10-QPeriod: Q3 FY2020

CUMMINS INC Quarterly Report for Q3 Ended Sep 27, 2020

Filed October 27, 2020For Securities:CMI

Summary

Cummins Inc. (CMI) reported its third-quarter 2020 financial results, showing a notable decline in revenues and net income compared to the prior year, largely attributed to the ongoing impacts of the COVID-19 pandemic. Total revenues decreased by 11% for the three months ended September 27, 2020, to $5.1 billion, and by 22% for the nine months ended September 27, 2020, to $14.0 billion. This revenue decline was primarily driven by reduced demand across all major operating segments and geographic regions, exacerbated by global economic slowdowns. Despite the revenue drop, the company managed to improve its gross margin percentage in the third quarter due to cost-saving measures, including prior restructuring actions and temporary salary reductions. However, net income attributable to Cummins Inc. fell by 19% for the quarter to $501 million, or $3.36 per diluted share, compared to $622 million, or $3.97 per diluted share, in the prior year. The company maintained a strong liquidity position with $3.3 billion in cash and marketable securities and access to substantial credit facilities, while also managing debt levels. Cummins continues to invest in new technologies, particularly in electrified and hydrogen power solutions, signaling a strategic focus on future growth despite the current challenging operating environment.

Financial Highlights

58 data points
Beta

Revenue

$5.12B

26.4% Gross Margin

Net Income

$501.00M

9.8% Net Margin

EPS (Diluted)

$3.36

Total Assets

$21.57B

Cash & Equivalents

$2.97B

Free Cash Flow

$1.11B

Financial Statements
Beta
Revenue$5.12B
Cost of Revenue$3.77B
Gross Profit$1.35B
R&D Expenses$224.00M
SG&A Expenses$533.00M
Operating Income$670.00M
Interest Expense$25.00M
Net Income$501.00M
EPS (Basic)$3.39
EPS (Diluted)$3.36
Shares Outstanding (Basic)147.90M
Shares Outstanding (Diluted)148.90M

Key Highlights

  • 1Revenues for the third quarter of 2020 decreased by 11% to $5.1 billion, impacted by the global economic downturn and COVID-19 pandemic.
  • 2Net income attributable to Cummins Inc. for the third quarter declined by 19% to $501 million, or $3.36 per diluted share.
  • 3Gross margin as a percentage of sales increased slightly to 26.4% in Q3 2020 from 25.9% in Q3 2019, benefiting from cost control measures.
  • 4Operating income decreased significantly by 4% for the quarter to $670 million, driven by lower sales.
  • 5The company ended the quarter with a strong liquidity position, holding $3.3 billion in cash and marketable securities.
  • 6Cummins reported substantial increases in long-term debt, largely due to a $2 billion senior unsecured notes issuance in August 2020.
  • 7The New Power segment, focused on electrified and hydrogen technologies, showed revenue growth of 100% for the quarter, though it remained a small contributor and reported an EBITDA loss.

Frequently Asked Questions

The revenue decline was primarily driven by lower demand across all major operating segments and most geographic regions. This was exacerbated by the ongoing economic impacts of the COVID-19 pandemic and the anticipated 2020 down cycle in most of Cummins' markets.

Cummins implemented cost-saving measures that helped improve its gross margin percentage. These included prior restructuring actions, temporary salary reductions, lower material costs, and a $44 million VAT recovery. Selling, general, and administrative expenses also decreased due to similar cost control efforts.

Cummins maintained a strong liquidity position, with $3.3 billion in cash and marketable securities as of September 27, 2020, and access to $3.5 billion in credit facilities. However, total debt increased significantly, largely due to a $2 billion senior unsecured notes issuance in August 2020, which led to an increase in the debt-to-capital ratio to 32.2% from 21.9% at the end of 2019.

The company anticipates continued challenges in the fourth quarter, including an estimated $90 million increase in expenses due to the end of payroll cuts, potential for further customer shutdowns, supply chain constraints, and ongoing operating costs for safety procedures. However, Cummins highlighted positive trends like strong liquidity and an increased quarterly dividend authorization, signaling confidence in managing uncertainties.