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Cummins_070726 Presentation Transcript

  • 1. Second Quarter 2007 Earnings Teleconference July 26, 2007
  • 2. Participants Tim Solso Chairman and Chief Executive Officer Jean Blackwell Chief Financial Officer Joe Loughrey Chief Operating Officer Tom Linebarger President – Cummins Power Generation Dean Cantrell Director – Investor Relations 2
  • 3. Disclosure Regarding Forward-Looking Statements & non-GAAP Financial Measures This presentation contains certain forward-looking information. Any forward-looking statement involves risk and uncertainty. The Company’s future results may be affected by changes in general economic conditions and by the actions of customers and competitors. Actual outcomes may differ materially from what is expressed in any forward-looking statement. A more complete disclosure about forward- looking statements begins on page 61 of our 2006 Form 10-K, and it applies to this presentation. This presentation contains certain non-GAAP financial measures such as earnings before interest and taxes (EBIT). Please refer to our website (www.cummins.com) for the reconciliation of those measures to GAAP financial measures. 3
  • 4. Long-term Targets* Power Generation Sales growth: 8-10% EBIT margin: 7-9% Segment Selected Financial Data Change Change $ Millions Q207 Q206 Amount Percent Sales 769 598 171 29% EBIT 88 56 32 57% % of Sales 11.4% 9.4% Commercial generator sets and alternator equipment strength in North America, India, the Middle East, and Europe Consumer growth as portables, commercial mobile, recreational marine, and auxiliary power units offset softness in recreational vehicles Energy Solutions business sales growth in Europe Strong price realization for commercial generator sets and alternators *Targets represent averages across the economic cycle 4
  • 5. Long-term Targets* Engine Segment Sales growth: 6-8% EBIT margin: 7-10% Selected Financial Data Change Change $ Millions Q207 Q206 Amount Percent Sales 2,109 1,896 213 11% EBIT 186 190 (4) (2%) % of Sales 8.8% 10.0% On-highway revenue flat as medium-duty truck & bus and light-duty automotive offset the North American heavy-duty truck market decline Industrial revenue up 29% with growth in nearly all markets Lower gross margins due to higher initial new product costs and higher warranty accrual typical for new product introductions Investing in new growth opportunities and additional capacity *Targets represent averages across the economic cycle 5
  • 6. Engine Segment Sales by Market – On-highway Change Change $ Millions Q207 Q206 Amount Percent Heavy-duty truck 473 618 (145) (24%) Medium-duty truck and bus 320 247 73 30% Light-duty automotive/RV 418 341 77 22% Total on-highway 1,211 1,206 5 1% Global heavy-duty truck shipments down 32%; the decrease was limited by a strong export market and market share gains in North America Medium-duty truck shipments up 22% with strength in North America, Brazil, and Europe Bus shipments up 69% on strength in Europe, India, and North America Light-duty automotive/RV shipments up slightly with strong revenue growth on new engine technology; shipments increased to the North American pick-up truck market; market share gains in RV 6
  • 7. Engine Segment Sales by Market – Industrial Change Change $ Millions Q207 Q206 Amount Percent Total Industrial 665 516 149 29% Total shipments up 9% with double-digit growth in nearly all markets Construction equipment shipments up 9% from strength in international markets Shipments for mining up 26% with growth in China, India, Latin America, and Australia Oil & Gas revenue growing faster than volume with growth in high- horsepower engines Increasing high-horsepower capacity 15% by mid 2008 7
