Cummins Inc, USA

Cummins Inc, USA

COMPANY PROFILE Cummins Inc, USA Profile Cummins Inc is a multi-national corporation focused on engines and related technologies, including fuel sys...

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COMPANY PROFILE

Cummins Inc, USA Profile

Cummins Inc is a multi-national corporation focused on engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. It has four reporting segments: Engine, Components, Power Generation, and, Distribution. The Components division has four business units, including Filtration whose products encompass heavyduty air, fuel, hydraulic and lube products, and includes the Fleetguard aftermarket brand. The Distribution segment has four business units including Parts (previously Parts & Filtration) that includes filtration products. Analysis

Cummins recorded sales of US$17.5 billion for fiscal 2016, down 8.3% on the year earlier. With regards to its filtration operations, sales in its Components division were 6.5% below the 2015 comparator at US$4.8 billion due primarily to lower sales from both its Emission Solutions and Turbo Technologies business units to the North American on-highway markets. The Filtration business unit was the segment’s best performer, however, with sales remaining flat on the prior year at US$1.0 billion. In Cummins’ Distribution segment sales eased 0.7% on fiscal 2016 to US$6.2 billion. The fall was primarily due to a 15% decline in sales in its Engines business unit, as well as unfavourable currency translations. The Parts business unit (previously Parts & Filtration) was the best performer, with sales up 8.4% to US$2.6 billion. In terms of profitability, Cummins EBIT for fiscal 2016 was down 4.4% on twelve months earlier at US$2.0 billion, while net earnings edged back 0.4% to US$1.4 billion. Profits were impacted by significantly lower gross margin and higher loss contingency charges, but these were mostly offset by the absence of 2015’s impairment and restructuring charges, in addition to lower R&D expenses, a lower effective tax rate, lower selling, general and administrative expenses and favourable changes to corporate owned life insurance. In its Components segment, EBIT fell 11.8% on the year prior to land at US$641 million with the decrease driven by a lower gross margin and higher selling, general and administrative expenses. For the Distribution segment, EBIT was down 4.9% at US$392 million with the decline again coming from higher selling, general and administrative expenses. Key Figures (US$ million) Cummins Inc

17 509

Cost of Sales

13 057

R&D Expenses Earnings before Interest and Taxes (EBIT)

Cummins saw its revenues fall for the second successive year in fiscal 2016. The biggest drops were in its Power Systems segment, down 14% year-on-year to US$3.5 billion and the Engine division, the company’s biggest revenue contributor, where they were 10% lower at US$7.8 billion. Cummins attributed the downturn primarily to lower demand in global on-highway markets, decreased demand in global power generation markets, unfavourable foreign currency fluctuations and lower demand in global high-horsepower industrial markets. The tough times of recent years are expected to continue in the near term, particularly in the first quarter of fiscal 2017, with Cummins forecasting that its consolidated revenues for the full year will be in the range of flat to down 5%. Its Engine segment is again expected to face tough trading conditions with sales expected to fall between 3–6%. Its Components segment is also anticipating a difficult trading environment with sales likely to be down 2–6%. More encouragingly, prospects are thought to be better for the Distribution sector where revenues are projected to range from flat to up 4%. Despite the decline in sales, Cummins points to its profit performance as a positive sign. Its EBIT margin improved to 11.4% in fiscal 2016 from 10.9% in the year earlier. n

Year ended 31.12 2016 2015 2014 2013 2012

Net Sales Of Which: Components Of Which: Filtration Distribution Of Which: Parts Gross Margin

COMMENT

19 100

19 221

17 301

17 334

4836 5172 5118 4342 4012 1010 1010 1075 1028 1048 6181 6229 5174 3749 3277 2627 2423 1924 1465 1235 14 163

14 360

13 021

12 918

4452 4947 4861 4280 4416 636 735 754 713 728 1999

2090

2498

2160

2303

Of Which: Components

641 727 684 527 426

Distribution

392 412 491 388 369

Net Earnings/(Loss)

1394 1399 1651 1483 1645

Contact Details

Chair and CEO: N Thomas Linebarger Address: 500 Jackson St Box 3005, Columbus Tel: +1 812 377 5000 IN 47202-3005, USA Web: www.cummins.com 6

Filtration Industry Analyst

March 2017