10-QPeriod: Q3 FY2017

CUMMINS INC Quarterly Report for Q3 Ended Jul 2, 2017

Filed August 1, 2017For Securities:CMI

Summary

Cummins Inc. reported a strong second quarter and first half of 2017, with net sales increasing by 12% and 10% respectively compared to the prior year periods. This revenue growth was driven by broad-based demand across all operating segments, particularly in North American on-highway and global industrial markets. Net income attributable to Cummins Inc. also saw significant increases, rising by 4% for the quarter and 13% for the first half of the year, reaching $424 million and $820 million respectively. Diluted Earnings Per Share (EPS) improved to $2.53 for the quarter and $4.88 for the first half, demonstrating enhanced profitability. The company highlighted strong operational performance with improved gross margins due to higher volumes, favorable pricing, and cost efficiencies, despite increased warranty costs and higher variable compensation expenses. Cash flow from operations was robust, providing ample liquidity. Cummins also demonstrated a commitment to shareholder returns by increasing its quarterly dividend and continuing its share repurchase program. The company is strategically investing in future growth, evidenced by its recent joint venture with Eaton Corporation PLC. Looking ahead, Cummins anticipates continued demand improvement in key markets, although it acknowledges potential challenges from soft power generation markets and ongoing weak economic conditions in Brazil. Overall, the financial results indicate a positive trajectory for Cummins, with strong operational execution and a strategic focus on growth and shareholder value.

Financial Highlights

52 data points
Beta

Revenue

$5.08B

24.6% Gross Margin

Net Income

$424.00M

8.3% Net Margin

EPS (Diluted)

$2.53

Total Assets

$16.26B

Cash & Equivalents

$1.29B

Free Cash Flow

$346.00M

Financial Statements
Beta
Revenue$5.08B
Cost of Revenue$3.83B
Gross Profit$1.25B
R&D Expenses$175.00M
SG&A Expenses$606.00M
Operating Income$586.00M
Interest Expense$21.00M
Net Income$424.00M
EPS (Basic)$2.53
EPS (Diluted)$2.53
Shares Outstanding (Basic)167.30M
Shares Outstanding (Diluted)167.80M

Key Highlights

  • 1Net sales increased by 12% to $5.1 billion for the three months ended July 2, 2017, and by 10% to $9.7 billion for the six months ended July 2, 2017, driven by broad market demand.
  • 2Net income attributable to Cummins Inc. rose by 4% to $424 million for the quarter and by 13% to $820 million for the half-year, reflecting improved profitability.
  • 3Diluted EPS increased to $2.53 for the quarter and $4.88 for the half-year, showcasing enhanced earnings power per share.
  • 4Gross margin showed resilience, increasing in dollar terms while experiencing slight decreases as a percentage of sales, due to higher volumes and pricing offset by increased warranty costs and compensation expenses.
  • 5Operating cash flow was strong, with $826 million generated in the first half of 2017, underscoring the company's healthy cash generation capabilities.
  • 6The company announced a 5.4% increase in its quarterly dividend to $1.08 per share, reinforcing its commitment to shareholder returns.
  • 7Cummins completed the acquisition of a 50% interest in Eaton Cummins Automated Transmission Technologies for $600 million, signaling strategic investment in new ventures.

Frequently Asked Questions

Revenue growth was driven by increased demand across all operating segments. Specifically, the Engine segment saw higher demand in North American medium-duty and heavy-duty trucks and global off-highway markets. The Distribution segment benefited from organic sales increases and acquisitions. The Components segment experienced higher demand across its product lines, and the Power Systems segment saw increased demand in industrial markets, particularly mining and oil & gas.

Profitability improved significantly. Net income attributable to Cummins Inc. increased by 4% to $424 million for the quarter and by 13% to $820 million for the first half of 2017. This was driven by higher net sales, improved gross margins, and the absence of a loss contingency recorded in the prior year, partially offset by increased operating expenses and a higher effective tax rate in the quarter.

Cummins anticipates continued demand improvement in key markets like North American pick-up trucks and off-highway markets in China and India. However, challenges include potential softness in power generation markets and continued weak economic conditions in Brazil. The company expects to benefit from market condition improvements as they occur.

Cummins maintains a strong liquidity position with significant cash and cash equivalents, supported by its credit facilities. The company's debt-to-capital ratio improved. It continues to return capital to shareholders through an increased quarterly dividend and active share repurchase programs. The company also made a significant strategic investment through a joint venture with Eaton Corporation PLC.