Cummins_07/111/5
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  • 1. Cummins Inc. Profitable Growth Investor Relations Presentation Third Quarter 2007
  • 2. 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 EBIT to GAAP financial measures. 2
  • 3. Creating Greater Shareholder Value Doubled our revenue in 5 years Highest period of net earnings as a percent of sales in over 40 years Generated $5.0 billion in EBITDA since 2003 Improved debt to capital from 60% in 2003 to 17% today Actively repurchased 5 million shares in 2 years Exceeded both ROANA and ROE targets for over three years Grew revenue over 20% per year in the emerging markets of China and India 3
  • 4. Cummins Inc. Where We’ve Been Who We Are Historical Performance Joint Venture Sales Geographic Segment Consolidated Sales ($B) Unconsolidated ($B) Components Africa/Middle East Canada 18% 6% R $11.4 $4.2 CAG R 5% AG United States 22% Engine %C $9.9 48% 17 Mexico/Latin 53% America $3.2 $8.4 Distribution 8% 10% $2.6 $2.6 $6.3 Asia/Australia 17% Power Gen Europe/CIS 19% 16% Q307 LTM 2003 2004 2005 2006 2003 2004 2005 2006 Sales: $12.6B Where We’re Headed How We’re Getting There Future Performance Consolidated Sales ($B) Joint Venture Sales Unconsolidated ($B) Macro growth trends play to AGR $20.0 12% C $9.6 Cummins’ strengths GR CA 18% Disciplined growth model $11.4 $4.2 Demonstrated technology leadership 4 2006 2011 2006 2011
  • 5. Demand for Energy and Fuel Efficiency Energy independence and fuel economy Dependence on reliable electric supply Higher fuel costs and electricity consumption 5
  • 6. Tougher Global Emission Standards Off- highway 2011-14 Europe 2009 China US / 2010 Canada 2010 Australia 2008 India Mexico Brazil 2010 2008 2009 6
  • 7. Cultivating the Emerging Markets CIS Turkey GDP 6-7% GDP 5% China GDP 9-11% Nigeria Vietnam GDP 7% GDP 7-8% India GDP 8% 7
  • 8. Disciplined Growth Model Earnings Growth Sales growth 12% Debt/EBITDA 1.25-1.50 EBIT 10% Liquidity $2B R&D 3% Creating Capital exp. 3- 4% Shareholder Value ROANA 25% ROE 20% Managing Disciplined Cash Risk Management Cash on hand $300 to $500M Working capital 16.5 to 17.5% 8
  • 9. The Right Technology Engines for EPA 2010 Mid-Range Heavy-Duty Customer Diverse applications Uptime Needs Power range Operational efficiency Best value Low cost of ownership Evolution of 2007 technology Evolution of 2007 technology Proven SCR aftertreatment No NOx aftertreatment HD XPI fuel system 9
  • 10. Business Performance Targets Sales Growth EBIT % 13% 8.5% Engine Business 15% 10% Power Generation 15% 11% Distribution 20% 9% Components 12% 10% Cummins Inc. 10
  • 11. Engine Segment Where We’ve Been Who We Are Historical Performance Joint Venture Sales Geographic Market Application Consolidated Sales ($B) Unconsolidated ($B) India 3% Stationary $7.5 R GR South Pacific 1% G SE/NE Asia 5% $1.5 CA Power 11% Heavy-duty CA $6.7 23 % truck 26% East Asia 4% Mining/Rail $1.3 % 28 $1.2 Govt/O&G US/Canada $5.4 Marine 14% 56% Latin America & Mexico $0.8 $3.6 15% EMEA Medium-duty 16% Construction Truck & bus 14% & Ag 17% Light-duty Q307 LTM Automotive & RV 18% 2003 2004 2005 2006 2003 2004 2005 2006 Sales: $8.0B Where We’re Headed How We’re Getting There Future Performance Joint Venture Sales Consolidated Sales ($B) Unconsolidated ($B) Emission regulations $3.7 $13.3 GR Emerging markets CA R G 3% CA 1 Strategic OEM partnerships % 20 $7.5 New engine platforms $1.5 Steady aftermarket revenue growth 11 2006 2011 2006 2011
