Cummins reports strong second quarter 2023 Results

Cummins Inc. (NYSE: CMI) today reported results for the second quarter of 2023.

Second quarter revenues of $8.6 billion increased 31 percent from the same quarter in 2022. Sales in North America increased 31 percent and international revenues increased 32 percent due to the addition of Meritor and strong demand across most global markets.

“Strong demand across most of our key markets and regions resulted in record revenues and solid profitability for the company in the second quarter of 2023,” said Jennifer Rumsey, Chair and CEO. “We are committed to delivering cycle-over-cycle improvement in financial performance, returning cash to our shareholders and prioritizing investments to continue building our product portfolio to power our customers’ success around the world. I want to thank our Cummins employees who continue to work tirelessly to meet customer needs and respond to the strong demand levels by ensuring quality products, strengthening our customer relationships, and navigating continued supply chain constraints.”

Net income attributable to Cummins in the second quarter was $720 million, or $5.05 per diluted share compared to $702 million, or $4.94 per diluted share in 2022. Results included costs associated with the separation of Atmus of $23 million, or $0.13 per diluted share, in the second quarter of 2023, and $29 million, or $0.16 per diluted share, in the second quarter of 2022. The second quarter of 2022 also included $47 million, or $0.33 per diluted share, of benefit from adjusting the reserves related to the indefinite suspension of our operations in Russia. The tax rate in the second quarter was 22.3 percent including $3 million, or $0.02 per diluted share, of unfavorable discrete tax items.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter were $1.3 billion, or 15.1 percent of sales, compared to $1.1 billion, or 16.0 percent of sales, a year ago. EBITDA for the second quarter of 2023 included the costs related to the separation of Atmus and the second quarter 2022 EBITDA included the reserve release related to the indefinite suspension of operations in Russia and costs related to the separation of Atmus as noted above. EBITDA percentage decreased in the second quarter principally due to the dilutive impact of Meritor, which currently has a lower gross margin percentage than our company average.

2023 Outlook: 

Based on its current forecast, Cummins is maintaining its full year 2023 revenue guidance to be up 15 to 20 percent due to strong demand across most markets, especially North America. EBITDA is still expected to be in the range of 15.0 to 15.7 percent of sales.

The outlook above includes the projected results of the Meritor business for 2023. The outlook assumes the inclusion of Atmus for the entirety of 2023, but excludes any costs or benefits associated with the planned separation of the business. Within the Components Segment, Cummins expects revenues of the Meritor business for 2023 to be between $4.7 billion to $4.9 billion and EBITDA to be in the range of 10.3 to 11.0 percent of sales, consistent with prior guidance.

The company plans to continue to generate strong operating cash flow and returns for shareholders and is committed to our long-term strategic goal of returning 50 percent of operating cash flow back to shareholders. In the near term, we will focus on reinvesting for profitable growth, advancing dividends and reducing debt.

“While we see demand remaining strong through 2023 and we are maintaining our guidance on revenue and profitability, we continue to closely monitor global economic indicators. Should economic momentum slow, Cummins will remain in a strong position to keep investing in future growth, bringing new technologies to customers as we advance our Destination Zero strategy, and returning cash to shareholders,” said Rumsey.

Recent Highlights: 

