01—Abstract
Summary
Summary of the 10-Q filed April 30, 2014. Cited figures are marked; the original filing is the authoritative source.
Cummins Inc. reported a strong first quarter for 2014, with net sales increasing by 12% to $4.4 billiona, up from $3.9 billion in the prior year's comparable period.
This growth was primarily driven by improved demand in North American on-highway markets, leading to increased sales in the Engine and Components segments. The company also saw benefits from the consolidation of its partially-owned North American distributors. Despite increased sales, the company's net income attributable to Cummins Inc. saw a substantial rise of 20% to $338 millionb, or $1.83 per diluted share, compared to $282 million, or $1.49 per diluted share, in Q1 2013.
This profitability improvement was fueled by a higher gross margin percentage, attributed to increased volumes and lower material costs, which more than offset rising SG&A expenses and a higher effective tax rate. The company also continued its commitment to shareholder returns through significant share repurchases.
02—Key points
Key Highlights
- Net sales increased 12% to $4.4 billion, driven by strong North American demand, particularly in the on-highway market.
- Net income attributable to Cummins Inc. rose 20% to $338 million, or $1.83 per diluted share, up from $282 million, or $1.49 per diluted share.
- Gross margin improved to 25.3% of sales from 24.4% in the prior year, benefiting from higher volumes and lower material costs.
- The company repurchased $419 million of common stock in the quarter under its $1 billion share repurchase program.
- Consolidation of partially-owned North American distributors significantly boosted Distribution segment sales by 22%.
- The Power Generation segment experienced a 14% decline in sales, reflecting weak demand in its core markets.
- Operating cash flow decreased to $263 million from $428 million in the prior year, largely due to unfavorable working capital fluctuations.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2014, Cummins Inc kept $0.08.
- Revenue$4.41B100.0%
- Cost of revenue−$3.31B75.1%
- Gross profit$1.10B24.9%
- Operating costs−$586.0M13.3%
- Operating income$513.0M11.6%
- Interest, other & tax−$175.0M4.0%
- Net income$338.0M7.7%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2014filed April 30, 2014Financial Statements
Q1 FY2014 against Q1 FY2013
| Line item | Q1 FY2014Q1 FY2013 | Change |
|---|---|---|
| Revenue | $4.41B$3.92B | +12.3% |
| Cost of Revenue | $3.31B$2.96B | +11.5% |
| Gross Profit | $1.10B$957.00M | +14.8% |
| R&D Expenses | $190.00M$182.00M | +4.4% |
| SG&A Expenses | $485.00M$444.00M | +9.2% |
| Operating Income | $513.00M$414.00M | +23.9% |
| Interest Expense | $17.00M$6.00M | +183.3% |
| Net Income | $338.00M$282.00M | +19.9% |
| EPS (Basic) | $1.83$1.50 | +22.0% |
| EPS (Diluted) | $1.83$1.49 | +22.8% |
| Shares Outstanding (Basic) | 184.30M188.40M | −2.2% |
| Shares Outstanding (Diluted) | 184.70M188.80M | −2.2% |
05—Questions
Frequently Asked Questions
What was the primary driver for the increase in net sales?
The primary driver for the increase in net sales was improved demand in the North American on-highway markets, which positively impacted the Engine and Components segments. The consolidation of partially-owned North American distributors also contributed significantly to the sales growth, particularly in the Distribution segment.
How did the company's profitability change compared to the previous year?
Profitability significantly improved. Net income attributable to Cummins Inc. increased by 20% to $338 million, and diluted earnings per share rose by 23% to $1.83. This was driven by a higher gross margin percentage, achieved through increased sales volumes and lower material costs, which more than compensated for higher operating expenses and a slightly increased effective tax rate.
What is the outlook for the company in the remainder of 2014?
The company anticipates continued market share gains in the North American medium-duty truck market, further improvement in the North American heavy-duty truck market, and increased revenue from the ongoing acquisition of partially-owned North American distributors. However, challenges are expected in the Power Generation markets, some international markets like India and certain European regions, and potential negative impacts from foreign currency volatility and weakening mining markets.
How is the company managing its cash flow and liquidity?
The company maintains strong liquidity with $2.2 billion in cash and cash equivalents and $129 million in marketable securities as of March 30, 2014. While operating cash flow decreased in the first quarter compared to the prior year, primarily due to working capital changes and higher pension contributions, the company has access to a $1.7 billion revolving credit facility. The company expects its liquidity to be sufficient to fund working capital, capital expenditures, dividends, share repurchases, and acquisitions.
06—Continue