01—Abstract
Summary
Summary of the 10-Q filed October 27, 2020. Cited figures are marked; the original filing is the authoritative source.
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 billiona, 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 millionb, 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.
02—Key points
Key Highlights
- Revenues for the third quarter of 2020 decreased by 11% to $5.1 billion, impacted by the global economic downturn and COVID-19 pandemic.
- Net income attributable to Cummins Inc. for the third quarter declined by 19% to $501 million, or $3.36 per diluted share.
- Gross 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.
- Operating income decreased significantly by 4% for the quarter to $670 million, driven by lower sales.
- The company ended the quarter with a strong liquidity position, holding $3.3 billion in cash and marketable securities.
- Cummins reported substantial increases in long-term debt, largely due to a $2 billion senior unsecured notes issuance in August 2020.
- The 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.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2020, Cummins Inc kept $0.10.
- Revenue$5.12B100.0%
- Cost of revenue−$3.77B73.6%
- Gross profit$1.35B26.4%
- Operating costs−$679.0M13.3%
- Operating income$670.0M13.1%
- Interest, other & tax−$169.0M3.3%
- Net income$501.0M9.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2020filed October 27, 2020Financial Statements
Q3 FY2020 against Q3 FY2019
| Line item | Q3 FY2020Q3 FY2019 | Change |
|---|---|---|
| Revenue | $5.12B$5.77B | −11.3% |
| Cost of Revenue | $3.77B$4.27B | −11.8% |
| Gross Profit | $1.35B$1.49B | −9.7% |
| R&D Expenses | $224.00M$242.00M | −7.4% |
| SG&A Expenses | $533.00M$600.00M | −11.2% |
| Operating Income | $670.00M$699.00M | −4.1% |
| Interest Expense | $25.00M$26.00M | −3.8% |
| Net Income | $501.00M$622.00M | −19.5% |
| EPS (Basic) | $3.39$3.99 | −15.0% |
| EPS (Diluted) | $3.36$3.97 | −15.4% |
| Shares Outstanding (Basic) | 147.90M155.90M | −5.1% |
| Shares Outstanding (Diluted) | 148.90M156.60M | −4.9% |
05—Questions
Frequently Asked Questions
What were the main drivers of the revenue decline in Q3 2020?
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.
How did Cummins manage its costs in response to lower revenues?
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.
What is the company's financial position regarding liquidity and debt?
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.
What is the outlook for the remainder of 2020, considering the COVID-19 pandemic?
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.
06—Continue