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February 4, 2020 11:30 AM, EST

Lower Cummins Q4 Results Follow Declines in Key Markets

Cummins HQCummins headquarters in Columbus, Ind. (Cummins)

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Independent truck engine maker Cummins Inc. reported declines in net income and revenue in the fourth quarter amid downturns in key global markets.

For the period ended Dec. 31, net income was $300 million, or $1.97 per diluted share, on revenue of $5.57 billion. That compared with net income of $579 million, or $3.63, on revenue of $6.12 billion a year earlier.

Cummins shipped 25,700 heavy-duty engines in the quarter compared with 35,300 a year earlier. Medium-duty engine shipments fell to 64,800 from 77,600.

Its engine segment reported on-highway revenue decreased 13%, and off-highway revenue decreased 22% primarily due to decreased global demand in truck and construction markets.

Annual profit set a record though, Cummins said.

But looking forward, the Columbus, Ind.-based company is cautious. The coronavirus outbreak that originated in Wuhan, China, is expected to cause for Cummins, and others, significant supply-chain disruptions and loss of revenue in the first quarter, Tom Linebarger, chairman and CEO of Cummins, said during an earnings call on Feb. 4.

“We have significant operations in Hubei province where Wuhan is located, including manufacturing and technical facilities that have been impacted by extended closures,” he said. “We are monitoring the situation in China very closely to ensure the safety of our employees and their families and to minimize any impact on our operations and our customers.”

Cummins

Linebarger

Linebarger continued: “We are also monitoring any impact on our global supply chain by Chinese suppliers and taking precautionary actions wherever possible.”

Cummins plans to open its facilities in China somewhere between Feb. 10-14, he said, depending on where they’re located and the government’s schedule for the province.

“Right now, there’s no backup dates given by the government — those are the dates. And so our plan is to open on those dates. If it happens as planned, our expectation is that the impact will be relatively modest, not zero, but modest and could possibly be made up in the year. If those were to extend further because the outbreak extends further and the government has to take further actions, then, of course, we don’t know yet, but we’ll have to figure out then what will happen.”

The worry, he added, is about shipments in China as well as shipments to markets outside of China “because we do have a number of parts in China that supply plants outside.”

Cummins has engine and turbocharger manufacturing joint ventures, among others, in China. It has been doing business there since 1979.

In the quarter, overall sales of heavy-duty trucks dropped to $755 million compared with $959 million a year earlier. Medium-duty sales fell to $602 million compared with $687 million in the 2018 period.

“Despite challenging conditions in many of our largest markets over the last six months, Cummins delivered record profits and operating cash flow in 2019,” Linebarger said.

For the full year, net income increased to $2.26 billion, or $14.48, compared with $2.14 billion, or $13.15 a year earlier.

Revenue dipped to $23.57 billion compared with $23.77 billion in 2018.

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Cummins forecast 2020 revenue could decline by 8% to 12%, citing lower truck production in North America, Europe, China and India as well as lower projected demand in off-highway markets, including global power generation, mining, oil and gas, and construction markets.

“The actions we have taken to reduce costs will mitigate a further slowdown in 2020 and position the company for stronger performance when market demand improves,” Linebarger added. “We will continue investment in new technologies and products in 2020 to generate strong growth and profitability for the company in both the near and long term, which is consistent with how we have managed through prior cycles.”

The company said its outlook does not include any potential impact of its review of its emission-certification process and compliance with emission standards or additional expenses associated with executing future cost-reduction initiatives.

In July 2018, Cummins announced it was voluntarily recalling 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.

At the time, Cummins set aside $181 million to cover the process. An update on the recall was not immediately available.

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