  • 8. Long-term Targets* Distribution Segment Sales growth: 10% EBIT margin: 8-10% Selected Financial Data Change Change $ Millions Q207 Q206 Amount Percent Sales 368 336 32 10% EBIT 46 36 10 28% % of Sales 12.5% 10.7% Sales up 24%, excluding the reporting change of a North American distributor, driven primarily by Europe and the Middle East Earnings from joint ventures accounted for more than 50% of segment EBIT on strength of sales of power generation equipment in North America Positive trends in key end markets will drive strong year over year growth in revenue and keep EBIT margins about targeted range *Targets represent averages across the economic cycle 8
  • 9. Long-term Targets* Components Segment Sales growth: 8-10% EBIT margin: 7-9% Selected Financial Data Change Change $ Millions Q207 Q206 Amount Percent Sales 757 563 194 34% EBIT 48 34 14 41% % of Sales 6.3% 6.0% Growth in all businesses, particularly Emission Solutions (up $88M) and Turbo Technologies (up $69M) on sales of new products to meet emission standards Filtration revenue up $30M on OE sales in Europe, Middle East, and Africa, and sales of 2007 emission-related products in North America New product introduction, metal market cost increases, and aggressive production ramp provided challenges for each of the businesses *Targets represent averages across the economic cycle 9
  • 10. Cummins Inc. Selected Income Statement Data Q207 Q206 Net Earnings ($M) 214 220 Earnings Per Share $2.13 $2.19 Product Coverage (% of Net Sales) 3.1% 2.9% Gross Margin (% of Net Sales) 20.0% 22.7% SAR (% of Net Sales) 11.6% 13.2% Earnings before interest and taxes (EBIT) at 10.6% of sales, above our targeted range of 7 to 10 percent Q206 results included a $28 million credit for the resolution of prior year tax uncertainties Gross margins lower due to initial new product costs, partially offset by higher pricing for new products Company leveraged slower growth in SAR to improve profitability. 10
  • 11. Joint Venture Income $ Millions Q207 Q206 Engine 25 18 On-highway 16 12 Off-highway 5 4 Rec. Marine 4 2 Power Generation 4 3 Distribution 24 14 Components (1) 2 Total JV Income 52 37 Engine joint venture income up primarily due to seasonal strengthening in the Chinese on-highway truck market Distribution increased 71% on strength of power generation equipment sales in North America 11
  • 12. Cash Flow Q207 Q206 Operating Cash Flow ($M) 269 337 Capital Expenditures ($M) 60 50 Pension Funding ($M) 41 42 Share Repurchase ($M) 23 26 Working Capital (% of Net Sales) 17.9% 17.1% Cash flow strategy to maintain a strong balance sheet, including funding our liabilities; investing in profitable growth; and returning value to our shareholders Working capital net cash outflow of $116 million in Q207 compared to net cash outflow of $66 million in Q206 Operating cash flow in Q207 includes $97 million higher cash expenditures for income taxes than in Q206 12
  • 13. Guidance for 2007 Consolidated Results Item Full Year Guidance Earning per Share $7.15 to $7.65 Revenue Up 12 to 15% Joint Venture Earnings Up 20 to 25% Effective Tax Rate 33% Capital Expenditures ($M) $320 to $350 Global Pension Funding ($M) $230 to $240 13
  • 14. Guidance for 2007 Segment Results Power Item Engine Generation Components Distribution Revenue Up 5-7% Up 21-26% Up 22-27% Up 17-22% Joint Venture Up 9% Up ~17% Slight loss Up ~60% Earnings EBIT Relative Solidly Above top Above top In target to Target within target end of target end of target range in Q4 Range range range range 14
  • 15. Confident in our ability to perform in 2007 and beyond Global and end-market revenue diversification Longer-term trends that are not cyclical Infrastructure investments around the world 15
  • 16. Revenue from International Markets offset Decline in US & Canada 6,400 6,160 +244 6,200 6,000 +111 Revenue ($ M) +383 5,800 5,600 5,520 (98) 5,400 5,200 Q2 '06 YTD US & EMEA Latin Asia & Q2 '07 YTD Canada America & Australia Mexico 16
  • 17. Global adoption of known emission regulations in On-highway markets Euro V Europe Beijing Beijing China Euro IV Brazil Mexico India – metro Australia Euro III China India 2007 2008 2009 2010 Mexico EPA ’04 Australia EPA ’07 US / Canada EPA ‘10 US / Canada 17
  • 18. Thank You for Your Interest in Cummins We will now take your questions. Contact Information: Dean Cantrell Director – Investor Relations (812) 377-3121 Investor_Relations@Cummins.com www.cummins.com 18
