Cummins Reports Second Quarter 2021 Results

Cummins Inc. (NYSE: CMI) today reported results for the second quarter of 2021.

Second quarter revenues of $6.1 billion increased 59 percent from the same quarter in 2020. Sales in North America increased 74 percent while international revenues increased 42 percent driven by strong demand across all global markets compared to the same quarter in 2020, which was impacted significantly by the pandemic. Currency positively impacted sales by 3 percent primarily due to a weaker US dollar.

“Strong demand across many of our key markets drove continued sales growth in the second quarter, particularly in North America, and resulted in solid profitability,” said Chairman and CEO Tom Linebarger.  “The strength of the order board reflects robust underlying demand in many of our markets which is remarkable considering the challenges and uncertainty we faced during this same period last year.  I cannot thank our employees and the employees of our supply base enough for their unwavering contributions during these challenging times given the significant supply chain constraints we continue to experience in our industry.”

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter were $974 million (15.9 percent of sales), compared to $549 million (14.3 percent of sales) a year ago. 

Net income attributable to Cummins in the second quarter was $600 million ($4.10 per diluted share) compared to $276 million ($1.86 per diluted share) in 2020. The tax rate in the second quarter was 21.4 percent including $7 million, or $0.05 per share, of unfavorable discrete items.  

Cummins is also announcing today its exploration of strategic alternatives for its Filtration business unit.  Potential strategic alternatives to be explored include the separation of the business into a stand-alone company.  

Cummins Filtration, founded by Cummins in 1958, is a recognized leader in the filtration space, with a strong technological base of expertise and patents. Cummins Filtration has grown consistently, and as an independent company, would have the opportunity to accelerate growth as it further diversifies into new products and end markets. Cummins Filtration is a premier filtration platform with a broad portfolio of products for use in on-highway, heavy, medium, and light-duty trucks, off -highway industrial equipment, and power generation systems. The business benefits from a large installed base with comprehensive aftermarket coverage driving recurring revenue and cash flow visibility; and has a leading global footprint across many key regions; including North America, India, and China. Cummins Filtration is well-positioned for continued growth, sustained margin performance, and strong free cash flow generation. In 2020, the business had sales of approximately $1.2 billion. 

The Cummins Board, along with management, believes a separation could realize value for Cummins and its stakeholders by, among other things, unlocking value for shareholders, enabling further enhanced focus on key strategic initiatives and empowering continued innovation in core and new technologies to power a more prosperous world. The Cummins Board and management also believe that a separation could simultaneously result in material benefits for Cummins Filtration, including:

• Sharpened strategic focus 
• Increased operating flexibility and resources to capitalize on growth opportunities
• Tailored capital allocation focused solely on Cummins Filtration’s growth and value creation strategy
• Enhanced value for Cummins Filtration’s employees, customers, and other stakeholders

Chairman and CEO Tom Linebarger stated, “Cummins Filtration is a technology leader with global presence and significant runway for continued growth. We expect that the strategic alternatives we are considering will result in enhanced value for our stakeholders, and position Cummins Filtration to take advantage of enhanced opportunities to invest in organic and inorganic growth.” 

The execution of this exploration process is dependent upon business and market conditions, along with a number of other factors and considerations.

2021 Outlook:

Based on the current forecast, Cummins maintains its full year 2021 revenue guidance of up 20 to 24 percent versus last year. EBITDA is expected to be in the range of 15.5 to 16.0 percent and the Company expects to return 75 percent of Operating Cash Flow to shareholders in 2021 in the form of dividends and share repurchases. 

Any expenses outside of the normal course of business associated with the evaluation of strategic alternatives for the Filtration business have been excluded from the outlook provided. 

