Cummins Announces Second Quarter Results

Second quarter revenues of $6.2 billion; GAAP¹Net Income of $675 million
Second quarter EBITDA of 17.0 percent of sales; Diluted EPS of $4.27
Expects full year 2019 revenues to be flat, at the low end of our previous guidance
The company is maintaining its full year 2019 EBITDA guidance of 16.25 to 16.75 percent

COLUMBUS, Ind.–(BUSINESS WIRE)–Cummins Inc. (NYSE: CMI) today reported results for the second quarter of 2019.

Second quarter revenues of $6.2 billion increased 1 percent from the same quarter in 2018. Increased truck production in North America and stronger demand in North American power generation markets was partially offset by lower demand in oil and gas and international truck markets. Currency negatively impacted revenues by 2 percent primarily due to a stronger US dollar.

Second quarter sales in North America set a new record and improved by 7 percent while international revenues decreased by 6 percent. Sales in North America increased in all segments except Power Systems, which was negatively impacted by lower demand in oil and gas markets. International revenues declined primarily due to lower truck demand in China, Europe, Brazil, and India.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter were a record $1.1 billion, or 17.0 percent of sales, compared to $897 million or 14.6 percent of sales a year ago. Net income attributable to Cummins in the second quarter was $675 million ($4.27 per diluted share), compared to net income of $545 million ($3.32 per diluted share).

“We achieved record revenues, EBITDA, and operating cash flow in the first half of 2019, extending our track record of raising performance cycle over cycle,” said Chairman and CEO Tom Linebarger. “While we do expect to see a moderation in demand in the second half of the year, our financial strength combined with our diversified geographic and end market exposure will enable us to generate strong profits, continue to invest in future growth, and return cash to shareholders.”

2019 Outlook:

Cummins now expects 2019 revenue to be flat, which places the forecast at the low end of our previous guidance range of flat to 4 percent. This lower outlook is driven by reduced truck demand in international markets, moderating parts demand in North America, and the impact of a stronger US dollar. The company continues to expect EBITDA to be in the range of 16.25 to 16.75 percent of sales and 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 emissions standards or acquisition of Hydrogenics.

Second Quarter 2019 Highlights:

The Board of Directors approved a 15 percent increase in the Company’s quarterly cash dividend from $1.14 per share to $1.311 per share
Cummins entered into a definitive agreement to acquire the majority of shares of fuel cell systems provider Hydrogenics Corporation. The agreement is subject to customary closing conditions and Hydrogenics’ shareholder approval
Cummins and Gillig announced that the GILLIG zero-emission battery electric bus, powered by Cummins, is now available for commercial orders by customers

¹	Generally Accepted Accounting Principles

Second quarter 2019 detail (all comparisons to same period in 2018)

Engine Segment

Sales – $2.7 billion, flat versus prior year
Segment EBITDA – $416 million, or 15.4 percent of sales, compared to $362 million or 13.4 percent of sales
On-highway revenues increased 2 percent and off-highway revenues decreased by 7 percent
North America revenues increased by 7 percent due to higher demand in on-highway markets while international revenues declined 15 percent primarily due to lower demand in China

Distribution Segment

Sales – $2.0 billion, up 2 percent
Segment EBITDA – $172 million, or 8.5 percent of sales, compared to $145 million or 7.3 percent of sales
Revenues in North America increased by 2 percent and international sales were flat
Strong demand for power generation equipment in North America, especially data centers, was partially offset by lower demand in oil and gas markets and the unfavorable impact from a stronger US dollar, which impacted sales by 2 percent

Components Segment

Sales – $1.8 billion, down 2 percent
Segment EBITDA – $297 million, or 16.1 percent of sales, compared to $237 million or 12.6 percent of sales
Revenues in North America increased by 5 percent due to higher heavy and medium-duty truck production while international sales declined by 12 percent due to lower demand in Europe, China, and India

Power Systems Segment

Sales – $1.2 billion, down 3 percent
Segment EBITDA – $173 million, or 14.4 percent of sales, compared to $186 million or 14.9 percent of sales
Industrial revenues decreased 11 percent due to lower demand in North America oil and gas and global mining markets while power generation revenues were flat

Electrified Power Segment

Sales – $8 million
Segment EBITDA loss – $33 million

About Cummins

Cummins Inc., a global technology leader, is a corporation of complementary business segments designing, manufacturing, distributing and servicing a broad portfolio of power solutions. The company’s products range from diesel and natural gas engines to hybrid and electric platforms, as well as related technologies, including transmissions, battery systems, fuel systems, controls, air handling, filtration, emission solutions, and electrical power generation systems. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 62,600 people 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 customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations, and over 7,600 dealer locations. In 2018, the company earned about $2.1 billion on sales of $23.8 billion. See how Cummins is powering a world that’s Always On by accessing news releases and more information at https://www.cummins.com/always-on. Follow Cummins on Twitter at www.twitter.com/cummins and on YouTube at www.youtube.com/cumminsinc.