  • 12. How We’re Getting There Strategic OEM Partnerships 12
  • 13. How We’re Getting There New Engine Platforms 1,800 Engine Production (Thousands) 1,600 1,400 1,200 1,000 800 600 400 200 0 2006 Organic New 2011 Growth Platforms 13
  • 14. How We’re Getting There Global Engine Production EMEA 2006: 63,000 China North America 2011: 110,000 2006: 122,000 2006: 397,000 2011: 423,000 2011: 708,000 India 2006: 97,000 2011: 201,000 Rest of World 2006: 154,000 2006 Total = 833,000 2011: 193,000 2011 Total = 1,635,000 14
  • 15. Earnings Growth Engine Segment GR $1,400 CA $1,200 2% 1 Segment EBIT ($ M) $1,000 $800 $600 $400 $200 $0 2003 2006 2011 15
  • 16. Power Generation Segment Who We Are Where We’ve Been Historical Performance Market Application Geographic Consolidated Sales ($B) EMEA 34% R CA G $2.4 23% Distributed Standby Generation Power $2.0 32% Latin America 56% $1.8 8% $1.3 North America India 36% 10% China Mobile Power 5% Asia Pacific 12% 7% Q307 LTM 2003 2004 2005 2006 Sales: $2.9B Where We’re Going How We’re Getting There Future Performance Consolidated Sales ($B) Capitalize on industry growth GR $4.8 CA Leverage existing market leadership % 15 Establish leadership in all major markets $2.4 Expand into new and adjacent markets 2006 2011 16
  • 17. How We’re Getting There Establish Leadership in All Major Markets Cummins Leadership Positions Top 8 regions 92% of total 35% Market leader (#1 or #2) 30% Leader in some segments 25% Not a market leader 20% 15% 10% 5% 0% North Western China Middle India Southeast Latin Africa America Europe East Asia America 17
  • 18. How We’re Getting There Expand Into New and Adjacent Markets 18
  • 19. Earnings Growth Power Generation Segment GR $600 CA $500 7% 1 Segment EBIT ($ M) $400 $300 $200 $100 $0 -$100 2003 2006 2011 19
  • 20. Components Segment Who We Are Where We’ve Been Historical Performance Market Application Geographic Specialty Consolidated Sales ($B) Asia Pac Filtration Air Intake 11% 6% AGR Systems $2.3 LA C Turbocharger 10% 21% 5% $2.0 28% $1.8 Acoustic Exhaust 10% $1.3 Engine EMEA Fuel Filtration 23% Systems 18% N America 15% 61% Catalytic Exhaust Q307 LTM 13% 2003 2004 2005 2006 Sales: $2.8B Where We’re Going How We’re Getting There Future Performance Consolidated Sales ($B) $6.0 Emissions GR CA % 20 Fuel Economy $2.3 Engine Performance 2006 2011 20
  • 21. How We’re Getting There Emission Solutions Evolving Global Emission Standards Successful 2007 Accelerates Market Growth for Diesel product launches Catalytic Exhaust $6 Significant growth $5 Global Market Size ($B) opportunity $4 Capacity expansion $3 $1.5B Revenues We have 30% $2 of the market in 2011 today $1 $0 2006 2010 21
  • 22. How We’re Getting There Filtration Most profitable business in the segment Profit margins improving Emissions creating new growth opportunities $2B Revenues in 2011 22
  • 23. How We’re Getting There Fuel Systems Critical to engine performance and emissions Industry leading common rail fuel system Scania partnership Increasing demand $0.5B Revenues in 2011 23
