Cummins Reports First Quarter 2021 Results

Rhea-AI Summary

Cummins reported strong first quarter 2021 results, with revenues of $6.1 billion, a 22 percent increase from 2020. North American sales rose 7 percent, while international revenue jumped 45 percent. EBITDA reached $980 million, though the EBITDA margin decreased to 16.1 percent. Cummins raised its 2021 revenue guidance to 20-24 percent and aims to return 75 percent of cash flow to shareholders through dividends and repurchases. However, supply chain challenges, particularly semiconductor shortages, remain a concern for fulfilling demand.

Positive

• First quarter revenues increased by 22 percent to $6.1 billion.
• International revenues surged 45 percent, boosted by demand in China and India.
• Net income rose to $603 million, marking an increase from $511 million in the previous year.
• Raised its full-year revenue guidance to 20-24 percent due to strong demand.
• Plans to return 75 percent of Operating Cash Flow to shareholders via dividends and share repurchases.
• Named to Ethisphere’s World’s Most Ethical Companies list for the 14th consecutive year.

Negative

• EBITDA margin decreased from 16.9 percent to 16.1 percent despite revenue growth.
• Supply chain constraints, notably semiconductor shortages, are impacting the ability to fulfill orders.
• Potential risks remain from COVID-19, including new variants affecting customer demand and operations.

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

First quarter revenues of $6.1 billion increased 22 percent from the same quarter in 2020. Sales in North America increased 7 percent while international revenues increased 45 percent driven by strong demand across all global markets as well as new product sales in China and India.

“Demand accelerated in the first quarter, as the global economy continued to improve, driving strong sales growth across most businesses and regions and resulting in solid profitability. The strength and breadth of the rebound in demand has surpassed our original expectations and we have raised our full year outlook,” said Chairman and CEO Tom Linebarger. “While we are encouraged by the rising demand, the pace of recovery has placed a strain on global supply chains leading to increased costs and challenges in fulfilling end-user demand. The shortage of key components such as semiconductor chips has been the primary challenge, with adverse weather conditions impacting the US, and bottlenecks in global logistics further adding to order backlogs. The ability to supply is our key focus now and we are doing everything we can to mitigate the impact. I want to thank our global employees, especially those in our supply chain and manufacturing operations, and our suppliers for their extraordinary efforts to manage through these challenges and support our customers.”

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter were $980 million (16.1 percent of sales), compared to $846 million (16.9 percent of sales) a year ago.

Net income attributable to Cummins in the first quarter was $603 million ($4.07 per diluted share) compared to $511 million ($3.41 per diluted share) in 2020. The tax rate in the first quarter was 22.0 percent including $4 million, or $0.03 per share, of favorable discrete items.

2021 Outlook:

Based on the current forecast, Cummins is raising its full year 2021 revenue guidance to 20 to 24 percent, an increase from 8 to 12 percent due to stronger demand across all markets. EBITDA is expected to be in the range of 15.5 to 16.0 percent, an increase from the prior range of 15.0 and 15.5 percent of sales, primarily due to increased demand. The Company expects to return 75 percent of Operating Cash Flow to shareholders in 2021 in the form of dividends and share repurchases.

“We are raising our guidance for 2021 on both revenue and profitability. We continue to take necessary precautions at all our facilities to mitigate the spread of COVID-19 and our focus remains on the health and safety of our employees. We are optimistic that continued vaccination distribution globally will reduce the impact of the virus in the second half of the year, but there is still a risk of an increase in cases and the potential for new virus variants that could result in lower customer demand, additional facility shutdowns or additional supply chain constraints in the future. Cummins is in a strong position to keep investing in future growth, bringing new technologies to customers and returning cash to shareholders,” said Chairman and CEO Tom Linebarger.

First Quarter 2021 Highlights:

• Cummins was named to Ethisphere’s World’s Most Ethical Companies list for a 14th consecutive year.

• The Company announced a global strategic partnership with Daimler to provide medium duty powertrain systems for Daimler Trucks and Buses, allowing both companies to be more competitive, drive global innovation, expand offerings to customers and reduce emissions.

