Cummins Inc. announced strong first-quarter earnings, led by significant sales growth in almost every market. The first-quarter performance demonstrated the benefits of the company’s ongoing effort to lower its cost structure and to diversify its business beyond the North American heavy-duty truck engine market.
The heavy-duty truck market - still the company’s largest - declined, as expected, due to lower truck sales resulting from new diesel emissions standards. However, results from Cummins’ other operations led the company to higher sales and net income for the quarter.
For the quarter, the Company reported sales of $2.82 billion, up 5.2 percent from $2.68 billion during the same period in 2006. Net income of $143 million ($1.42 per diluted share) increased 5.9 percent from $135 million ($1.35 per diluted share), due to the company’s focus on strengthening its balance sheet and lowering costs. All earnings per share amounts reflect the two-for-one stock split distributed on April 9, 2007.
Earnings before interest and taxes (EBIT) decreased 4.7 percent to $243 million during the first quarter. This reflects lower sales in the North American heavy-duty truck market, investment in global growth opportunities and costs associated with introducing 2007 emissions-compliant products.
“Despite the predicted decline in the North American heavy-duty truck market, we achieved outstanding results in the first quarter,” said Tim Solso, Cummins Chairman and Chief Executive Officer. “These results show our strategy is working, and we expect that type of performance to continue the rest of this year and beyond.
“We did what we said we would do - continued to deliver superior products and service to our customers, even in the face of significant changes to U.S. emissions regulations. Despite our outstanding performance in the first quarter, we don’t intend to relax. We remain committed to making the 2007 product launch cycle the best in our history and we are focused on controlling our costs and providing the best possible products and service.”
Based on the company’s first-quarter results and updated forecast for the rest of the year, Cummins today also announced that it has increased its full-year profit guidance to $6.00 - $6.50 a share, up from $5.50 - $5.75 a share.
Cummins Power Generation continued its strong performance by reporting record sales and Segment EBIT during the quarter. The business saw a significant increase in demand for its commercial generator sets and alternators around the world - most notably in North America, India and the Middle East. Consumer sales also improved and more growth is expected in future quarters from sales of portable generator sets and auxiliary power units for commercial trucks.
The company’s distribution business performed well during the quarter, with Segment EBIT increasing 26 percent from the same period in 2006 to $39 million. The segment enjoyed strong gains for engine sales in Europe, for generator sets in Europe and the South Pacific and for parts in Europe. Additionally, income from the company’s distributor joint ventures nearly doubled, driven in part by an increase in orders for power generation equipment in North America.
Sales to the North American heavy and medium-duty truck engine markets fell due to the change in emissions standards. Despite the decrease, the company’s ability to produce new emission-certified engines from the beginning of the year resulted in market share gains with some customers, and an improved cost structure allowed the heavy-duty business to remain profitable. Additionally, the company showed significant strength in international on-highway engine markets as well as in global industrial markets during the quarter.
Capital spending for both the company and its manufacturing joint ventures is expected to increase significantly in 2007, with the majority going to support growth in current products or expansion into new products.
A few examples of current or planned capital spending programs:
· Additional fuel system assembly capacity in the U.S., Mexico and China.
· Expansion of exhaust aftertreatment assembly in the U.S.
· Expanded turbocharger capacity in the U.S., China and India.
· Increased high-horsepower machining and assembly capacity in the United Kingdom and India.
· New light-duty diesel engine manufacturing and assembly in the United States and China.