Cummins Inc. reported higher net income and revenue in the first quarter reflecting the strength in the North American truck production and power generation markets, plus global construction demand.
Net income for the period ended March 31 soared to $663 million, or $4.20 per diluted share, compared with $325 million, or $1.96. Excluding the impact of tax legislation in the first quarter of 2018, the results were $403 million, or $2.43 per diluted share.
“The company shipped a record number of truck engines in North America during the first quarter,” Chairman and CEO Tom Linebarger said in a company statement. “Our market-leading position in this region reflects our close partnerships with our customers who rely on us to provide a broad range of power solutions for their needs.”
Revenue increased 8% to $6 billion compared with $5.6 billion a year earlier.
In the engine segment, revenue climbed 8% to $2.7 billion. On-highway revenue increased 9%, and off-highway revenue increased 6% primarily due to increased demand in the North American truck and global construction markets, according to the Columbus, Ind.-based company.
Heavy-duty engine sales accounted for $979 million, up from $815 million a year earlier. Medium-duty engine sales were $721 million compared with $692 million in the 2018 quarter.
Component sales overall rose 6% to $1.9 billion, and climbed 17% in North America on higher medium- and heavy-duty truck production.
In the segment, emissions solutions, filtration and automated transmissions posted year-over-year gains while sales of turbo technologies, electronics and fuel systems dipped.
“We’ve raised our forecast for industry production of heavy-duty trucks in North America to 300,000 units, up 5% compared to 2018 and above our prior guidance of 292,000 units,” CEO Linebarger said in an earnings conference call. “While the industry backlog remains at historically high levels, it has declined over the past few months and our guidance projects the truck build rates will moderate in the fourth quarter. We expect our market share to be between 32% and 34%, unchanged from our view last quarter.”
In the medium-duty truck market, Cummins increased its forecast for industry production to 140,000 units, up 6% year-over-year, “and we expect our market share to be in the range of 74% to 76%, unchanged from our prior guidance,” he added.
Cummins maintained its 2019 revenue guidance of flat to up 4% driven primarily by increased demand in North America on-highway markets.
A company statement noted, “Our outlook does not include any potential impact of the company’s recently announced review of its emission certification process and compliance with emissions standards.”
Cummins announced in July it would voluntarily recall 500,000 model-year 2010-15 medium- and heavy-duty trucks to replace a defective catalyst in the emissions control system.
The campaign is the largest voluntary recall of medium- and heavy-duty trucks, according to the U.S. Environmental Protection Agency.
It came after a recall began in 2016 of 232,000 Dodge Ram 2500 and 3500 vehicles with pre-2013 Cummins engines. Recalls for those vehicles were approved in July 2016 and July 2017, respectively, and are underway. Those vehicles and the latest medium- and heavy-duty trucks all produce excessive amounts of smog-forming nitrogen oxide.
Cummins has set aside $404 million to cover related expenses; $181 million of that is slated for the truck recall.
Also, Cummins is reviewing its emissions certification and compliance process for its pickup truck applications, specifically the 2019 Dodge Ram 2500 and 3500, Credit Suisse analyst Jamie Cook wrote in a note.
Armstrong said it was a voluntary action on the part of Cummins.
“We view the quarter as a positive,” Cook wrote.
Summing up, Linebarger said, “we are maintaining our revenue outlook for the year with improved truck markets in North America, offsetting lower demand in power generation markets, while increasing our EBITDA guidance range by 50 basis points, due to lower material costs and strong operational performance.”