Cummins Inc. (NYSE: CMI) today reported that the fourth quarter 2009 was the most profitable fourth quarter in company history, eclipsing the previous mark set in 2007.
Sales of $3.40 billion grew 3 percent from $3.29 billion in the fourth quarter 2008, while net income attributable to Cummins Inc. increased to $270 million, or $1.36 a share, from $43 million, or 22 cents a share, a year ago.
Earnings Before Interest and Taxes (EBIT) was $383 million or 11.3 percent of sales, compared to $56 million, or 1.7 percent of sales in the fourth quarter 2008. The fourth quarter 2009 results include a pre-tax charge of $4 million to cover the costs associated with restructuring, while the 2008 results included a $37 million pre-tax charge for similar actions. Excluding these charges, fourth quarter 2009 EBIT was $387 million, or 11.4 percent of sales, compared to $93 million, or 2.8 percent of sales in the same period in 2008.
For all of 2009, the company reported revenues of $10.8 billion, down 25 percent from $14.3 billion in 2008 as a result of the deep global recession that reduced demand in most markets throughout the year. Despite the downturn, Cummins reported solid profit and significant positive cash flow in 2009 as the company’s results improved on a quarter-to-quarter basis throughout 2009.
EBIT before restructuring and other charges was $774 million, or 7.2 percent of sales – compared to EBIT before restructuring and other charges of $1.26 billion, or 8.8 percent of sales in 2008. Net income attributable to Cummins Inc. in 2009 declined by 43 percent to $428 million, or $2.16 a share, compared to $755 million, or $3.84 a share in 2008. Excluding the restructuring and other charges, full year 2009 earnings per share was $2.49.
The company reported an increase in cash of $244 million in the fourth quarter and approximately $500 million for all of 2009, driven by broad-based efforts to lower costs, align manufacturing capacity with demand and reduce inventory levels across all its businesses. The Company had $930 million in cash at the end of 2009.
“Given the extraordinarily challenging economic climate throughout much of the year, we are extremely pleased with our financial results for both the fourth quarter and all of 2009,” said Cummins Chairman and Chief Executive Officer Tim Solso. “By taking decisive action early in the recession to bring our costs in line with real demand for our products, and through the hard work of all our people worldwide, we delivered as we promised in 2009: We earned a solid profit during the deepest recession in decades and generated a significant amount of cash while continuing to invest in technologies and programs critical to our success.”
The company’s fourth-quarter results were driven by continued strength in China, India and Brazil, along with a significant increase for on-highway truck engines and components in North America in advance of new emissions standards that took effect at the beginning of 2010.
Engine segment sales in the fourth quarter jumped by 12 percent compared to the same period in 2008, while components sales – which are closely tied to engine volumes – grew 8 percent. When compared to the third quarter of 2009, the gains were even more dramatic: Engine sales increased 51 percent and components sales were up 24 percent.
At the same time, Cummins’ strong presence in China, India and Brazil continued to play an important role in the Company’s performance in the fourth quarter. The economies in all three countries have rebounded from the recession much more quickly than more mature markets such as the United States and Western Europe. The company expects revenue in China and India to return to pre-recession levels in 2010, with solid growth also expected in Brazil.
Despite the strong fourth quarter results and the expected continued improvement in large emerging markets, Cummins expects the first half of 2010 to be extremely challenging, especially in the United States and Europe. The increase in truck engine and components sales in the United States during the fourth quarter was largely the result of OEM customers buying 2009 engines in advance of the EPA emissions regulations, which took effect on Jan. 1, 2010.
Based on current orders and forecasts for the first part of this year, North American truck and bus engine shipments could fall by as much as 80 percent in the first half of 2010, compared to the second half of 2009. This translates into a 50 percent drop in externally reported revenue for heavy-duty truck and medium-duty truck and bus in the first half of 2010 compared to the second half of 2009.
That weakness also will affect the company’s components businesses, although higher Cummins component content on the 2010 engines and improved truck sales in emerging markets will partially offset this drop in demand.
In addition, the company is expecting its Power Generation business to perform at levels consistent with 2009. This late-cycle segment bottomed out in the third quarter of 2009 but has yet to resume strong growth.
The weakness in these segments will be offset by continued strong growth in the company’s distribution business and further improvement in China, India and Brazil. Cummins also expects to see growth across all its business segments in the second half of the year, compared to the first six months.
“In many ways, the first half of 2010 will be more challenging than the environment we faced in the early part of the recession,” said Cummins President and Chief Operating Officer Tom Linebarger. “We will continue to manage our business very conservatively to ensure that we stay focused on our priorities of earning a solid profit throughout the entire downturn, investing in our future and demonstrating that we care about our customers more than anyone else in the industry.”
Based on its current forecasts, Cummins expects 2010 sales and earnings to be similar to its 2009 performance. The company’s current full-year guidance calls for sales of $11 billion for the year, with an EBIT of 7 percent of sales.