Forward-looking disclosure statement

Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward looking statements include, without limitation, statements relating to our plans and expectations for our revenues and EBITDA percentage for the full year of 2019. Our 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: any adverse results of our internal review into our emissions certification process and compliance with emissions standards; a sustained slowdown or significant downturn in our markets; changes in the engine outsourcing practices of significant customers; the development of new technologies that reduce demand for our current products and services; increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emissions standards around the world; product recalls; policy changes in international trade; the United Kingdom’s (U.K.) decision to end its membership in the European Union; lower than expected acceptance of new or existing products or services; a slowdown in infrastructure development and/or depressed commodity prices; supply shortages and supplier financial risk, particularly from any of our single-sourced suppliers; exposure to potential security breaches or other disruptions to our information technology systems and data security; a major customer experiencing financial distress; the actions of, and income from, joint ventures and other investees that we do not directly control; our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions; failure to realize expected results from our investment in Eaton Cummins Automated Transmission Technologies joint venture; competitor activity; increasing competition, including increased global competition among our customers in emerging markets; foreign currency exchange rate changes; variability in material and commodity costs; political, economic and other risks from operations in numerous countries; changes in taxation; global legal and ethical compliance costs and risks; aligning our capacity and production with our demand; product liability claims; increasingly stringent environmental laws and regulations; future bans or limitations on the use of diesel-powered products; the price and availability of energy; the performance of our pension plan assets and volatility of discount rates; labor relations; changes in accounting standards; our sales mix of products; protection and validity of our patent and other intellectual property rights; the outcome of pending and future litigation and governmental proceedings; continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and other risks detailed from time to time in our SEC filings, including particularly in the Risk Factors section of our 2018 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information

EBITDA is a non-GAAP measure used in this release, and is defined and reconciled to what management believes to be the most comparable 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 EBITDA is a measure used internally to assess the performance of the operating units.

Webcast information

Cummins management will host a teleconference to discuss these results today at 10 a.m. ET. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.

	CUMMINS INC. AND SUBSIDIARIES
	CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
	(Unaudited) (a)
		Three months ended
	In millions, except per share amounts	June 30, 2019			July 1, 2018
	NET SALES	$	6,221		$	6,132
	Cost of sales	4,580			4,692
	GROSS MARGIN	1,641			1,440
	OPERATING EXPENSES AND INCOME
	Selling, general and administrative expenses	629			613
	Research, development and engineering expenses	251			219
	Equity, royalty and interest income from investees	96			110
	Other operating income (expense), net	(9		)	4
	OPERATING INCOME	848			722
	Interest income	12			10
	Interest expense	29			28
	Other income, net	40			11
	INCOME BEFORE INCOME TAXES	871			715
	Income tax expense	186			161
	CONSOLIDATED NET INCOME	685			554
	Less: Net income attributable to noncontrolling interests	10			9
	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	675		$	545

	EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
	Basic	$	4.29		$	3.33
	Diluted	$	4.27		$	3.32

	WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
	Basic	157.4			163.8
	Diluted	158.0			164.3
(a)	Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

	CUMMINS INC. AND SUBSIDIARIES
	CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
	(Unaudited) (a)
		Six months ended
	In millions, except per share amounts	June 30, 2019			July 1, 2018
	NET SALES	$	12,225		$	11,702
	Cost of sales	9,052			9,062
	GROSS MARGIN	3,173			2,640
	OPERATING EXPENSES AND INCOME
	Selling, general and administrative expenses	1,222			1,190
	Research, development and engineering expenses	488			429
	Equity, royalty and interest income from investees	188			225
	Other operating income (expense), net	(4		)	6
	OPERATING INCOME	1,647			1,252
	Interest income	24			17
	Interest expense	61			52
	Other income, net	106			21
	INCOME BEFORE INCOME TAXES	1,716			1,238
	Income tax expense	362			359
	CONSOLIDATED NET INCOME	1,354			879
	Less: Net income attributable to noncontrolling interests	16			9
	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	1,338		$	870

	EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
	Basic	$	8.51		$	5.30
	Diluted	$	8.47		$	5.27

	WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
	Basic	157.3			164.3
	Diluted	157.9			165.0
(a)	Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

