Cummins Reports Strong First-Quarter Earnings; Increases Profit Guidance for 2006.COLUMBUS Columbus. 1 City (1990 pop. 178,681), seat of Muscogee co., W Ga., at the head of navigation on the Chattahoochee River; settled and inc. 1828 on the site of a Creek village. , Ind IND Investigational new drug Therapeutics A status assigned by the FDA to a drug before allowing its use in humans, exempting it from premarketing approval requirements so that experimental clinical trials may be conducted. See Phase 1.2, 3 studies, Sponsorship. . -- Cummins This article is about the diesel engine manufacturer. For other uses, see Cummins (disambiguation). Cummins Inc. (NYSE: CMI) is a maker of diesel and natural gas engines whose corporate headquarters is located in Columbus, Indiana. Inc. (NYSE NYSE See: New York Stock Exchange :CMI (Computer-Managed Instruction) Using computers to organize and manage an instructional program for students. It helps create test materials, tracks the results and monitors student progress. ) today reported strong first-quarter earnings of $135 million, or $2.70 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, powered by sales growth across most of its markets and product lines, and continued gross margin strength. Sales for the quarter totaled $2.68 billion. Based on its first-quarter performance and its forecast for the remainder of the year, Cummins also is increasing its 2006 full-year guidance today. The Company now expects to earn between $12.40 and $12.60 a share in 2006, up from its original guidance of $11.90 - $12.10 a share. The Company expects to earn between $3.35 and $3.45 a share in the second quarter. "As we have been saying for some time, we're we're Contraction of we are. we're we are confident 2006 will be an even better year than our record 2005 and these results indicate that we are on our way to achieving our goals," said Cummins Chairman and Chief Executive Officer Tim Solso. "Our first-quarter performance reflects considerable strength along the breadth Breadth The percentage of assets or stocks advancing relative to those unchanged or declining. Also the number of independent forecasts available per year. A stock picker forecasting returns to 100 stocks every quarter exhibits a breadth of 400, assuming each forecast is of our product line and in markets around the world. "We have become a less cyclical cyclical Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. , more diversified company diversified company A company engaged in varied business operations not directly related to one another. A diversified company is less likely to suffer either a collapse or a spectacular gain in earnings compared with a firm concentrating its operations in a , and as our operating performance continues to improve and we strengthen our balance sheet, we are increasingly well-positioned for the future." In the first quarter, Indiana Indiana, state, United States Indiana, midwestern state in the N central United States. It is bordered by Lake Michigan and the state of Michigan (N), Ohio (E), Kentucky, across the Ohio R. (S), and Illinois (W). passed a tax bill that will, over time, lower Cummins' effective tax rate in the state. As a result, however, Cummins' first-quarter results include a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. charge of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $12 million, or 23 cents a share, for adjustments required as a consequence of this legislation. The Company's first-quarter performance was significantly stronger than the same period in 2005. For the first quarter, net income rose 39 percent from $97 million, or $1.96 per diluted share, during the first quarter of 2005. Revenues increased 21 percent, from $2.21 billion a year ago. Earnings Before Interest and Taxes In financial and business accounting, earnings before interest and taxes (EBIT) is a measure of a firm's profitability that excludes interest and income tax expenses.[1] EBIT = Operating Revenue – Operating Expenses + Non-operating Income (EBIT EBIT See: Earnings Before Interest and Taxes EBIT See earnings before interest and taxes (EBIT). ) rose 56 percent to $255 million, from $163 million in the first quarter of 2005. EBIT as a percentage of sales was 9.5 percent, compared to 7.4 percent a year ago. Gross margins for the quarter also improved from the same period a year ago, increasing to 22.4 percent from 20.7 percent. The Company's Engine segment enjoyed its most profitable quarter ever, while the Power Generation and Distribution segments posted strong sales and earnings during the quarter. The Company's fourth business segment - Components - began to see improvement in earnings while continuing to invest in technologies critical to the Company's future success. First-quarter details Engine Segment Segment EBIT of $179 million was a record and a 53 percent increase from the first quarter of 2005. Segment EBIT as a percentage of sales was 9.8 percent, compared to 7.9 percent during the first quarter of 2005. Engine sales rose 23 percent to $1.82 billion, led by stronger-than-expected volumes across nearly all markets. Global heavy-duty heav·y-dut·y adj. Made to withstand hard use or wear. heavy-duty Adjective made to withstand