10-QPeriod: Q3 FY2023

CUMMINS INC Quarterly Report for Q3 Ended Sep 30, 2023

Filed November 2, 2023For Securities:CMI

Summary

Cummins Inc. (CMI) reported a strong third quarter of 2023, with net sales increasing by 15% to $8.4 billion compared to the prior year. This growth was driven by robust demand across all operating segments and geographic regions, notably boosted by the full-quarter impact of the Meritor acquisition in the Components segment, particularly in axles and brakes. Net income attributable to Cummins Inc. surged by 64% to $656 million, translating to diluted EPS of $4.59, up from $2.82 in the prior year. This significant profitability improvement was supported by higher net sales, improved gross margins due to favorable pricing and lower freight costs, and a lower effective tax rate. The company also reported a healthy increase in operating income and continues to focus on managing supply chain challenges while investing in future technologies. The company's financial position remains strong with increased cash from operations and a reduced debt-to-capital ratio.

Financial Highlights

55 data points
Beta

Revenue

$8.43B

24.6% Gross Margin

Net Income

$656.00M

7.8% Net Margin

EPS (Diluted)

$4.59

Total Assets

$32.10B

Cash & Equivalents

$2.61B

Free Cash Flow

$1.25B

Financial Statements
Beta
Revenue$8.43B
Cost of Revenue$6.36B
Gross Profit$2.07B
R&D Expenses$376.00M
SG&A Expenses$831.00M
Operating Income$950.00M
Interest Expense$97.00M
Net Income$656.00M
EPS (Basic)$4.63
EPS (Diluted)$4.59
Shares Outstanding (Basic)141.80M
Shares Outstanding (Diluted)142.80M

Key Highlights

  • 1Net sales increased 15% year-over-year to $8.4 billion, driven by broad-based demand and the full inclusion of the Meritor acquisition.
  • 2Net income attributable to Cummins Inc. grew 64% to $656 million, with diluted EPS rising to $4.59 from $2.82.
  • 3Gross margin expanded by 2.2 percentage points to 24.6%, benefiting from favorable pricing, lower freight costs, and higher volumes.
  • 4The Components segment showed strong growth, with sales up 25% driven by axles and brakes following the Meritor acquisition.
  • 5Operating income more than doubled, increasing by 52% to $950 million.
  • 6Cash flow from operations significantly improved, generating $2.5 billion for the first nine months of 2023, up from $1.1 billion in the prior year.
  • 7The company's debt-to-capital ratio improved to 39.0% from 44.1% at the end of 2022, indicating a stronger balance sheet.

Frequently Asked Questions

The substantial increase in net sales and net income was primarily driven by a 15% rise in overall revenues, significantly boosted by the full quarter inclusion of the Meritor acquisition's sales, particularly in the Components segment's axles and brakes business. Improved gross margins, attributed to favorable pricing, reduced freight costs, and higher volumes, along with a lower effective tax rate, also contributed significantly to the profit growth.

Cummins continues to actively manage supply chain disruptions, including increased price levels and shortages across multiple component categories. The company is diligently working to minimize these impacts on its business and its customers, though these challenges continue to affect the industry and limit the ability to meet end-user demand.

Cummins anticipates continued strong demand in North American medium-duty trucks, Indian truck markets, and its Power Systems business. The aftermarket business is also expected to remain robust. However, challenges include rising material and labor costs, ongoing supply chain constraints, potential impacts from labor actions in the automotive sector, increasing interest rates, and expenses related to the separation of its filtration business (Atmus).

The most significant recent event is the full-quarter impact of the Meritor acquisition, which closed in August 2022, notably bolstering the Components segment. The company also completed the initial public offering (IPO) of its filtration business, Atmus, in May 2023. Recently, on October 2, 2023, Cummins acquired Faurecia's commercial vehicle exhaust business.