01—Abstract
Summary
Summary of the 10-Q filed October 27, 2015. Cited figures are marked; the original filing is the authoritative source.
Cummins Inc. (CMI) reported net sales of $4.62 billiona for the third quarter of 2015, a 6% decrease compared to the same period in the prior year.
This decline was primarily driven by unfavorable foreign currency fluctuations, weaker global industrial and international on-highway demand, and a slowdown in global power generation markets. Despite the revenue dip, the company's net income attributable to Cummins Inc. was $380 millionb, or $2.14 per diluted share, a decrease from $423 million, or $2.32 per diluted share, in the prior year quarter. For the nine-month period ended September 27, 2015, net sales increased by 2% to $14.34 billion, with net income attributable to Cummins Inc. rising to $1.24 billion, or $6.90 per diluted share, from $1.21 billion, or $6.58 per diluted share in the prior year.
The company highlighted improved gross margins, a lower effective tax rate, and reduced R&D expenses as key drivers for the year-to-date profit growth, though this was partially offset by currency headwinds and increased SG&A expenses. Management announced plans to reduce its global professional workforce by up to 2,000 employees to respond to lower product demand.
02—Key points
Key Highlights
- Third quarter 2015 net sales decreased 6% year-over-year to $4.62 billion, impacted by unfavorable foreign currency, weaker industrial and international demand.
- Net income attributable to Cummins Inc. for Q3 2015 was $380 million ($2.14/share), down from $423 million ($2.32/share) in Q3 2014.
- Nine-month 2015 net sales increased 2% year-over-year to $14.34 billion.
- Nine-month 2015 net income attributable to Cummins Inc. increased to $1.24 billion ($6.90/share) from $1.21 billion ($6.58/share) in the prior year, driven by improved gross margin and a lower tax rate.
- The company announced a plan to reduce its worldwide professional workforce by up to 2,000 employees, expecting a Q4 pre-tax charge of $70-$90 million.
- Distribution segment sales increased 20% in Q3 2015 due to the consolidation of North American distributors.
- The company increased its quarterly dividend by 25% to $0.975 per share in July 2015.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2015, Cummins Inc kept $0.08.
- Revenue$4.62B100.0%
- Cost of revenue−$3.41B73.9%
- Gross profit$1.21B26.1%
- Operating costs−$651.0M14.1%
- Operating income$557.0M12.1%
- Interest, other & tax−$177.0M3.8%
- Net income$380.0M8.2%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2015filed October 27, 2015Financial Statements
Q3 FY2015 against Q3 FY2014
| Line item | Q3 FY2015Q3 FY2014 | Change |
|---|---|---|
| Revenue | $4.62B$4.89B | −5.5% |
| Cost of Revenue | $3.41B$3.61B | −5.4% |
| Gross Profit | $1.21B$1.28B | −5.9% |
| R&D Expenses | $197.00M$198.00M | −0.5% |
| SG&A Expenses | $530.00M$529.00M | +0.2% |
| Operating Income | $557.00M$659.00M | −15.5% |
| Interest Expense | $16.00M$15.00M | +6.7% |
| Net Income | $380.00M$423.00M | −10.2% |
| EPS (Basic) | $2.15$2.32 | −7.3% |
| EPS (Diluted) | $2.14$2.32 | −7.8% |
| Shares Outstanding (Basic) | 177.00M182.20M | −2.9% |
| Shares Outstanding (Diluted) | 177.40M182.70M | −2.9% |
05—Questions
Frequently Asked Questions
What was the primary reason for the decrease in net sales in the third quarter of 2015?
The primary reasons for the decrease in net sales in the third quarter of 2015 were unfavorable foreign currency fluctuations, lower global demand in most industrial markets, lower on-highway demand in international markets, and weakness in global power generation markets. These factors were partially offset by sales increases related to the consolidation of partially-owned North American distributors.
How did the company's profitability change year-over-year for the nine-month period?
For the nine months ended September 27, 2015, net income attributable to Cummins Inc. increased to $1.24 billion, or $6.90 per diluted share, compared to $1.21 billion, or $6.58 per diluted share, for the same period in 2014. This improvement was driven by improved gross margin, a lower effective tax rate, and reduced research, development, and engineering expenses.
What is the company doing to address the current market conditions and lower demand?
Cummins announced plans to reduce its worldwide professional workforce by up to 2,000 employees. This is in response to lower demand for its products in the U.S. and key markets around the world. The company expects to incur a pre-tax charge in the range of $70 million to $90 million in the fourth quarter for these headcount reductions.
What was the performance of the Distribution segment?
The Distribution segment saw a significant increase in sales, up 20% in the third quarter and 30% for the first nine months, primarily due to the consolidation of partially-owned North American distributors. However, Segment EBIT as a percentage of sales decreased due to the dilutive effect of these acquisitions and unfavorable foreign currency fluctuations.
06—Continue