  • 19. Appendix
  • 20. Long-term Targets* Sales growth: 8-10% Cummins Inc. EBIT margin: 7-10% ROANA: 22% Selected Financial Data ROE: 18% Change Change $ Millions Q207 Q206 Amount Percent Sales 3,343 2,842 501 18% EBIT 354 325 29 9% % of Sales 10.6% 11.4% ROANA 29% 31% ROE 21% 26% Global customer demand leading to growth in nearly every market Improved cost structure results in all profitability targets met or exceeded Investing in profitable growth opportunities in each operating segment, and in domestic and international markets *Targets represent averages across the economic cycle 20
  • 21. Cummins Inc. Q2 2007 LTM Revenue by Segment Components Q2 2007 – Great Quarter Segment 18% Strong global demand Engine for our product Segment 53% Distribution Year-over-year Segment 10% growth in revenue and earnings Investing in profitable growth opportunities Power Gen Segment 19% Q2 2007 LTM Data Sales: $12.0 billion EBIT: $1,196 million EBIT Margin: 10.0% (Target: 7-10%) 21
  • 22. Cummins Inc. Q2 2007 LTM Revenue by Marketing Territory Africa/Middle East International revenue Canada 6% 5% is 53% of year-to-date consolidated revenue Mexico/Latin America in 2007 8% Most international areas growing at United States double digit rate 48% Demonstrates our Asia/Australia 17% geographic diversity Europe/CIS 16% 22
  • 23. Cummins – Historical Performance Sales EBIT $14,000 $1,400 $12,002 $1,179 $1,196 $12,000 $1,200 $11,362 $9,918 $10,000 $1,000 $907 $8,438 $ Millons $ Millons $8,000 $800 $6,296 $543 $6,000 $600 $4,000 $400 $181 $2,000 $200 $0 $0 2003 2004 2005 2006 Q2 '07 2003 2004 2005 2006 Q2 '07 LTM LTM 23
  • 24. Engine Segment Q2 2007 LTM Revenue by Product Emission regulations Parts and Service 21% create opportunities Midrange (3-9L) 38% Aftermarket revenue creates stable earnings Emerging markets Strategic OEM partnerships High Horsepower (19-91L) 16% Q2 2007 LTM Segment Data Heavy-Duty Sales: $7.7 billion (10-15L) 25% EBIT: $678 million EBIT Margin: 8.8% (Target: 7-10%) 24
  • 25. Engine Segment Q2 2007 LTM Revenue by Market Application Heavy-duty Truck Stationary Power 11% demand remains strong Mining/Rail Heavy-duty Govt/O&G truck 28% Share gains in Medium- Marine 14% duty Truck & Bus Industrial markets supported by non- Construction residential construction & Ag 16% and commodity markets Medium-duty Light-duty Truck & bus 14% Q2 2007 LTM Segment Data Automotive Sales: $7.7 billion & RV 17% EBIT: $678 million EBIT Margin: 8.8% (Target: 7-10%) 25
  • 26. Engines – Historical Performance Sales Segment EBIT $9,000 $800 $733 $7,511 $7,668 $678 $8,000 $700 $6,657 $7,000 $582 $600 $6,000 $5,424 $500 $5,000 $M $M $400 $328 $4,000 $3,582 $300 $3,000 $200 $2,000 $62 $100 $1,000 $0 $0 2003 2004 2005 2006 Q2 '07 2003 2004 2005 2006 Q2 '07 LTM LTM 26
  • 27. Power Generation Segment Q2 2007 LTM Revenue by Product Turnaround complete Alternators Commercial 20% 57% Strengthening markets Expanding market share Rental 2% Consumer growth opportunities Growing project business Consumer 12% capability Power Electronics 5% Q2 2007 LTM Segment Data Energy Sales: $2.7 billion Solutions 4% EBIT: $287 million EBIT Margin: 10.4% (Target: 7-9%) 27
  • 28. Power Generation – Historical Performance Sales Segment EBIT $3,000 $350 $2,726 $287 $300 $2,416 $2,500 $250 $220 $1,999 $2,000 $1,842 $200 $145 $M $M $1,500 $1,329 $150 $100 $1,000 $60 $50 $500 $0 ($19) $0 ($50) 2003 2004 2005 2006 Q2 '07 2003 2004 2005 2006 Q2 '07 LTM LTM 28
  • 29. Components Segment Q2 2007 LTM Revenue by Product Specialty Strategic advantage in Filtration 6% Air Intake emissions compliance Systems Turbocharger 10% Significant future growth 28% in revenue and earnings Multiple new product Acoustic introductions Exhaust 11% Winning non-CMI Fuel business Systems 15% Engine Filtration Q2 2007 LTM Segment Data Catalytic 19% Sales: $2.6 billion Exhaust EBIT: $114 million 11% EBIT Margin: 4.4% (Target: 7-9%) 29