hard wear, bad weather, etc. Adj. 1. truck engine shipments rose 22 percent from the same period in 2005, while bus shipments increased 35 percent, construction shipments increased 29 percent and global light-duty adj. 1. not designed for heavy or demanding work; as, a light-duty detergent s>. Opposite of heavy-duty nt>. Adj. 1. light-duty - not designed for heavy work; "a light-duty detergent" automotive shipments rose 36 percent. Power Generation Segment Power Generation sales of $536 million were 26 percent higher than during the first quarter of 2005, while Segment EBIT tripled to $45 million, or 8.4 percent of sales, in the quarter. Commercial generator generator, in electricity, machine used to change mechanical energy into electrical energy. It operates on the principle of electromagnetic induction, discovered (1831) by Michael Faraday. sales, which represent more than half of the segment's total sales, rose 32 percent from the same period last year led by strong growth in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. and the Middle East. Consumer generator sales rose 14 percent, while Power Electronics sales increased 53 percent compared to the same period a year ago. Distribution Segment Distribution Segment sales of $317 million were 25 percent higher than during the first quarter 2005, while Segment EBIT rose 55 percent to $31 million, or 9.8 percent of sales. Quarterly sales and Segment EBIT were the second-highest ever, trailing only the fourth quarter of 2005. Sales increased across all product lines, led by a 27 percent increase in sales of Power Generation products and a 20 percent rise in parts sales. From a geographic geographic /geo·graph·ic/ (je?o-graf´ik) in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map. geographic pertaining to geography. perspective, sales were particularly strong in the Middle East and Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). . Profits at the Company's
joint venture distributors in all regions also improved.Components Segment Sales in the Company's Components Segments - made up of the Company's filtration filtration: see sewerage; water supply. Filtration The separation of solid particles from a fluidsolids suspension of which they are a part by passage of most of the fluid through a septum or membrane that retains most of the solids , turbocharger tur·bo·charg·er n. See turbosupercharger. tur  bo·charged adj. , fuel systems and exhaust Exhaust may refer to:In mathematics:
The Filtration business benefited from strong aftermarket Aftermarket See: Secondary market. aftermarket See secondary market. sales and sales to original equipment makers in North and Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. . The Segment saw higher return on sales Return on sales A measurement of operational efficiency equalingnet pre-tax profits divided by net sales expressed as a percentage. return on sales The portion of each dollar of sales that a firm is able to turn into income. , despite continued investment in research and engineering to develop new products for 2007 and beyond. Presentation of Non-GAAP Financial Information EBIT is a non-GAAP financial measure used in this release. EBIT is defined and reconciled rec·on·cile v. rec·on·ciled, rec·on·cil·ing, rec·on·ciles v.tr. 1. To reestablish a close relationship between. 2. To settle or resolve. 3. to what management believes to be the most comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBIT is a measure used internally to assess the performance of the operating units operating unit A type of operating company that engages in transactions with outsiders and that is owned by another business. For example, in 1995 the stockholders of Capital Cities/ABC approved a $19 billion merger with the Walt Disney Company, whereupon . Webcast information Cummins management will host a teleconference to discuss these results today at 10 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT . This teleconference will be webcast and available on the Investor Relations Investor relations The process by which the corporation communicates with its investors. section of the Cummins website at www.cummins.com. About Cummins Inc. Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission EMISSION, med. jur. The act by which any matter whatever is thrown from the body; thus it is usual to say, emission of urine, emission of semen, &c. 2. solutions and electrical power generation systems. Headquartered in Columbus, Indiana Columbus (IPA: [kəˈlʌm.bəs]) is the county seat of Bartholomew County, Indiana. The population was 39,059 at the 2000 census. The current mayor is Fred Armstrong. , (USA) Cummins serves customers in more than 160 countries through its network of 550 Company-owned and independent distributor facilities and more than 5,000 dealer locations. Cummins reported net income of $550 million on sales of $9.9 billion in 2005. Press releases can be found on the Web at www.cummins.com. Information provided and statements on the webcast and in this release that are not purely historical are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995, including statements regarding the company's expectations, hopes, beliefs and intentions on strategies regarding the future. It is important to note that the company's actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to, general economic, business and financing conditions, labor relations, governmental action, competitor pricing activity, expense volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the and other risks detailed from time to time in Cummins Securities and Exchange Commission filings.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (a)
