10-QPeriod: Q2 FY2017

CUMMINS INC Quarterly Report for Q2 Ended Apr 2, 2017

Filed May 2, 2017For Securities:CMI

Summary

Cummins Inc. (CMI) reported strong first-quarter 2017 results, with net sales increasing 7% year-over-year to $4.6 billion 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 million, demonstrating continued financial strength. Looking ahead, Cummins anticipates continued demand improvement in several key markets, balanced by ongoing challenges in others.

Financial Highlights

51 data points
Beta

Revenue

$4.59B

24.7% Gross Margin

Net Income

$396.00M

8.6% Net Margin

EPS (Diluted)

$2.36

Total Assets

$15.63B

Cash & Equivalents

$1.32B

Free Cash Flow

$298.00M

Financial Statements
Beta
Revenue$4.59B
Cost of Revenue$3.46B
Gross Profit$1.13B
R&D Expenses$158.00M
SG&A Expenses$547.00M
Operating Income$540.00M
Interest Expense$18.00M
Net Income$396.00M
EPS (Basic)$2.36
EPS (Diluted)$2.36
Shares Outstanding (Basic)167.50M
Shares Outstanding (Diluted)168.00M

Key Highlights

  • 1Net 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.
  • 2Diluted Earnings Per Share (EPS) grew significantly by 26% to $2.36 in Q1 2017, up from $1.87 in Q1 2016, reflecting improved profitability.
  • 3Operating Income increased by 16% to $546 million, showcasing improved operational efficiency and revenue growth.
  • 4Equity, royalty, and interest income from investees surged by 50% to $108 million, indicating strong performance from joint ventures.
  • 5Operating cash flow was robust at $379 million for the quarter, up from $267 million in the prior year, supporting the company's financial flexibility.
  • 6The 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.
  • 7Despite 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.

Frequently Asked Questions

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.

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.

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.

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.