Cummins Reports Fourth Quarter and Full Year 2016 Financial Results

Cummins fourth quarter 2016 revenues decreased 6% due to lower North America commercial truck production and weak global market conditions.

Cummins Inc. |  FEBRUARY 9, 2017

Cummins Inc. reports results for the fourth quarter of 2016.

Fourth quarter revenues of $4.5 billion decreased 6% from the same quarter in 2015, largely reflecting lower commercial truck production in North America and weak global demand for industrial engines and power generation equipment. Currency negatively impacted revenues by approximately 2% compared to the same period last year, primarily due to a stronger U.S. dollar. Revenues in North America decreased 13% while international sales improved by 6% primarily due to increased revenues in China.

Net income attributable to Cummins in the fourth quarter was $378 million ($2.25 per diluted share), compared to $161 million ($0.92 per diluted share) a year ago. Net income for the fourth quarter of 2015 excluding impairment and restructuring charges was $355 million ($2.02 per diluted share). The tax rate in the fourth quarter of 2016 was 22%.

Earnings before interest and taxes (EBIT) in the fourth quarter was $526 million, or 11.7% of sales, compared to $230 million or 4.8% of sales a year ago. Excluding impairment and restructuring charges, EBIT for the fourth quarter of 2015 was $531 million or 11.1% of sales.

“Despite weak conditions in a number of our largest markets, Cummins delivered fourth quarter results that were a little better than expected due to our strong market share in on-highway markets in North America and the benefits of our cost reduction work,” says Tom Linebarger Chairman and CEO. “We made significant progress in a number of our key initiatives in 2016, including executing our restructuring actions, completing the acquisition of our distributors in North America and continuing to invest in new products, all of which help position the company for profitable growth when markets improve. We also returned 75% of the company’s Operating Cash Flow to shareholders, consistent with our plan for the year.”

Revenues for the full year 2016 were $17.5 billion, 8% lower than 2015. Revenues in North America decreased 12% and international sales decreased 2% mainly due to foreign currency movements. Excluding the impact of the currency movements, international revenues increased 2% with growth in China and India being offset by weaker demand in Latin America, the Middle East and Africa.

Net income attributable to Cummins for the full year was $1.39 billion ($8.23 per diluted share), compared to $1.4 billion ($7.84 per diluted share) in 2015. Excluding impairment and restructuring charges, net income was $1.59 billion ($8.93 per diluted share) in 2015. The full year tax rate was 24.6% in 2016.

EBIT for the year was $2.0 billion or 11.4% of sales, compared to $2.1 billion or 10.9% of sales in 2015. Excluding impairments and restructuring charges, EBIT for 2015 was $2.4 billion or 12 .5% of sales.

2017 Outlook

Based on the current forecast, Cummins projects full year 2017 revenues to be flat to down 5%, and EBIT to be in the range of 11.0-11.5% of sales. Results in the first quarter of the year will continue to be challenged by difficult markets and are expected to mark the low point of the year. The company expects to return at least 50% of Operating Cash Flow to shareholders in 2017 in the form of dividends and share repurchases.

2016 highlights:

  • Cummins partnered with Peterbilt to develop and demonstrate technologies under the U.S. Department of Energy's (DOE) SuperTruck II program
  • Cummins was recognized with the 2016 United States Overall Best Heavy-Duty Truck Engine Supplier Leadership Award by Frost and Sullivan
  • The Environmental Protection Agency (EPA) certified Cummins’ full range of heavy- and medium-duty diesel engines for the 2017 Greenhouse Gas Emission Standards
  • The company returned 75% of Operating Cash Flow to shareholders in the form of dividends and share repurchases
  • For the 12th straight year, Cummins Inc. was awarded a perfect score in the 2017 Corporate Equality Index (CEI) from the Human Rights Campaign

Fourth quarter 2016 detail

(All comparisons to same period in 2015, excluding restructuring and impairment charges in 2015.)

Engine Segment

  • Sales - $2.0 billion, down 6%
  • Segment EBIT - $194 million, or 9.9% of sales, compared to $160 million or 7.6% of sales
  • On-highway revenues declined 9% primarily due to a decline in commercial truck production in North America, partially offset by an 8% increase in off-highway sales

Distribution Segment

  • Sales - $1.7 billion, down 2%
  • Segment EBIT - $122 million, or 7.3% of sales, compared to $111 million or 6.5% of sales
  • Weaker sales to off-highway markets and an unfavorable impact of 1% from a stronger U.S. dollar more than offset 5% revenue growth from acquisitions

Components Segment

  • Sales - $1.2 billion, down 5%
  • Segment EBIT - $140 million , or 11.9% of sales, compared to $175 million or 14.2% of sales
  • Revenues in North America declined due to lower commercial truck production, but were partially offset by higher revenues in China

Power Systems Segment

  • Sales - $932 million, down 5%
  • Segment EBIT - $68 million, or 7.3% of sales, compared to $59 million, or 6% of sales
  • Revenues declined due to lower power generation and industrial engine demand in most regions

SOURCE: OEM OFF-HIGHWAY

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