Three months ended
--------------------------------
April 2, March 27, December 31,
2006 2005 2005
--------- --------- ------------
Millions
(except per share amounts)
Net sales $ 2,678 $ 2,208 $ 2,753
Cost of sales 2,079 1,752 2,134
--------- --------- ------------
Gross margin 599 456 619
Operating expenses and income
Selling and administrative
expenses 301 259 313
Research and engineering expenses 82 63 71
Investee equity, royalty and other
income (31) (34) (28)
Other operating income, net (1) -- (1)
--------- --------- ------------
Operating earnings 248 168 264
Interest income (9) (5) (9)
Interest expense 27 28 26
Other expenses, net 2 10 4
--------- --------- ------------
Earnings before income taxes and
minority interests 228 135 243
Provision for income taxes 85 34 63
Minority interests in earnings of
consolidated subsidiaries 8 4 13
--------- --------- ------------
Net earnings $ 135 $ 97 $ 167
========= ========= ============
Earnings per share
Basic $ 3.04 $ 2.20 $ 3.75
Diluted $ 2.70 $ 1.96 $ 3.31
Cash dividends declared per share $ 0.30 $ 0.30 $ 0.30
(a) Prepared on an unaudited basis in accordance with accounting
principles generally accepted in the United States of America.
Certain reclassifications have been made to 2005 amounts to
conform to the 2006 presentation.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
April 2, December 31,
2006 2005
--------- ------------
Millions
(except par value)
ASSETS
Current assets
Cash and cash equivalents $ 676 $ 779
Marketable securities 58 61
Receivables, net 1,620 1,423
Inventories 1,251 1,174
Deferred income taxes 365 363
Prepaid expenses and other current assets 118 116
--------- ------------
Total current assets 4,088 3,916
Long-term assets
Property, plant and equipment, net 1,535 1,557
Investments in and advances to equity
investees 287 278
Goodwill 358 358
Other intangible assets, net 105 100
Deferred income taxes 449 500
Other assets 175 176
--------- ------------
Total assets $ 6,997 $6,885
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 162 $ 154
Accounts payable 1,014 904
Other accrued expenses 1,080 1,160
--------- ------------
Total current liabilities 2,256 2,218
Long-term liabilities
Long-term debt 1,164 1,213
Pensions 386 396
Postretirement benefits other than pensions 550 554
Other liabilities and deferred revenue 428 415
--------- ------------
Total liabilities 4,784 4,796
--------- ------------
Minority interests 235 225
Shareholders' equity
Common stock, $2.50 par value, 150 shares
authorized, 48.7 and 48.5 shares issued 122 121
Additional contributed capital 1,205 1,201
Retained earnings 1,480 1,360
Accumulated other comprehensive loss
Minimum pension liability adjustment (523) (523)
Foreign currency translation adjustments (75) (84)
Unrealized gain on marketable securities 2 3
Unrealized gain on derivatives 8 1
--------- ------------
Total accumulated other comprehensive
loss (588) (603)
--------- ------------
Common stock in treasury, at cost, 2.2 and
2.0 shares (132) (101)
Common stock held in trust for employee
benefit plans, 2.0 and 2.0 shares (95) (97)
Unearned compensation (14) (17)
--------- ------------
Total shareholders' equity 1,978 1,864
--------- ------------
Total liabilities and shareholders' equity $ 6,997 $6,885
========= ============
(a) Prepared on an unaudited basis in accordance with accounting
principles generally accepted in the United States of America.
Certain reclassifications have been made to 2005 amounts to
conform to the 2006 presentation.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
Three months ended
-----------------------
April 2, March 27,
2006 2005
----------- -----------
Millions
Net cash provided by (used in) operating
activities $ 18 $ (62)
----------- -----------
Cash flows from investing activities
Capital expenditures (52) (31)
Investments in marketable securities--
acquisitions (38) (26)
Investments in marketable securities--
liquidations 42 39
Other, net 10 --
----------- -----------
Net cash used in investing activities (38) (18)
----------- -----------
Cash flows from financing activities
Proceeds from borrowings 19 25
Payments on borrowings and capital lease
obligations (64) (294)
Dividend payments on common stock (14) (14)
Proceeds from issuing common stock 4 7
Repurchases of common stock (36) --
Other, net 7 8
----------- -----------
Net cash used in financing activities (84) (268)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents 1 (2)
----------- -----------
Net decrease in cash and cash equivalents (103) (350)
Cash and cash equivalents at beginning of
year 779 611
----------- -----------
Cash and cash equivalents at end of period $ 676 $ 261
=========== ===========
(a) Prepared on an unaudited basis in accordance with accounting
principles generally accepted in the United States of America.
