marketable securities as of April 1, 2012. The company has access to a $1.2 billion revolving credit facility and other credit facilities. Its debt-to-capital ratio remained low at 10.9%. Management believes its liquidity is sufficient to fund working capital, capital expenditures, dividends, share repurchases, and acquisitions.

Key challenges for the remainder of 2012 include a potential slowdown in demand in certain Chinese industrial markets, negative impacts on engine sales in Brazil due to pre-buy activity in 2011, possible declines in European markets, increased investment in new product development, currency volatility, and a potential increase in warranty expense due to a higher mix of new emission-compliant products. European economic uncertainty remains a concern, although direct exposure to sovereign debt is limited.

The Engine segment saw a 20% increase in sales driven by heavy-duty and medium-duty trucks. The Components segment grew by 19%, led by emission solutions. The Distribution segment also increased sales by 21%. The Power Generation segment experienced a slight decrease of 2% in sales due to reduced demand in most lines of business.