Cummins Posts Drop in Profit, Record Revenue Decline in Q2

Workers on the assembly line at the Cummins manufacturing plant in Jamestown, N.Y. (Cummins)

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Independent engine maker Cummins Inc. reported a sharp drop in second-quarter net income and a record decline in revenue as the unexpected novel coronavirus pandemic slashed demand in all business segments.

Net income attributable to Cummins in the period ended June 28 was $276 million, or $1.86 per diluted share, compared with $675 million, or $4.27, in the 2019 period.

Cummins is the largest supplier of Class 8 engines to the U.S. commercial vehicle market, according to WardsAuto.com.

Revenue, skidding in the steepest quarterly decline at Cummins, fell to $3.8 billion compared with $6.2 billion year earlier. Currency negatively impacted revenues by 2%, primarily due to a stronger U.S. dollar.

In the quarter, weak economic activity led to lower demand in most end markets and regions except China, according to the Columbus, Ind.-based company.

Linebarger

“In the face of the most severe decline in quarterly sales in our history, we delivered solid profitability while meeting commitments to our customers who provide products critical to the functioning of the global economy,” Chairman and CEO Tom Linebarger said.

Engine sales overall fell by almost $1.3 billion in the quarter.

Heavy-duty truck engine sales in the quarter plunged to $415 million compared with $970 million a year earlier.

Medium-duty truck and bus engine sales fell to $391 million compared with $739 million.

Light-duty automotive engine sales dropped to $180 million. A year earlier, they were $480 million.

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Off-highway engine sales fell to $437 million compared with $514 million.

“Our people demonstrated remarkable flexibility as did our operations and supply chain,” Linebarger added. “A pronounced example of our organization’s agility in this challenging period was our ramp-up in China, where many of our facilities went from complete shutdown in February and March to producing record volumes in the second quarter.”

The company ended the quarter with cash, cash equivalents and marketable securities of $2.1 billion and committed borrowing capacity of $3.5 billion. Its long-term credit ratings remain unchanged at A+ from Standard & Poor’s and A2 from Moody’s with stable outlooks.

“While customer demand did improve in some regions as the quarter progressed, significant uncertainty around the pace of recovery in our markets remains, requiring a continued strong focus on managing expenses and cash flow,” Linebarger said. “Our strong financial position will enable us to continue to prioritize our investments in technology and new products, including advanced diesel engines, battery-electric powertrains, fuel cells and hydrogen electrolyzers that will help drive future profitable growth.”

Second-quarter highlights:

•  Announced a joint venture with Nproxx, a leader in hydrogen storage and transportation, for hydrogen storage tanks. The transaction is expected to close by the end of the first quarter 2021.

@Cummins announces agreement to form a joint venture with @_NPROXX, a leader in hydrogen storage and transportation. The joint venture will provide customers with #hydrogen products for a range of applications. https://t.co/H1M3Wvn1Nb#H2 #Cummins — Cummins Inc. (@Cummins) June 29, 2020

•  Manufactured more than 14 tons of its filtration media, which has been used to produce more than 8 million N95 and surgical masks globally.
•  Announced an external-facing approach to complement the company’s internal diversity and inclusion activities, including the creation of the Cummins Against Racial Injustice Management Review Group to focus on police reform, criminal justice, social justice and economic empowerment of Black people in the United States.

"We each have a role to play in calling for greater accountability from our government, from law enforcement, our neighbors and ourselves." A message from Tom Linebarger, @Cummins Chairman and CEO: https://t.co/fyuvnhqDDE pic.twitter.com/x0asWzJCeq — Cummins Inc. (@Cummins) May 30, 2020

The company reported it expects third-quarter revenues to improve from second-quarter levels, however, there remains significant uncertainty around how COVID-19 will impact end-market demand as well as customer and supplier operations. Due to this uncertainty, Cummins did not provide full-year revenue or profitability guidance for 2020.

For the six-month period, net income was $787 million, or $5.29, compared with $1.3 billion, or $8.47, a year earlier. Revenue was $8.8 billion compared with $12.2 billion a year earlier.

Overall engine sales in the first half fell to $3.5 billion compared with $5.3 billion in the 2019 period.

Cummins employs about 61,000 people worldwide.

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