10-QPeriod: Q2 FY2013

CUMMINS INC Quarterly Report for Q2 Ended Jun 30, 2013

Filed July 31, 2013For Securities:CMI

Summary

Cummins Inc. (CMI) reported its second-quarter and year-to-date results for the period ending June 30, 2013. For the quarter, net sales increased slightly year-over-year to $4.525 billion, primarily driven by acquisitions in the Distribution and Components segments. However, consolidated net income attributable to Cummins Inc. decreased by 12% to $414 million ($2.20 per diluted share) compared to $469 million ($2.47 per diluted share) in the prior year's quarter. This decline was attributed to lower gross margins, a higher effective tax rate, and unfavorable foreign currency fluctuations, despite efforts to control operating expenses. For the first six months of the year, net sales saw a 5% decline to $8.447 billion, with most segments experiencing reduced demand, particularly in on-highway, mining, and oil & gas markets. Consolidated net income attributable to Cummins Inc. for this period fell significantly by 25% to $696 million ($3.69 per diluted share) from $924 million ($4.85 per diluted share) in the same period last year. The company generated strong operating cash flows of $960 million for the first half of 2013, an increase from the prior year, and maintained a strong liquidity position with $1.4 billion in cash and equivalents and significant revolving credit facilities.

Financial Highlights

51 data points
Beta

Revenue

$4.53B

25.5% Gross Margin

Net Income

$414.00M

9.1% Net Margin

EPS (Diluted)

$2.20

Total Assets

$13.05B

Cash & Equivalents

$1.38B

Free Cash Flow

$371.00M

Financial Statements
Beta
Revenue$4.53B
Cost of Revenue$3.37B
Gross Profit$1.15B
R&D Expenses$177.00M
SG&A Expenses$484.00M
Operating Income$610.00M
Interest Expense$8.00M
Net Income$414.00M
EPS (Basic)$2.20
EPS (Diluted)$2.20
Shares Outstanding (Basic)187.80M
Shares Outstanding (Diluted)188.20M

Key Highlights

  • 1Net sales for the second quarter of 2013 increased slightly to $4.525 billion, driven by acquisitions in the Distribution and Components segments.
  • 2Consolidated net income attributable to Cummins Inc. decreased by 12% to $414 million ($2.20 per diluted share) for Q2 2013, and by 25% to $696 million ($3.69 per diluted share) for the first six months of 2013, compared to the prior year periods.
  • 3Overall net sales for the first six months of 2013 decreased by 5% to $8.447 billion, reflecting weakened demand in key markets such as on-highway, mining, and oil & gas.
  • 4The company reported strong operating cash flow of $960 million for the first six months of 2013, a substantial increase from $397 million in the prior year period.
  • 5Cummins completed a $1 billion share repurchase program and continued with a new $1 billion authorization, repurchasing $289 million of stock in the second quarter.
  • 6The company announced a 25% increase in its quarterly dividend to $0.625 per share, effective July 2013.
  • 7Moody's Investors Service upgraded Cummins' credit rating to 'A3' with a stable outlook in April 2013.

Frequently Asked Questions

The decline in net income was primarily driven by lower gross margins due to unfavorable product mix and lower volumes, a higher effective tax rate compared to the prior year, and unfavorable foreign currency fluctuations. In the first six months, lower equity, royalty, and interest income from investees also contributed to the decrease.

The Components segment sales increased by 8% and the Distribution segment sales increased by 20%, largely due to acquisitions. However, the Engine segment sales decreased by 7% and the Power Generation segment sales decreased by 10%, reflecting weaker demand in their respective markets. Foreign currency fluctuations also negatively impacted sales.

Cummins anticipates improving demand in its emission solutions business and market share gains in North America medium-duty trucks. However, challenges remain due to sluggish European markets, currency volatility, continued weakness in North American oil and gas, potential weakening in mining markets, and declining demand in Indian on-highway markets and international power generation.

Cummins maintains a strong liquidity position with $1.4 billion in cash and equivalents and marketable securities as of June 30, 2013, along with substantial availability under its credit facilities. The company generated strong operating cash flow, used for capital expenditures, dividends, and share repurchases, indicating ample financial flexibility.