Cummins announces fourth quarter and full year 2019 results
Cummins Inc. (NYSE: CMI) today reported results for the fourth quarter of 2019.
Cummins Inc. (NYSE: CMI) today reported results for the fourth quarter of 2019.
Fourth quarter revenues of $5.6 billion; GAAP1 Net Income of $300 million
Fourth quarter results include a $119 million pre-tax restructuring charge
Excluding restructuring, EBITDA in the fourth quarter was 12.2 percent of sales and Diluted EPS $2.56
Returned a record $2.0 billion in cash to shareholders through dividends and share repurchases in 2019
The company expects full year 2020 revenues to be down 8 to 12 percent, EBITDA expected to be in the range of 14.2 to 15.2 percent
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 Chief Operating Officer. “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 and 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.
1 Generally Accepted Accounting Principles
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, EBITDA and agreement in principle to settle regulatory proceedings regarding our emissions certification and compliance process for pick-up truck applications. 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 consequences resulting from entering into the Agreement in Principle, including required additional mitigation projects, adverse reputational impacts and potential resulting legal actions; increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world; evolving environmental and climate change legislation and regulatory initiatives; changes in international, national and regional trade laws, regulations and policies; changes in taxation; global legal and ethical compliance costs and risks; future bans or limitations on the use of diesel-powered products; failure to successfully integrate and / or failure to fully realize all of the anticipated benefits of the acquisition of Meritor, Inc. (Meritor); raw material, transportation and labor price fluctuations and supply shortages; aligning our capacity and production with our demand; the actions of, and income from, joint ventures and other investees that we do not directly control; large truck manufacturers' and original equipment manufacturers' customers discontinuing outsourcing their engine supply needs or experiencing financial distress, or change in control; product recalls; variability in material and commodity costs; the development of new technologies that reduce demand for our current products and services; lower than expected acceptance of new or existing products or services; product liability claims; our sales mix of products; uncertainties and risks related to timing and potential value to both Atmus Filtration Technologies Inc. (Atmus) and Cummins of the planned separation of Atmus, including business, industry and market risks, as well as the risks involving the anticipated favorable tax treatment if there is a significant delay in the completion of the envisioned separation; climate change, global warming, more stringent climate change regulations, accords, mitigation efforts, greenhouse gas regulations or other legislation designed to address climate change; our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions; increasing interest rates; challenging markets for talent and ability to attract, develop and retain key personnel; exposure to potential security breaches or other disruptions to our information technology environment and data security; political, economic and other risks from operations in numerous countries including political, economic and social uncertainty and the evolving globalization of our business; competitor activity; increasing competition, including increased global competition among our customers in emerging markets; failure to meet environmental, social and governance (ESG) expectations or standards, or achieve our ESG goals; labor relations or work stoppages; foreign currency exchange rate changes; the performance of our pension plan assets and volatility of discount rates; the price and availability of energy; 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 2023 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 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.
Cummins Inc., a global power solutions leader, comprises five business segments – Components, Engine, Distribution, Power Systems and Accelera by Cummins – supported by our global manufacturing and extensive service and support network, skilled workforce and vast technological expertise. Cummins is committed to its Destination Zero strategy, which is grounded in the company’s commitment to sustainability and helping its customers successfully navigate the energy transition with its broad portfolio of products. The products range from advanced diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, valvetrain technologies, controls systems, air handling systems, automated transmissions, axles, drivelines, brakes, suspension systems, electric power generation systems, batteries, electrified power systems, hydrogen production technologies and fuel cell products. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 75,500 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 its customers online, through a network of company-owned and independent distributor locations, and through thousands of dealer locations worldwide and earned about $735 million on sales of $34.1 billion in 2023.
