Engine and power generation equipment maker Cummins Inc. (CMI) on Thursday reported an 81% drop in profit for the second quarter from last year, hurt by sharply lower demand for engines and power-generating equipment amid the global recession. Excluding items, earnings per share for the quarter declined, yet topped analysts' consensus estimate. Looking ahead, the company reiterated its earnings and sales outlook for fiscal year 2009 even though it said it does not see any recovery in its markets during the year.
Second-Quarter Results
For the second quarter, Columbus, Indiana-based Cummins reported net income attributable to the company of $56 million, or $0.28 a share, down from $293 million, or $1.49 per share, a year ago. For the preceding first quarter, Cummins had reported net income attributable to the company of $7 million, or $0.04 per share.
The results for the latest quarter include a $7 million pretax charge associated with the cost of job-reduction actions taken at several manufacturing facilities during the quarter.
Excluding the charge, net income attributable to the company for the latest quarter was $60 million, or $0.30 a share. On average, sixteen analysts polled by Thomson Reuters expected the company to earn $0.26 per share for the quarter. Analysts' estimates typically exclude special items. Net sales for the quarter were $2.43 billion, down 37% from $3.89 billion a year ago, and missed analysts' consensus revenue estimate for the quarter of $2.47 billion.
Tim Solso, Chairman and Chief Executive Officer of Cummins, said, "The economic climate continues to be extremely challenging, and we are managing our business under the assumption that we won't see any recovery in our markets in 2009. Still, our aggressive efforts to reduce costs and align manufacturing capacity with demand have allowed us to perform well under the circumstances and to position ourselves to emerge from the downturn an even stronger company."
Peer Performance
Navistar International Corp. (NAV) in June reported a 94.3% year-over-year plunge in profit for the second quarter, hurt by the weak industry sales in the U.S. and Canadian truck market amid the global recession. The Illinois-based company posted net income for the quarter of $12 million, or $0.16 per share, sharply lower than $211 million, or $ 2.88 per share, in the prior-year quarter. Sales and revenues for the quarter dropped 28.9% to $2.81 billion from $3.95 billion in the same period last year.
Other Metrics
Cummins' gross margin for the quarter declined to $448 million from $879 million in the same period last year.
Selling, general and administrative expenses for the quarter were $287 million, down from $370 million in the year-ago period. Research, development and engineering charges for the quarter declined to $79 million from $104 million in the previous-year quarter.
Operating income for the quarter dropped to $121 million from $468 million in the year-ago period.
At the end of the second quarter, Cummins had $534 million in available cash and cash equivalents, compared to $353 million at the end of the first quarter.
Cummins said it generated significant positive cash flow during the quarter and did not need to use any of its $1.1 billion credit facility. The company also said it continued to make capital expenditures on the most critical projects, especially those associated with the launch of new emission-compliant products in 2010 and with fuel economy improvements.
Segmental Results
Cummins' Engine and Components segments continued to see the most severe reductions in demand, while the pace of the sales decline in the Power Generation segment increased rapidly in the quarter. Profitability in all three segments was significantly affected by the lower volumes.
Engine segment sales for the quarter fell 45% to $1.31 billion from $2.39 billion in the year-ago quarter, with sales down sharply in nearly every geographic market due to the global recession. Segment EBIT for the quarter was a loss of $4 million, compared to a profit of $221 million in the year-ago period.
Sales for the Power Generation segment totaled $610 million, down 35% from $938 million in the prior-year quarter. Segment EBIT for the quarter declined 64% to $41 million from last year. Commercial product sales declined 35% and was most affected by economic slowdown in Europe, Middle East and Latin America.
The Components segment posted sales of $502 million, down 41% from $855 million in the year-ago period. The segment EBIT was a loss of $10 million for the quarter, compared to a profit of $77 million in the previous-year quarter. The company noted that sales and profit decline were driven primarily by large volume drop from OEM customers in North America and Europe.
The Distribution segment reported sales of $463 million, down 20% from $581 million in the year-ago period. Segment EBIT for the quarter declined 19% to $55 million from $68 million a year ago.
The joint ventures segment reported a 17% decline in income from a year ago to $57 million. Income, however, rose 73% from the preceding first quarter. Engine JV income dropped 47% from last year, primarily as a result of large demand declines in on-highway markets in China. All other segment JVs reported flat or modestly higher profits compared to the previous-year quarter.
Year-To-Date Results
For the first six months of fiscal year 2009, Cummins reported net income attributable to the company of $63 million, or $0.32 per share, sharply lower than $483 million, or $2.46 per share, in the year-ago period.
The results for the six-month period include a $73 million pretax charge associated with the cost of job-reduction actions taken at several manufacturing facilities.
Excluding restructuring charges, net income attributable to the company for the half-year period was $111 million, or $0.66 per share.
Net sales for the half year plunged to $4.87 billion from $7.36 billion a year ago.
Outlook
Looking ahead, Cummins reaffirmed its sales and earnings outlook for fiscal year 2009. The company still expects full-year sales to be slightly more than 30% lower than the previous year, and anticipates EBIT of 5% of sales for the year, excluding restructuring charges.
Analysts expect the company to report earnings of $1.31 per share for the year on revenues of $9.99 billion.
Stock Quotes
In Thursday's regular trading session, CMI is trading at $42.25, up $1.96 or 4.86% on a volume of 158 million shares. In the past 52 weeks, the stock has been trading in a range of $17.70-$75.98.
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