• Progress continues to be made on the separation of the Filtration business. On May 26th, Atmus Filtration Technologies Inc. shares began trading on the New York Stock Exchange (NYSE) under the ticker symbol “ATMU” in connection with the initial public offering (IPO). Upon completion of the IPO, Cummins retained approximately 80.5% of Atmus’ outstanding shares. The Atmus IPO generated $299 million of net proceeds and Atmus added $650 million of debt. Cummins realizes the benefits of the IPO proceeds and the debt issuance, as Atmus will hold the debt at full separation.
• Cummins announced two significant milestones with the 5 millionth engine produced at its Rocky Mount Engine Plant (RMEP) in North Carolina and the 2.5 millionth engine produced at its Jamestown Engine Plant (JEP) in New York. The 5 millionth milestone engine was a B6.7, which was received by Daimler, who provided it to Penske. The 2.5 millionth engine at JEP was provided to Kenworth.
• On April 3rd, United States President Joe Biden visited company facilities in Fridley, Minnesota (USA), to tour Accelera by Cummins’ first U.S. manufacturing location for electrolyzers, a key technology to produce low- and no-carbon hydrogen. The official ribbon cutting on May 19th marked the start of electrolyzer production in the United States. Accelera is initially dedicating 89,000 sq. ft. of the existing Cummins power generation facility in Fridley to electrolyzer production. 
• In the second quarter, Accelera reached a milestone of backlog electrolyzer orders totaling over $500 million. The Fridley facility will help address that growing demand along with other capacity being added globally.
• Cummins signed a definitive agreement with Tata Motors Limited (TML), to manufacture a range of low- to zero-emissions technology products in India over the next few years. As a part of this agreement, Cummins and TML have set up a new business entity called TCPL Green Energy Solutions Private Limited (GES), a wholly owned subsidiary under the existing joint venture with a focus on the development and manufacturing of sustainable technology products that will include hydrogen-powered internal combustion engines, fuel delivery systems, and battery electric powertrains and fuel cell electric systems through the Accelera™ by Cummins brand.
• Cummins received a 2023 Energy Management Insight Award from the Clean Energy Ministerial. The award recognizes organizations demonstrating the benefits of energy management systems and meeting the ISO 50001 international energy standard.
• Cummins announced an increase in the quarterly common stock cash dividend from $1.57 to $1.68 per share. The company has increased the quarterly dividend to shareholders for 14 consecutive years.

 
¹ Generally Accepted Accounting Principles in the U.S. 

Second quarter 2023 detail (all comparisons to same period in 2022):

Components Segment

• Sales - $3.4 billion, up 76 percent
• Segment EBITDA - $486 million, or 14.2 percent of sales, which includes $18 million of costs related to the separation of Atmus compared to $352 million, or 18.1 percent of sales, which included $2 million of benefits from adjusting the reserves related to the indefinite suspension of operations in Russia. The decline in EBITDA percentage was driven primarily by the addition of Meritor, which has a dilutive impact on the segment despite its improvement in the second quarter.
• Revenues in North America increased by 70 percent and international sales increased by 84 percent due to the addition of Meritor and increased global demand.

 
Engine Segment 

• Sales - $3.0 billion, up 8 percent
• Segment EBITDA - $425 million, or 14.2 percent of sales, compared to $421 million or 15.2 percent of sales, which included $1 million of costs from the indefinite suspension of operations in Russia
• On-highway revenues increased 7 percent driven by strong demand in the North American truck market and pricing actions. 
• Sales increased 7 percent in North America and grew 10 percent in international markets due to an increase in global demand.

 
Distribution Segment 

• Sales - $2.6 billion, up 15 percent 
• Segment EBITDA - $299 million, or 11.5 percent of sales, compared to $297 million, or 13.2 percent of sales, a year ago when results included $45 million of benefits from adjusting the reserves related to the indefinite suspension of operations in Russia
• Revenues in North America increased 20 percent and international sales increased by 5 percent.
• Higher revenues were driven by increased demand for whole goods, especially power generation products, and pricing actions.

 
Power Systems Segment 

• Sales - $1.5 billion, up 21 percent
• Segment EBITDA - $201 million, or 13.8 percent of sales, compared to $128 million, or 10.6 percent of sales, which included $1 million of benefit from adjusting the reserves related to the indefinite suspension of operations in Russia
• Second quarter results also included $18 million of costs related to severance costs related to transformation efforts within the segment.
• Power generation revenues increased 30 percent driven by increased global demand and pricing actions. Industrial revenues increased 9 percent due to increased demand in mining and oil and gas markets.

 
Accelera Segment 

• Sales - $85 million, up 102 percent
• Segment EBITDA loss - $114 million
• Revenues increased due to higher demand for battery electric systems in the North American school bus market and the additions of the electric powertrain portion of the Meritor business and Siemens Commercial Vehicle business
• Costs associated with the development of electric powertrains, fuel cells and electrolyzers, as well as products to support battery electric vehicles are contributing to EBITDA losses. The company continues to make investments to support our customers through the energy transition and deliver future profitable growth.