Certain reclassifications have been made to the 2005 amounts to
conform to 2006 presentation.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
Power
Engine Generation Components Distribution Eliminations Total
------ ---------- ---------- ------------ ------------ -----
Millions
Three
months
ended
April 2,
2006
Net sales $1,821 $536 $555 $317 $(551) $2,678
Investee
equity,
royalty
and
other
income 17 3 2 9 -- 31
Segment
EBIT 179 45 31 31 (31) 255
Net
assets 1,526 752 965 366 -- 3,609
Three
months
ended
March
27, 2005
Net sales $1,480 $427 $473 $253 $(425) $2,208
Investee
equity,
royalty
and
other
income 25 1 2 6 -- 34
Segment
EBIT 117 15 23 20 (12) 163
Net
assets 1,166 595 938 295 -- 2,994
Three
months
ended
December
31, 2005
Net sales $1,838 $575 $535 $346 $(541) $2,753
Investee
equity,
royalty
and
other
income 13 3 1 11 -- 28
Segment
EBIT 156 49 24 33 7 269
Net
assets 1,518 718 944 299 -- 3,479
A reconciliation of our segment information to the corresponding
amounts in the Consolidated Financial Statements is shown in the table
below:
Three Months Ended
-------------------------------
April 2, March 27, December 31,
2006 2005 2005
-------- --------- ------------
Millions
Segment EBIT $ 255 $ 163 $ 269
Less:
Interest expense 27 28 26
-------- --------- ------------
Earnings before income taxes and
minority interests $ 228 $ 135 $ 243
======== ========= ============
April 2, March 27, December 31,
2006 2005 2005
---------- --------- ------------
Millions
Net assets for operating segments $ 3,609 $ 2,994 $ 3,479
Liabilities deducted in arriving at
net assets 3,385 3,252 3,354
Minimum pension liability excluded
from net assets (837) (826) (837)
Deferred tax assets not allocated
to segments 814 978 863
Debt-related costs not allocated to
segments 26 27 26
---------- --------- ------------
Total assets $ 6,997 $ 6,425 $ 6,885
========== ========= ============
Certain reclassifications have been made to 2005 amounts to conform to
the 2006 presentation.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)
Earnings before interest, taxes and minority interests (EBIT)
We define EBIT as earnings before interest expense, provision for
income taxes and minority interests in earnings of consolidated
subsidiaries. We use EBIT to assess and measure the performance of our
operating segments and also as a component in measuring our variable
compensation programs. Below is a reconciliation of EBIT, a non-GAAP
financial measure, to our consolidated net earnings, for each of the
applicable periods:
Three Months Ended
--------------------------------
April 2, March 27, December 31,
2006 2005 2005
--------- --------- ------------
Millions
Earnings before interest, income
taxes and minority interests $ 255 $ 163 $ 269
EBIT as a percentage of net sales 9.5 % 7.4 % 9.8 %
Less:
Interest expense 27 28 26
Provision for income taxes 85 34 63
Minority interests in earnings of
consolidated subsidiaries 8 4 13
--------- --------- ------------
Net earnings $ 135 $ 97 $ 167
========= ========= ============
Net earnings as a percentage of net
sales 5.0 % 4.4 % 6.1 %
We believe EBIT is a useful measure of our operating performance
for the periods presented as it illustrates our operating performance
without regard to financing methods, capital structure or income
taxes. This measure is not in accordance with, or an alternative for,
accounting principles generally accepted in the United States of
America (GAAP) and may not be consistent with measures used by other
companies. It should be considered supplemental data.
CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)
NOTE 1. EARNINGS PER SHARE
The following is a reconciliation of net earnings and
weighted-average common shares outstanding for purposes of calculating
basic and diluted net earnings per share:
Three months ended
---------------------------------
April 2, March 27, December 31,
2006 2005 2005
---------- --------- ------------
Millions
(except per share amounts)
Net earnings for basic EPS $ 134.6 $ 96.6 $ 166.8
Interest on junior convertible
subordinated debentures, net of
tax 3.2 3.2 3.2
---------- --------- ------------
Net earnings for diluted EPS $ 137.8 $ 99.8 $ 170.0
========== ========= ============
Weighted-average common shares
outstanding:
Basic 44.3 43.9 44.5
Dilutive effect of stock
compensation awards 0.4 0.6 0.5
Dilutive effect of junior
convertible subordinated
debentures 6.3 6.3 6.3
---------- --------- ------------
Diluted 51.0 50.8 51.3
========== ========= ============
Earnings per share:
Basic $ 3.04 $ 2.20 $ 3.75
Diluted $ 2.70 $ 1.96 $ 3.31
NOTE 2. INVESTEE EQUITY, ROYALTY AND OTHER INCOME
Investee equity, royalty and other income included in our
Condensed Consolidated Statements of Earnings for the interim
reporting periods was as follows:
Three months ended
---------------------------------
April 2, March 27, December 31,
2006 2005 2005
---------- --------- ------------
Millions
Dongfeng Cummins Engine Company, Ltd $ 5 $ 15 $ 3
North American distributors 9 6 10
Cummins Mercruiser 1 2 2
Chongqing Cummins 3 2 2
Tata Cummins 3 1 2
Fleetguard Shanghai 1 1 1
All others 4 1 4
---------- --------- ------------
Cummins share of net earnings 26 28 24
Royalty and other income 5 6 4
---------- --------- ------------
Investee equity, royalty and other
income $ 31 $ 34 $ 28
========== ========= ============
NOTE 3. PROVISION FOR INCOME TAXES
Our income tax provision for the three months ended April 2, 2006,
was increased due to a tax bill passed in Indiana during March 2006
that will have the effect of lowering our effective tax rate in
Indiana over time. As a result, our first quarter tax provision
includes a $12 million charge to adjust deferred tax assets to their
ultimate expected realizable value based upon this action. Absent this
charge, our effective tax rate was 32 percent for the quarter. If
Congress passes a tax bill in 2006 that includes provisions to extend
the research tax credits, we believe such action will reduce our
effective tax rate to 31 percent for the year.
NOTE 4. DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense included in operating
activities of the Condensed Consolidated Statements of Cash Flows was
as follows:
Three months ended
--------------------
April 2, March 27,
2006 2005
---------- ---------
Millions
Depreciation and amortization $ 74 $ 72
Supplemental Data
Sales
$Millions Q1 Q2 Q3 Q4 YTD
----------------------------------------
2006
Engine
Business
Heavy-Duty
Truck 608 608
Medium Duty
Truck+Bus 231 231
Light Duty
Auto+RV 315 315
Industrial 481 481
Stationary
Power 186 186
----------------------------------------
TOTAL ENGINE
BUSINESS 1,821 0 0 0 1,821
Power
Generation 536 536
Components 555 555
Distributors 317 317
Eliminations (551) (551)
----------------------------------------
TOTAL 2,678 0 0 0 2,678
========================================
2005
Engine
Business
Heavy-Duty
Truck 494 553 524 568 2,139
Medium Duty
Truck+Bus 191 228 238 261 918
Light Duty
Auto+RV 255 269 314 326 1,164
Industrial 399 458 427 507 1,791
Stationary
Power 141 159 169 176 645
----------------------------------------
TOTAL ENGINE
BUSINESS 1,480 1,667 1,672 1,838 6,657
Power
Generation 427 493 504 575 1,999
Components 473 511 481 535 2,000
Distributors 253 297 295 346 1,191
Eliminations (425) (478) (485) (541) (1,929)
----------------------------------------
TOTAL 2,208 2,490 2,467 2,753 9,918
========================================
----------------------------------------------------------------------
----------------------------------------------------------------------
Engine Shipments
Units Q1 Q2 Q3 Q4 YTD
----------------------------------------
2006
Midrange 114,500 114,500
Heavy-duty 30,100 30,100
High
Horsepower 3,700 3,700
----------------------------------------
TOTAL 148,300 0 0 0 148,300
========================================
2005
Midrange 91,100 101,600 106,100 120,400 419,200
Heavy-duty 24,900 27,500 26,300 28,900 107,600
High
Horsepower 3,100 3,800 3,300 4,200 14,400
----------------------------------------
TOTAL 119,100 132,900 135,700 153,500 541,200
========================================
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