10-QPeriod: Q1 FY2015

CUMMINS INC Quarterly Report for Q1 Ended Mar 29, 2015

Filed April 29, 2015For Securities:CMI

Summary

Cummins Inc. (CMI) reported strong first-quarter 2015 results with a 7% increase in net sales to $4.7 billion and a 14% rise in net income attributable to Cummins Inc. to $387 million, or $2.14 per diluted share. This growth was primarily driven by the consolidation of North American distributors and improved demand in North American on-highway markets, particularly in the Distribution and Components segments. The company experienced a healthy increase in gross margin to 25.4% from 24.9% in the prior year, benefiting from higher volumes and lower material costs, despite higher warranty costs and unfavorable foreign currency fluctuations. Looking ahead, Cummins anticipates continued growth in North American heavy-duty and medium-duty on-highway markets and strong light-duty demand for the remainder of 2015. However, challenges remain, including a weak outlook for power generation markets, continued negative impacts from Brazil's economy, stagnant conditions in China, and potential pressure from foreign currency volatility and declining oil prices affecting the oil and gas markets. Despite these headwinds, the company's long-term outlook remains positive, supported by global trends in emissions control, infrastructure development in emerging markets, energy availability, and industry globalization.

Financial Highlights

52 data points
Beta

Revenue

$4.71B

25.4% Gross Margin

Net Income

$387.00M

8.2% Net Margin

EPS (Diluted)

$2.14

Total Assets

$15.74B

Cash & Equivalents

$2.00B

Free Cash Flow

$73.00M

Financial Statements
Beta
Revenue$4.71B
Cost of Revenue$3.51B
Gross Profit$1.20B
R&D Expenses$195.00M
SG&A Expenses$517.00M
Operating Income$548.00M
Interest Expense$14.00M
Net Income$387.00M
EPS (Basic)$2.14
EPS (Diluted)$2.14
Shares Outstanding (Basic)180.60M
Shares Outstanding (Diluted)181.00M

Key Highlights

  • 1Net sales increased by 7% to $4.71 billion in Q1 2015 compared to Q1 2014.
  • 2Net income attributable to Cummins Inc. rose by 14% to $387 million.
  • 3Diluted earnings per share increased by 17% to $2.14.
  • 4Gross margin improved to 25.4% of sales from 24.9% in the prior year, driven by volume, acquisitions, and lower material costs.
  • 5The Distribution segment saw a significant 56% increase in sales, largely due to the consolidation of North American distributors.
  • 6Operating cash flow was $173 million, a decrease from $263 million in the prior year, mainly due to working capital fluctuations.
  • 7The company repurchased $137 million of stock in the first quarter of 2015.

Frequently Asked Questions

Sales increased primarily due to the consolidation of previously partially-owned North American distributors, which contributed significantly to the Distribution segment's revenue. Additionally, improved demand in North American on-highway markets, particularly within the Engine and Components segments, also contributed to the overall sales growth.

Profitability improved significantly. Net income attributable to Cummins Inc. increased by 14% to $387 million, and diluted EPS grew by 17% to $2.14. This was driven by a higher gross margin (25.4% vs. 24.9%), benefiting from higher volumes and lower material costs, partially offset by increased warranty costs and unfavorable foreign currency impacts.

Positive trends include expected continued growth in North American heavy-duty and medium-duty on-highway markets and strong light-duty demand. Challenges include weak power generation markets, the ongoing negative economic impact in Brazil, stagnant conditions in China, potential pressure from foreign currency volatility, and declining oil prices affecting the oil and gas sector.

Cummins is actively pursuing its strategy to acquire full ownership of its partially-owned U.S. and Canadian distributors. This consolidation is a key driver of growth in the Distribution segment and is expected to continue with planned additional acquisitions in the second half of 2015.