01—Abstract
Summary
Summary of the 10-Q filed May 2, 2017. Cited figures are marked; the original filing is the authoritative source.
Cummins Inc. (CMI) reported strong first-quarter 2017 results, with net sales increasing 7% year-over-year to $4.6 billiona and diluted earnings per share (EPS) rising 26% to $2.36.
This growth was driven by improved demand across most global industrial markets, particularly in China and India, and robust performance in the Components and Distribution segments. The company also saw a significant increase in equity income from investees. Operationally, gross margin remained stable as a percentage of sales, though dollar amounts increased due to higher volumes and favorable pricing, partially offset by increased warranty costs related to a change in estimate.
SG&A expenses saw an increase, primarily due to higher consulting and compensation costs. The company generated solid operating cash flow of $379 millionb, demonstrating continued financial strength. Looking ahead, Cummins anticipates continued demand improvement in several key markets, balanced by ongoing challenges in others.
02—Key points
Key Highlights
- Net sales for Q1 2017 increased by 7% to $4.59 billion compared to $4.29 billion in Q1 2016, driven by higher demand in global industrial markets and Components/Distribution segments.
- Diluted Earnings Per Share (EPS) grew significantly by 26% to $2.36 in Q1 2017, up from $1.87 in Q1 2016, reflecting improved profitability.
- Operating Income increased by 16% to $546 million, showcasing improved operational efficiency and revenue growth.
- Equity, royalty, and interest income from investees surged by 50% to $108 million, indicating strong performance from joint ventures.
- Operating cash flow was robust at $379 million for the quarter, up from $267 million in the prior year, supporting the company's financial flexibility.
- The company announced a significant joint venture with Eaton Corporation PLC to form Eaton Cummins Automated Transmission Technologies, investing approximately $600 million for a 50% stake.
- Despite overall revenue growth, the Engine segment experienced a slight decrease in sales due to lower demand in heavy-duty truck and light-duty automotive markets, though off-highway demand saw a strong increase.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2017, Cummins Inc kept $0.09.
- Revenue$4.59B100.0%
- Cost of revenue−$3.46B75.3%
- Gross profit$1.13B24.7%
- Operating costs−$592.0M12.9%
- Operating income$540.0M11.8%
- Interest, other & tax−$144.0M3.1%
- Net income$396.0M8.6%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2017filed May 2, 2017Financial Statements
Q2 FY2017 against Q2 FY2016
| Line item | Q2 FY2017Q2 FY2016 | Change |
|---|---|---|
| Revenue | $4.59B$4.29B | +6.9% |
| Cost of Revenue | $3.46B$3.23B | +6.9% |
| Gross Profit | $1.13B$1.06B | +7.2% |
| R&D Expenses | $158.00M$166.00M | −4.8% |
| SG&A Expenses | $547.00M$490.00M | +11.6% |
| Operating Income | $540.00M$470.00M | +14.9% |
| Interest Expense | $18.00M$19.00M | −5.3% |
| Net Income | $396.00M$321.00M | +23.4% |
| EPS (Basic) | $2.36$1.87 | +26.2% |
| EPS (Diluted) | $2.36$1.87 | +26.2% |
| Shares Outstanding (Basic) | 167.50M171.80M | −2.5% |
| Shares Outstanding (Diluted) | 168.00M172.00M | −2.3% |
05—Questions
Frequently Asked Questions
What was the primary driver of revenue growth in the first quarter of 2017?
Revenue growth was primarily driven by higher demand in most global industrial markets, increased demand across all Components businesses, organic sales growth in the Distribution segment, and the consolidation of North American distributors. International demand, particularly from China and India, showed significant improvement.
How did Cummins' profitability change in Q1 2017 compared to Q1 2016?
Profitability improved significantly. Net income attributable to Cummins Inc. increased by 23% to $396 million, and diluted EPS rose by 26% to $2.36. This was driven by higher gross margin, improved equity income from investees, and a lower effective tax rate, partially offset by increased Selling, General, and Administrative expenses.
What is the significance of the joint venture with Eaton Corporation PLC?
Cummins entered into an agreement to form a 50/50 joint venture with Eaton Corporation PLC, named Eaton Cummins Automated Transmission Technologies, for approximately $600 million. This venture will focus on designing, assembling, selling, and supporting automated transmissions for the commercial vehicle market, indicating a strategic move to strengthen its position in this segment.
Were there any significant changes in the company's balance sheet or cash flow position?
The company's cash flow from operations increased substantially to $379 million. Investing activities showed a significant decrease in outflows due to lower investments in marketable securities. Financing activities also saw reduced outflows, primarily because of lower share repurchases compared to the prior year. The company maintained a strong liquidity position with $1.47 billion in cash and marketable securities and available credit facilities.
06—Continue