	CUMMINS INC. AND SUBSIDIARIES
	CONDENSED CONSOLIDATED BALANCE SHEETS
	(Unaudited) (a)
	In millions, except par value	June 30, 2019			December 31, 2018
	ASSETS
	Current assets
	Cash and cash equivalents	$	1,397		$	1,303
	Marketable securities	335			222
	Total cash, cash equivalents and marketable securities	1,732			1,525
	Accounts and notes receivable, net	4,179			3,866
	Inventories	3,896			3,759
	Prepaid expenses and other current assets	643			668
	Total current assets	10,450			9,818
	Long-term assets
	Property, plant and equipment, net	4,077			4,096
	Investments and advances related to equity method investees	1,274			1,222
	Goodwill	1,125			1,126
	Other intangible assets, net	901			909
	Pension assets	960			929
	Other assets	1,467			962
	Total assets	$	20,254		$	19,062

	LIABILITIES
	Current liabilities
	Accounts payable (principally trade)	$	2,991		$	2,822
	Loans payable	119			54
	Commercial paper	434			780
	Accrued compensation, benefits and retirement costs	465			679
	Current portion of accrued product warranty	809			654
	Current portion of deferred revenue	505			498
	Other accrued expenses	920			852
	Current maturities of long-term debt	46			45
	Total current liabilities	6,289			6,384
	Long-term liabilities
	Long-term debt	1,624			1,597
	Pensions and other postretirement benefits	522			532
	Accrued product warranty	663			740
	Deferred revenue	726			658
	Other liabilities	1,234			892
	Total liabilities	$	11,058		$	10,803

	EQUITY
	Cummins Inc. shareholders’ equity
	Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued	$	2,307		$	2,271
	Retained earnings	13,897			12,917
	Treasury stock, at cost, 64.6 and 64.4 shares	(6,082		)	(6,028		)
	Common stock held by employee benefits trust, at cost, 0.3 and 0.4 shares	(4		)	(5		)
	Accumulated other comprehensive loss	(1,840		)	(1,807		)
	Total Cummins Inc. shareholders’ equity	8,278			7,348
	Noncontrolling interests	918			911
	Total equity	$	9,196		$	8,259
	Total liabilities and equity	$	20,254		$	19,062

(a)	Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

	CUMMINS INC. AND SUBSIDIARIES
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	(Unaudited) (a)
		Six months ended
	In millions	June 30, 2019			July 1, 2018
	CASH FLOWS FROM OPERATING ACTIVITIES
	Consolidated net income	$	1,354		$	879
	Adjustments to reconcile consolidated net income to net cash provided by operating activities
	Depreciation and amortization	315			308
	Deferred income taxes	17			(21		)
	Equity in income of investees, net of dividends	(43		)	(163		)
	Pension contributions (in excess of) under expense, net	(45		)	25
	Other postretirement benefits payments in excess of expense, net	(10		)	—
	Stock-based compensation expense	28			28
	Gain on corporate owned life insurance	(55		)	—
	Foreign currency remeasurement and transaction exposure	46			(21		)
	Changes in current assets and liabilities
	Accounts and notes receivable	(312		)	(555		)
	Inventories	(125		)	(475		)
	Other current assets	15			(42		)
	Accounts payable	148			442
	Accrued expenses	(194		)	94
	Changes in other liabilities	120			5
	Other, net	(39		)	(31		)
	Net cash provided by operating activities	1,220			473

	CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures	(242		)	(186		)
	Investments in internal use software	(34		)	(35		)
	Investments in and advances to equity investees	(18		)	(15		)
	Investments in marketable securities—acquisitions	(259		)	(143		)
	Investments in marketable securities—liquidations	153			116
	Cash flows from derivatives not designated as hedges	(26		)	(9		)
	Other, net	15			36
	Net cash used in investing activities	(411		)	(236		)

	CASH FLOWS FROM FINANCING ACTIVITIES
	Net (payments) borrowings of commercial paper	(346		)	504
	Payments on borrowings and finance lease obligations	(17		)	(33		)
	Net borrowings (payments) under short-term credit agreements	57			(1		)
	Distributions to noncontrolling interests	(13		)	(11		)
	Dividend payments on common stock	(358		)	(355		)
	Repurchases of common stock	(100		)	(379		)
	Other, net	66			22
	Net cash used in financing activities	(711		)	(253		)
	EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(4		)	(35		)
	Net increase (decrease) in cash and cash equivalents	94			(51		)
	Cash and cash equivalents at beginning of year	1,303			1,369
	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,397		$	1,318