  • 30. Components – Historical Performance Sales Segment EBIT $120 $3,000 $114 $107 $2,577 $100 $2,500 $2,281 $89 $86 $84 $2,000 $80 $2,000 $1,783 $M $M $60 $1,500 $1,292 $40 $1,000 $20 $500 $0 $0 2003 2004 2005 2006 Q2 '07 2003 2004 2005 2006 Q2 '07 LTM LTM 30
  • 31. Distribution Segment Q2 2007 LTM Revenue by Product Service Broadening product 18% offering Engines 20% Expanding global coverage Increasing equity ownership Excelling in customer Parts, support Filters, & Consumables Power 36% Generation Q2 2007 LTM Segment Data 26% Sales: $1.4 billion EBIT: $162 million EBIT Margin: 11.5% (Target: 8-10%) 31
  • 32. Distribution – Historical Performance Sales Segment EBIT $1,600 $180 $162 $1,385 $1,409 $160 $1,400 $144 $1,191 $140 $1,200 $120 $973 $107 $1,000 $100 $M $M $800 $79 $669 $80 $600 $60 $51 $400 $40 $200 $20 $0 $0 2003 2004 2005 2006 Q2 '07 2003 2004 2005 2006 Q2 '07 LTM LTM 32
  • 33. Non-GAAP Reconciliations
  • 34. Non-GAAP Reconciliation – EBIT Three Months Ended Millions July 1, July 2, April 1, 2007 2006 2007 Segment EBIT $ 354 $ 325 $ 243 Less: Interest Expense $ 14 $ 26 $ 16 Earnings before income taxes and minority interests $ 340 $ 299 $ 227 We define EBIT as earnings before interest expense, provision for income taxes and minority interests in earnings of consolidated subsidiaries. We use EBIT to assess and measure the performance of our operating segments and also as a component in measuring our variable compensation programs. The table above reconciles EBIT, a non-GAAP financial measure, to our consolidated earnings before income taxes and minority interests, for each of the applicable periods. We believe EBIT is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to financing methods, capital structure or income taxes. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data. 34
  • 35. Non-GAAP Reconciliation – EBITDA Three Months Ended Millions July 1, July 2, April 1, 2007 2006 2007 Segment EBIT $ 354 $ 325 $ 243 Less: Depreciation & Amortization $ 74 $ 74 $ 68 EBITDA $ 428 $ 399 $ 311 We define EBITDA as earnings before interest expense, provision for income taxes, minority interests in earnings of consolidated subsidiaries and depreciation and amortization expense. We believe EBIT is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to financing methods, capital structure, income taxes or depreciation methods. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data. 35
  • 36. Non-GAAP Reconciliation – Cash From Operations Excluding Pension Contributions Three Months Ended Millions July 1, 2007 July 2, 2006 Cash provided by operations $ 269 $ 337 Add back: pension contributions $ 41 $ 42 Cash provided by operations $ 310 $ 379 excluding pension contributions We believe cash provided by operations excluding pension contributions is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to funding decisions. This measure is not in accordance with, or an alternative for, GAAP and may not be consistent with measures used by other companies. It should be considered supplemental data. 36
  • 37. Non-GAAP Reconciliation – Net Assets July 1, July 2, Millions 2007 2006 Net assets for operating segments $ 4,285 $ 3,857 Liabilities deducted in computing net assets 3,695 3,515 Minimum pension liability excluded from net assets - (837) Pension and other postretirement liabilities (824) - Deferred tax assets not allocated to segments 662 777 Debt-related costs not allocated to segments 26 25 Total assets $ 7,844 $ 7,337 A reconciliation of net assets for operating segments to total assets in our Consolidated Financial Statements is shown in the table above. 37
  • 38. Non-GAAP Reconciliation – Equity Used for Return on Equity Calculation July 1, July 2, Millions 2007 2006 Equity used for return on equity calculation $ 3,695 $ 3,026 less Defined other postretirement benefits 9 - less Defined benefit pension plans 527 - less Minimum pension liability adjustment - 523 Total shareholder’s equity $ 3,159 $ 2,503 A reconciliation of equity used for return on equity calculation to total shareholder’s equity in our Consolidated Financial Statements is shown in the table above. 38