10-QPeriod: Q1 FY2014

CUMMINS INC Quarterly Report for Q1 Ended Mar 30, 2014

Filed April 30, 2014For Securities:CMI

Summary

Cummins Inc. reported a strong first quarter for 2014, with net sales increasing by 12% to $4.4 billion, 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 million, 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.

Financial Highlights

52 data points
Beta

Revenue

$4.41B

24.9% Gross Margin

Net Income

$338.00M

7.7% Net Margin

EPS (Diluted)

$1.83

Total Assets

$14.75B

Cash & Equivalents

$2.18B

Free Cash Flow

$156.00M

Financial Statements
Beta
Revenue$4.41B
Cost of Revenue$3.31B
Gross Profit$1.10B
R&D Expenses$190.00M
SG&A Expenses$485.00M
Operating Income$513.00M
Interest Expense$17.00M
Net Income$338.00M
EPS (Basic)$1.83
EPS (Diluted)$1.83
Shares Outstanding (Basic)184.30M
Shares Outstanding (Diluted)184.70M

Key Highlights

  • 1Net sales increased 12% to $4.4 billion, driven by strong North American demand, particularly in the on-highway market.
  • 2Net 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.
  • 3Gross margin improved to 25.3% of sales from 24.4% in the prior year, benefiting from higher volumes and lower material costs.
  • 4The company repurchased $419 million of common stock in the quarter under its $1 billion share repurchase program.
  • 5Consolidation of partially-owned North American distributors significantly boosted Distribution segment sales by 22%.
  • 6The Power Generation segment experienced a 14% decline in sales, reflecting weak demand in its core markets.
  • 7Operating cash flow decreased to $263 million from $428 million in the prior year, largely due to unfavorable working capital fluctuations.

Frequently Asked Questions

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.

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.

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.

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.