(a)	Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
	In millions	Engine			Distribution			Components			Power Systems			Electrified Power			Total Segments			Intersegment Eliminations ⁽¹⁾			Total
	Three months ended June 30, 2019
	External sales	$	2,073		$	2,015		$	1,401		$	724		$	8		$	6,221		$	—		$	6,221
	Intersegment sales	630			13			445			479			—			1,567			(1,567		)	—
	Total sales	2,703			2,028			1,846			1,203			8			7,788			(1,567		)	6,221
	Research, development and engineering expenses	88			7			75			57			24			251			—			251
	Equity, royalty and interest income from investees	62			12			11			11			—			96			—			96
	Interest income	4			4			2			2			—			12			—			12
	Segment EBITDA	416			172			297			173			(33		)	1,025			33			1,058
	Depreciation and amortization ⁽²⁾	51			28			47			30			2			158			—			158

	EBITDA as a percentage of total sales	15.4		%	8.5		%	16.1		%	14.4		%	NM			13.2		%				17.0		%

	Three months ended July 1, 2018
	External sales	$	2,050		$	1,988		$	1,402		$	691		$	1		$	6,132		$	—		$	6,132
	Intersegment sales	646			6			485			555			—			1,692			(1,692		)	—
	Total sales	2,696			1,994			1,887			1,246			1			7,824			(1,692		)	6,132
	Research, development and engineering expenses	76			5			62			60			16			219			—			219
	Equity, royalty and interest income from investees	67			11			14			18			—			110			—			110
	Interest income	3			3			2			2			—			10			—			10
	Segment EBITDA	362			145			237			186			(21		)	909			(12		)	897
	Depreciation and amortization ⁽²⁾	47			27			47			32			1			154			—			154

	EBITDA as a percentage of total sales	13.4		%	7.3		%	12.6		%	14.9		%	NM			11.6		%				14.6		%

“NM” – not meaningful information

(1)

Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended June 30, 2019 and July 1, 2018.

(2)

Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as “Interest expense.” A portion of depreciation expense is included in “Research, development and engineering expense.”

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

In millions	Engine			Distribution			Components			Power Systems			Electrified Power			Total Segments			Intersegment Eliminations ⁽¹⁾			Total
Six months ended June 30, 2019
External sales	$	4,057		$	4,008		$	2,802		$	1,347		$	11		$	12,225		$	—		$	12,225
Intersegment sales	1,299			21			905			933			—			3,158			(3,158		)	—
Total sales	5,356			4,029			3,707			2,280			11			15,383			(3,158		)	12,225
Research, development and engineering expenses	166			14			150			113			45			488			—			488
Equity, royalty and interest income from investees	118			23			21			26			—			188			—			188
Interest income	8			8			4			4			—			24			—			24
Segment EBITDA	854			343			622			311			(62		)	2,068			23			2,091
Depreciation and amortization ⁽²⁾	101			57			93			59			4			314			—			314

EBITDA as a percentage of total sales	15.9		%	8.5		%	16.8		%	13.6		%	NM			13.4		%				17.1		%

Six months ended July 1, 2018
External sales	$	3,863		$	3,835		$	2,715		$	1,286		$	3		$	11,702		$	—		$	11,702
Intersegment sales	1,279			12			925			1,034			—			3,250			(3,250		)	—
Total sales	5,142			3,847			3,640			2,320			3			14,952			(3,250		)	11,702
Research, development and engineering expenses	155			10			124			117			23			429			—			429
Equity, royalty and interest income from investees	134			24			30			37			—			225			—			225
Interest income	5			5			3			4			—			17			—			17
Segment EBITDA	648			268			464			328			(31		)	1,677			(80		)	1,597
Depreciation and amortization ⁽²⁾	96			54			93			62			2			307			—			307

EBITDA as a percentage of total sales	12.6		%	7.0		%	12.7		%	14.1		%	NM			11.2		%				13.6		%

“NM” – not meaningful information
⁽¹⁾	Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the six months ended June 30, 2019 and July 1, 2018.
⁽²⁾	Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Income as “Interest expense.” The amortization of debt discount and deferred costs was $1 million and $1 million for the six months ended June 30, 2019 and July 1, 2018, respectively. A portion of depreciation expense is included in “Research, development and engineering expense.”

CUMMINS INC. AND SUBSIDIARIES
RECONCILIATION OF SEGMENT INFORMATION
(Unaudited)
A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Net Income is shown in the table below:
	Three months ended				Six months ended
In millions	June 30, 2019		July 1, 2018		June 30, 2019		July 1, 2018
Total EBITDA	$	1,058	$	897	$	2,091	$	1,597
Less:
Depreciation and amortization	158		154		314		307
Interest expense	29		28		61		52
Income before income taxes	$	871	$	715	$	1,716	$	1,238

Contacts

Jon Mills

Director – External Communications

(317) 658-4540

[email protected]

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