10-QPeriod: Q3 FY2015

CUMMINS INC Quarterly Report for Q3 Ended Sep 27, 2015

Filed October 27, 2015For Securities:CMI

Summary

Cummins Inc. (CMI) reported net sales of $4.62 billion 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 million, 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.

Financial Highlights

52 data points
Beta

Revenue

$4.62B

26.1% Gross Margin

Net Income

$380.00M

8.2% Net Margin

EPS (Diluted)

$2.14

Total Assets

$15.80B

Cash & Equivalents

$1.69B

Free Cash Flow

$416.00M

Financial Statements
Beta
Revenue$4.62B
Cost of Revenue$3.41B
Gross Profit$1.21B
R&D Expenses$197.00M
SG&A Expenses$530.00M
Operating Income$557.00M
Interest Expense$16.00M
Net Income$380.00M
EPS (Basic)$2.15
EPS (Diluted)$2.14
Shares Outstanding (Basic)177.00M
Shares Outstanding (Diluted)177.40M

Key Highlights

  • 1Third quarter 2015 net sales decreased 6% year-over-year to $4.62 billion, impacted by unfavorable foreign currency, weaker industrial and international demand.
  • 2Net income attributable to Cummins Inc. for Q3 2015 was $380 million ($2.14/share), down from $423 million ($2.32/share) in Q3 2014.
  • 3Nine-month 2015 net sales increased 2% year-over-year to $14.34 billion.
  • 4Nine-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.
  • 5The 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.
  • 6Distribution segment sales increased 20% in Q3 2015 due to the consolidation of North American distributors.
  • 7The company increased its quarterly dividend by 25% to $0.975 per share in July 2015.

Frequently Asked Questions

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.

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.

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.

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.