COLUMBUS, Ind. — Cummins Inc. (NYSE: CMI) reported results for its fourth quarter of 2019 on Feb. 4.
Fourth quarter revenues of $5.6 billion decreased 9 percent from the same quarter in 2018. Lower truck production in North America and weaker demand in global construction, mining, and power generation markets drove the majority of the revenue decrease. Currency negatively impacted revenues by 1 percent primarily due to a stronger US dollar.
Fourth quarter sales in North America declined by 8 percent, while international revenues decreased by 10 percent, led by declines in Europe, Asia Pacific, Latin America and India.
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the fourth quarter were $563 million (10.1 percent of sales), or $682 million (12.2 percent of sales) excluding restructuring, compared to $896 million (14.6 percent of sales) a year ago.
“After a strong start to 2019, demand declined across most geographies and end markets in the second half of the year,” said Tony Satterthwaite, president and COO. “We moved quickly to align costs with the weaker global outlook, executing a number of actions which we expect to yield annual savings of $250 to $300 million.”
The company executed several measures to reduce costs and improve future performance in the second half of 2019. These actions included a plan to reduce headcount, which resulted in a charge of $119 million ($90 million after tax) in the fourth quarter.
Net income attributable to Cummins in the fourth quarter was $300 million ($1.97 per diluted share), or $390 million ($2.56 per diluted share) excluding restructuring, compared to $579 million ($3.63 per diluted share) in 2018.
In addition to the restructuring costs, fourth quarter net income included charges of $22 million ($0.14 per diluted share) related to the cessation of development and production of certain products in North America and our planned exit of a business in Africa. The tax rate in the fourth quarter was 17.9 percent.
Revenues for the full year were $23.6 billion, 1 percent lower than 2018. Revenues in North America increased 3 percent, while international sales declined 6 percent led by lower demand in Europe and India.
EBITDA for the year was a record $3.6 billion (15.3 percent of sales), or $3.7 billion (15.8 percent of sales) excluding restructuring. This compares to $3.5 billion or 14.6 percent of sales in 2018.
Net income attributable to Cummins for the full year was $2.3 billion ($14.48 per diluted share), or $2.4 billion ($15.05 per diluted share) excluding restructuring, compared to net income of $2.1 billion ($13.15 per diluted share) in 2018. The tax rate for the full year was 20 percent.
“Despite challenging conditions in many of our largest markets over the last six months, Cummins delivered record profits and operating cash flow in 2019,” said Chairman and CEO Tom Linebarger. “The actions we have taken to reduce costs will mitigate a further slowdown in 2020 and position the company for stronger performance when market demand improves. We will continue investment in new technologies and products in 2020 to generate strong growth and profitability for the company in both the near and long term, which is consistent with how we have managed through prior cycles.”
2020 Outlook
Based on the current forecast, Cummins projects full year 2020 revenues to be down 8 to 12 percent, and EBITDA to be in the range of 14.2 to 15.2 percent of sales. Revenue declines in 2020 are driven by lower truck production in North America, Europe, China, and India, as well as lower projected demand in off-highway markets, including global Power Generation, mining, oil and gas and construction markets. The midpoint of guidance represents a 25 percent decremental EBITDA margin excluding the impact of the New Power segment.
The company plans to return 75 percent of Operating Cash Flow to shareholders in the form of dividends and share repurchases.
Our outlook does not include any potential impact of the company’s review of its emission certification process, and compliance with emission standards or additional expenses associated with executing future cost reduction initiatives.
2019 Highlights
- The company returned a record $2.0 billion to shareholders in the form of dividends and share repurchases. We repurchased 8.1 million shares, representing 5.2 percent of shares outstanding.
- Cummins closed on its previously announced acquisition of fuel cell and hydrogen production technologies provider Hydrogenics Corporation.
- Announced Cummins new environmental sustainability strategy called PLANET 2050, which includes science-based goals that meet or exceed the goals in the United Nations Paris agreement on climate change.
- Cummins was ranked No. 17 in Newsweek magazine’s first rating of America’s Most Responsible Companies, the highest ranked company in the automotive and component category.
- Launched the company’s new 2020 X15 Efficiency Series engine, which meets 2021 greenhouse gas standards one year early in North America, delivering up to 5 percent better fuel economy than the prior X15 Efficiency Series. The X15 Efficiency Series is paired with a 12-speed Cummins Eaton Joint Venture Automated Manual Transmission, and delivers both improved fuel economy and reliability for customers, while lowering greenhouse gas emissions.
- The first Cummins-powered battery electric bus entered service in Santa Monica, California.
(1)Generally Accepted Accounting Principles
Fourth quarter 2019 detail (all comparisons to the same period in 2018) excluding restructuring charges in 2019:
Engine Segment
- Sales – $2.3 billion, down 15 percent
- Segment EBITDA – $277 million, or 12.1 percent of sales, compared to $393 million or 14.6 percent of sales
- On-highway revenues decreased 13 percent, and off-highway revenues decreased 22 percent, primarily due to decreased global demand in truck and constructions markets
Distribution Segment
- Sales – $2.0 billion, down 1 percent
- Segment EBITDA – $164 million, or 8.0 percent of sales, compared to $140 million or 6.8 percent of sales
- Revenues in North America were flat and international sales declined by 1 percent
- Increased shipments in data center markets for power generation equipment was partially offset by lower demand in oil and gas and construction markets, and unfavorable impact of 1 percent from a stronger US dollar
Components Segment
- Sales – $1.6 billion, down 12 percent
- Segment EBITDA – $209 million, or 13.4 percent of sales, compared to $278 million or 15.7 percent of sales
- Revenues in North America decreased by 13 percent, and international sales declined by 11 percent, due to weaker global truck demand
Power Systems Segment
- Sales – $1.1 billion, down 12 percent
- Segment EBITDA – $55 million, or 5.2 percent of sales, compared to $123 million, or 10.3 percent of sales
- The company recorded a $15 million charge related to a planned exit of a business in Africa
- Power generation revenues decreased by 11 percent while industrial revenues decreased 14 percent
New Power Segment
- Sales – $18 million
- Segment EBITDA loss – $50 million
About Cummins Inc.
Cummins Inc., a global power leader, is a corporation of complementary business segments that design, manufacture, distribute and service a broad portfolio of power solutions. The company’s products include diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products.
Headquartered in Columbus, Ind. since its founding in 1919, Cummins employs approximately 61,600 people who are committed to powering a more prosperous world through three global corporate responsibility priorities critical to healthy communities: education, environment and equality of opportunity. Cummins serves its customers online, through a network of company-owned and independent distributor locations, and through thousands of dealer locations worldwide. Cummins earned about $2.3 billion on sales of $23.6 billion in 2019. https://www.cummins.com/always-on