• Cummins continued its commitment to gender equality on International Women’s Day. With a goal of having 24 hours of continuous conversations on gender equity, more than 5,000 employees participated in 47 conversations hosted in 22 countries around the world. The Cummins Powers Women program also continued its progress by forming a new partnership with Promundo in Europe to prevent violence against women.

• Cummins Vice Chairman, Tony Satterthwaite, testified before Congress in the Hearing on Transportation Technologies, reinforcing Cummins’ commitment to achieve a net zero carbon emissions future through continued innovation in advanced internal combustion, battery, and fuel cell technologies. Satterthwaite urged the government to make the infrastructure investments required to support the successful market adoption of zero carbon emission technologies.

• The Company announced employees, contingent workers and their spouses and dependents (ages 16+) could receive the Pfizer-BioNTech COVID-19 vaccine at several locations across the United States. Cummins continues to collaborate with health officials around the world to provide employees with access to COVID-19 vaccines.

¹ Generally Accepted Accounting Principles in the U.S.

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

Engine Segment

• Sales - $2.5 billion, up 14 percent
• Segment EBITDA - $354 million, or 14.4 percent of sales, compared to $365 million or 16.9 percent of sales
• On-highway revenues increased 15 percent driven by strong demand in the North American truck and pickup markets and off-highway revenues increased 9 percent driven by strong demand in international construction markets
• Sales increased 10 percent in North America and 24 percent in international markets

Distribution Segment

• Sales - $1.8 billion, up 1 percent
• Segment EBITDA - $160 million, or 8.7 percent of sales, compared to $158 million or 8.7 percent of sales
• Revenues in North America were down 6 percent and international sales increased by 17 percent
• Increased demand in power generation and engine markets offset by declines in parts and service as a result of supply chain constraints

Components Segment

• Sales - $2.2 billion, up 43 percent
• Segment EBITDA - $421 million, or 19.6 percent of sales, compared to $279 million or 18.6 percent of sales
• Revenues in North America increased by 15 percent and international sales increased by 82 percent due to higher demand in China and India

Power Systems Segment

• Sales - $1.0 billion, up 16 percent
• Segment EBITDA - $126 million, or 12.3 percent of sales, compared to $77 million, or 8.7 percent of sales
• Power generation revenues increased by 18 percent driven by growth in recreational vehicle and datacenter markets while industrial revenues increased 9 percent due to stronger demand in mining markets

New Power Segment

• Sales - $35 million, up 250 percent
• Segment EBITDA loss - $51 million
• Revenues increased due to greater demand in transit and school bus markets in addition to the commissioning of electrolyzer projects and shipments of fuel cell systems to the rail market
• Costs associated with the development of fuel cells and electrolyzers as well as products to support battery electric vehicles are contributing to EBITDA losses

About Cummins Inc.

Cummins Inc., a global power leader, is a corporation of complementary business segments that design, manufacture, distribute and service a broad portfolio of power solutions. The company’s products range from diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 57,825 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 $1.8 billion on sales of $19.8 billion in 2020. To learn more about Cummins visit cummins.com.

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. 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 emission standards; increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world; policy changes in international trade; the U.K.'s exit from the European Union; changes in taxation; global legal and ethical compliance costs and risks; increasingly stringent environmental laws and regulations; future bans or limitations on the use of diesel-powered products; supply shortages and supplier financial risk, particularly from any of our single-sourced suppliers, including suppliers that may be impacted by the COVID-19 pandemic; market slowdown due to the impacts from the COVID-19 pandemic, other public health crises, epidemics or pandemics; impacts to manufacturing and supply chain abilities from an extended shutdown or disruption of our operations due to the COVID-19 pandemic; aligning our capacity and production with our demand, including impacts of COVID-19; large truck manufacturers and original equipment manufacturers customers discontinuing outsourcing their engine supply needs or experiencing financial distress, particularly related to the COVID-19 pandemic, bankruptcy or change in control; a slowdown in infrastructure development and/or depressed commodity prices; failure to realize expected results from our investment in Eaton Cummins Automated Transmission Technologies joint venture; the actions of, and income from, joint ventures and other investees that we do not directly control; product recalls; 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; variability in material and commodity costs; product liability claims; our sales mix of products; protection and validity of our patent and other intellectual property rights; disruptions in global credit and financial markets as the result of the COVID-19 pandemic; labor relations or work stoppages; reliance on our executive leadership team and other key personnel; climate change and global warming; our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions; exposure to potential security breaches or other disruptions to our information technology systems and data security; political, economic and other risks from operations in numerous countries; competitor activity; increasing competition, including increased global competition among our customers in emerging markets; foreign currency exchange rate changes; the performance of our pension plan assets and volatility of discount rates, particularly those related to the sustained slowdown of the global economy due to the COVID-19 pandemic; the price and availability of energy; 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 2020 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. 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.

CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME (Unaudited) (a)
		Three months ended
In millions, except per share amounts		April 4, 2021				March 29, 2020
NET SALES		$	6,092			$	5,011
Cost of sales			4,606				3,717
GROSS MARGIN			1,486				1,294
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses			574				546
Research, development and engineering expenses			260				238
Equity, royalty and interest income from investees			166				129
Other operating expense, net			(8	)			(5	)
OPERATING INCOME			810				634
Interest expense			28				23
Other income, net			1				44
INCOME BEFORE INCOME TAXES			783				655
Income tax expense			172				127
CONSOLIDATED NET INCOME			611				528
Less: Net income attributable to noncontrolling interests			8				17
NET INCOME ATTRIBUTABLE TO CUMMINS INC.		$	603			$	511
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic		$	4.10			$	3.42
Diluted		$	4.07			$	3.41
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic			147.0				149.3
Diluted			148.3				149.7
(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		April 4, 2021				December 31, 2020
ASSETS
Current assets
Cash and cash equivalents		$	2,958			$	3,401
Marketable securities			397				461
Total cash, cash equivalents and marketable securities			3,355				3,862
Accounts and notes receivable, net			4,209				3,820
Inventories			3,753				3,425
Prepaid expenses and other current assets			805				790
Total current assets			12,122				11,897
Long-term assets
Property, plant and equipment, net			4,196				4,255
Investments and advances related to equity method investees			1,592				1,441
Goodwill			1,290				1,293
Other intangible assets, net			964				963
Pension assets			1,085				1,042
Other assets			1,713				1,733
Total assets		$	22,962			$	22,624
LIABILITIES
Current liabilities
Accounts payable (principally trade)		$	3,279			$	2,820
Loans payable			93				169
Commercial paper			317				323
Accrued compensation, benefits and retirement costs			393				484
Current portion of accrued product warranty			623				674
Current portion of deferred revenue			773				691
Other accrued expenses			1,121				1,112
Current maturities of long-term debt			61				62
Total current liabilities			6,660				6,335
Long-term liabilities
Long-term debt			3,620				3,610
Pensions and other postretirement benefits			621				630
Accrued product warranty			692				672
Deferred revenue			828				840
Other liabilities			1,510				1,548
Total liabilities		$	13,931			$	13,635
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued		$	2,393			$	2,404
Retained earnings			15,825				15,419
Treasury stock, at cost, 76.2 and 74.8 shares			(8,172	)			(7,779	)
Accumulated other comprehensive loss			(1,937	)			(1,982	)
Total Cummins Inc. shareholders’ equity			8,109				8,062
Noncontrolling interests			922				927
Total equity		$	9,031			$	8,989

FAQ

What were Cummins' first quarter 2021 revenues?

Cummins reported revenues of $6.1 billion for the first quarter of 2021.

How much did Cummins raise its revenue guidance for 2021?

Cummins raised its 2021 revenue guidance to 20-24 percent.

What was Cummins' net income in the first quarter of 2021?

Cummins' net income for the first quarter of 2021 was $603 million.

What challenges is Cummins facing in 2021?

Cummins faces supply chain challenges, particularly semiconductor shortages, impacting order fulfillment.

What is the current EBITDA margin for Cummins?

The EBITDA margin for Cummins in the first quarter of 2021 is 16.1 percent.