  • 24. How We’re Getting There Turbo Technologies Critical to emissions, Turbo Unit Volumes fuel economy and 4.5 engine performance 3.9 GR 4 CA 3.5 Cummins has the 2% 2 3 leading technology Millions 2.5 Demand driving significant 2 capacity expansion 1.5 1.5 1.2 $2B Revenues in 2011 1 0.5 0 2011 2005 2006 24
  • 25. Earnings Growth Components Segment GR Increasing capacity $600 CA % 38 Focus on operating $500 Segment EBIT ($ M) efficiencies $400 Pricing actions $300 $200 Divesting unprofitable businesses $100 $0 2003 2006 2011 25
  • 26. Distribution Segment Who We Are Where We’ve Been Historical Performance Market Application Geographic Joint Venture Sales LA Africa 3% Consolidated Sales ($B) Unconsolidated ($B) 5% Parts and North Consumables America Engine Europe 36% 3% 20% 32% R AG $1.4 China C $2.2 GR 27% 6% CA $1.2 % 40 India $1.0 8% $1.3 $0.7 $1.1 M.E. Power Gen 14% $0.8 26% Service Asia Pacific 18% 29% Q307 LTM Sales: $1.5B 2003 2004 2005 2006 2003 2004 2005 2006 Where We’re Headed How We’re Getting There Future Performance Joint Venture Sales Consolidated Sales ($B) Unconsolidated ($B) $2.8 Acquisitions and Consolidations $5.0 GR CA GR 15% CA Grow Organically % 18 Build Capabilities $1.4 $2.2 26 2006 2011 2006 2011
  • 27. Where We’re Headed 2011 2006 2001 $3.2B $5.4B $8.9B Cummins participation $3.2B @ 28% = $0.9B Cummins participation $5.4B @ 67% = $3.6B Cummins participation $8.9B @ 88% = $7.8B Independent Consolidated Joint Venture In 2011, 88% of revenue will flow through fully or partially owned distributors. 27
  • 28. Earnings Growth Distribution Segment GR $350 CA $300 7% 1 Segment EBIT ($ M) $250 $200 $150 $100 $50 $0 2003 2006 2011 28
  • 29. 29
  • 30. Appendix
  • 31. Joint Venture Sales Unconsolidated Engines Distribution $1,600 $3,000 $1,474 $1,316 $2,497 $1,400 $1,285 $2,500 $1,232 $1,200 $2,000 $529 $1,000 $1,715 $ Millions $ Millions $800 $1,500 $1,204 $1,029 $600 $1,000 $400 $500 $200 $0 $0 2003 2004 2005 2006 2003 2004 2005 2006 In 2003, sales from certain JVs (colored red above) were treated 31 as unconsolidated; adoption of FIN 46R in 2004 required the company to consolidate the results of certain JVs.
  • 32. Joint Venture Sales Unconsolidated Power Generation Components $180 $140 $162 $123 $160 $120 $110 $140 $130 $94 $100 $120 $105 $ Millions $ Millions $80 $72 $100 $80 $72 $60 $60 $40 $40 $20 $20 $0 $0 2003 2004 2005 2006 2003 2004 2005 2006 32
  • 33. Non-GAAP Reconciliations
  • 34. Non-GAAP Reconciliation – EBIT Years Ended Millions 2003 2004 2005 2006 EBIT $ 181 $ 543 $ 907 $ 1,179 Less: Interest Expense $ 90 $ 111 $ 109 $ 96 Earnings before income taxes and minority $ 91 $ 432 $ 798 $ 1,083 interests 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 34 consistent with measures used by other companies. It should be considered supplemental data.
  • 35. Non-GAAP Reconciliation – EBIT Quarters Ended Millions Q4 ’06 Q1 ’07 Q2 ’07 Q3 ’07 LTM EBIT $ 303 $ 243 $ 354 $ 306 $ 1,206 Less: Interest Expense $ 20 $ 16 $ 14 $ 14 $ 64 Earnings before income taxes and $ 283 $ 227 $ 340 $ 292 $ 1,142 minority interests 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 35 consistent with measures used by other companies. It should be considered supplemental data.