Second Quarter 2021 Highlights:

• The company released the 18th annual Sustainability Progress report, highlighting the performance versus Cummins’ 2020 environmental goals and continued pursuit of carbon neutrality through the PLANET 2050 environmental sustainability strategy. For the first time, the report includes the racial and ethnic makeup of Cummins’ U.S. workforce. The company also posted its first report aligned to the Taskforce on Climate-Related Financial Disclosures. 
• Cummins and Iberdrola announced an agreement to partner together to accelerate the growth of business opportunities in the electrolyzer market of Iberia, promoting the green hydrogen value chain. The alliance helps to position Cummins as a leading supplier of electrolyzer systems for large-scale projects in Iberia and Iberdrola as a leading developer of electrolyzer projects and hydrogen supplier to final industrial customers.  In addition to the commercial partnership, Cummins announced plans for one of the world’s largest electrolyzer plants, which is scalable to more than 1GW per year, and will be located in Castilla-La Mancha, Spain. 
• Cummins has signed a Letter of Intent for Cummins to acquire a 50% equity interest in Momentum Fuel Technologies from Rush Enterprises. The joint venture between Rush Enterprises and Cummins will produce Cummins-branded natural gas fuel delivery systems for the commercial vehicle market in North America, combining the strengths of Momentum Fuel Technologies’ compressed natural gas (CNG) fuel delivery systems, Cummins’ powertrain expertise, and the engineering and support infrastructure of both companies. 
• The Company began testing of a hydrogen-fuel internal combustion engine, taking another step forward in advancing zero carbon technology. The proof-of-concept test is building on Cummins’ existing technology leadership in gaseous-fuel applications and powertrain leadership to create new power solutions that help customers meet the energy and environmental needs of the future.
• Carla Harris was named to the Board of Directors, bringing over 30 years of experience in investment banking, equity capital markets, equity private placements, and initial public offerings. Ms. Harris brings both the current number of women and the current number of ethnically diverse people on the board to five. 
• In May, Cummins was named to the 2021 Best Corporate Citizen list, which ranks companies on their performance in addressing climate change, the environment, financial matters, governance, human rights, stakeholders and society, workforce issues and more.    

¹ Generally Accepted Accounting Principles in the U.S.

Second quarter 2021 detail (all comparisons to same period in 2020):

Engine Segment

• Sales - $2.5 billion, up 75 percent
• Segment EBITDA - $402 million, or 16.1 percent of sales, compared to $150 million or 10.5 percent of sales 
• On-highway revenues increased 104 percent driven by strong demand in the North American truck and pickup markets and off-highway revenues increased 10 percent driven by strong demand in international construction markets
• Sales increased 104 percent in North America and 26 percent in international markets 

Distribution Segment

• Sales - $1.9 billion, up 20 percent
• Segment EBITDA - $201 million, or 10.5 percent of sales, compared to $160 million or 10.0 percent of sales 
• Revenues in North America increased 18 percent and international sales increased by 22 percent
• Demand increased across the power generation and engine markets in addition to parts and service compared to last year which was impacted significantly by the pandemic.

Components Segment

• Sales - $2.0billion, up 73 percent
• Segment EBITDA - $301 million, or 15.1 percent of sales, compared to $141 million or 12.3 percent of sales 
• Revenues in North America increased by 108 percent and international sales increased by 46 percent

Power Systems Segment

• Sales - $1.1 billion, up 47 percent 
• Segment EBITDA - $139 million, or 12.2 percent of sales, compared to $91 million, or 11.7 percent of sales 
• Power generation revenues increased by 54 percent driven by growth in recreational vehicle and datacenter markets while industrial revenues increased 37 percent due to stronger demand in mining markets

New Power Segment

• Sales - $24 million, up 140 percent
• Segment EBITDA loss - $60 million
• Revenues increased due to greater demand in transit and school bus markets in addition to the shipments of fuel cell systems to the rail market.  Electrolyzer revenue decreased driven by timing of commissioning of projects.
• Costs associated with the development of fuel cells and electrolyzers as well as products to support battery electric vehicles are contributing to EBITDA losses

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. EST. 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.