Q107_CMIEarnings
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Q107_CMIEarnings

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Q107_CMIEarnings Q107_CMIEarnings Presentation Transcript

  • First Quarter 2007 Earnings Teleconference April 27, 2007
  • 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
  • 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
  • Long-term Targets* Power Generation Sales growth: 8-10% EBIT margin: 7-9% Segment Selected Financial Data Change Change $ Millions Q107 Q106 Amount Percent Sales 675 536 139 26% EBIT 77 45 32 71% % of Sales 11.4% 8.4% Commercial generator sets and alternator equipment strength in North America, the Middle East, Europe, Russia, India and Latin America Consumer growth as portables, residential standby, and auxiliary power units offset softness in RV and recreational marine Energy Solutions business sales growth in Europe and the Middle East Strong price realization for commercial generator sets and alternators *Targets represent averages across the economic cycle 4
  • Long-term Targets* Engine Segment Sales growth: 6-8% EBIT margin: 7-10% Selected Financial Data Change Change $ Millions Q107 Q106 Amount Percent Sales 1,765 1,821 (56) (3%) EBIT 128 179 (51) (28%) % of Sales 7.3% 9.8% On-highway revenue down 20% due to North American emission regulation Off-highway revenue up 28% with growth in nearly all markets Lower gross margins due to higher initial new product costs and loss of volume leverage in heavy-duty business Investing in new growth opportunities and additional capacity *Targets represent averages across the economic cycle 5
  • Engine Segment Sales by Market – On-highway Change Change $ Millions Q107 Q106 Amount Percent Heavy-duty truck 424 608 (184) (30%) Medium-duty truck and bus 206 215 (9) (4%) 331 (43) (13%) Light-duty automotive 288 Total on-highway 918 1,154 (236) (20%) Global heavy-duty truck shipments down 45%; North America down 58% Medium-duty truck shipments down 7% with strength in Brazil partially offsetting weakness in North America Bus shipments up 16% due to North America school bus and international transit bus Light-duty automotive shipments down 27% as the North American pick-up truck market continues to manage overall dealer inventory 6
  • Engine Segment Sales by Market – Off-highway Change Change $ Millions Q107 Q106 Amount Percent Total off-highway 617 481 136 28% Total shipments up 19% with double-digit growth in nearly all markets Construction equipment shipments up 25% from strength in international markets Shipments for mining up 14% with growth in Eastern Europe and China Oil & Gas revenue growing faster than volume with growth in high- horsepower engines Increasing high-horsepower capacity 15% by mid 2008 7
  • Long-term Targets* Distribution Segment Sales growth: 10% EBIT margin: 8-10% Selected Financial Data Change Change $ Millions Q107 Q106 Amount Percent Sales 309 317 (8) (3%) EBIT 39 31 8 26% % of Sales 12.6% 9.8% Sales up 12%, excluding the reporting change of a North American distributor, driven primarily by Europe and the South Pacific Earnings from joint ventures increased 89% due to strong performance from our North American distributors, particularly with sales of power generation equipment New acquisitions in Spain and Turkey and new joint ventures in the Southeast United States, Nigeria and Thailand during the first quarter *Targets represent averages across the economic cycle 8
  • Long-term Targets* Components Segment Sales growth: 8-10% EBIT margin: 7-9% Selected Financial Data Change Change $ Millions Q107 Q106 Amount Percent Sales 657 555 102 18% EBIT 24 31 (7) (23%) % of Sales 3.7% 5.6% Growth from Emission Solutions (up $54M) and Turbo Technologies (up $37M) on sales of new products to meet emission standards Emission Solutions leveraged higher volume to improved margins Fuel Systems challenged by startup costs for new joint venture and lower heavy- duty volumes New product introduction, metal market cost increases, and aggressive production ramp up at Turbo Technologies negatively impacted gross margins *Targets represent averages across the economic cycle 9
  • Cummins Inc. Selected Income Statement Data Q107 Q106 Net Earnings ($M) 143 135 Earnings Per Share $1.42 $1.35 Product Coverage (% of Net Sales) 2.3% 3.1% Gross Margin (% of Net Sales) 19.6% 21.1% SAR (% of Net Sales) 12.9% 13.1% Earnings before interest and taxes (EBIT) at 8.6% of sales, well within our targeted range of 7 to 10 percent Lower interest expense helped net earnings grow 6% Gross margins lower due to high initial new product costs, partially offset by higher pricing for new products 10
  • Joint Venture Income $ Millions Q107 Q106 Engine 17 17 On-highway 9 11 Off-highway 5 5 Rec. Marine 3 1 Power Generation 3 3 Distribution 17 9 2 Components (1) Total JV Income 36 31 Recreational marine up on European market share growth Distribution increased 89% on strength of power generation equipment sales in North America and contribution from newer joint ventures 11
  • Cash Flow Q107 Q106 18 Operating Cash Flow ($M) (113) 52 Capital Expenditures ($M) 48 Pension Funding ($M) 61 41 Share Repurchase ($M) 13 36 Working Capital (% of Net Sales) 20.0% 17.3% Cash flow strategy to maintain a strong balance sheet, including funding our liabilities; invest in profitable growth; and return value to our shareholders Working capital net cash outflow of $192 million in Q107 compared to net cash outflow of $161 million in Q106 12
  • Guidance for 2007 Consolidated Results Item Full Year Guidance Earning per Share $6.00 to $6.50 Revenue Up 5% to 7% Joint Venture Earnings Up 10% Effective Tax Rate 33% Capital Expenditures ($M) $320 to $350 Global Pension Funding ($M) $230 to $240 13
  • Guidance for 2007 Segment Results Power Distribution Item Engine Generation Components Revenue Flat Up 15-18% Up 18-22% Up 7-10% Joint Venture Down ~5% Up ~8% None Up ~40% Earnings Slightly Below the EBIT Relative Above top Above top below or at low end of to Target end of target end of target low end of target range Range range range target range 14
  • Confident in our ability to perform in 2007 and beyond We have fundamentally changed our business model We did what we said we would do We are investing in the next generation of profitable growth opportunities 15
  • Revenue from International Markets offset Decline in US & Canada 2,900 2,817 +99 2,800 +65 2,678 (197) Revenue ($ M) 2,700 +172 2,600 2,500 2,400 Asia & Q1 '07 Q1 '06 US & EMEA Latin Australia Canada America & Mexico 16
  • Confident in our ability to perform in 2007 and beyond We have fundamentally changed our business model We did what we said we would do We are investing in the next generation of profitable growth opportunities 17
  • Growth from new engine platforms 1,400 Engine Production (Thousands) 1,200 1,000 800 600 400 200 0 2006 Organic New 2010 Growth Platforms 18
  • Investment in capacity for current and future products CMI Capital Spending JV Capital Spending 250 - 325 320 - 350 249 186 107 82 2005 2006 2007 2005 2006 2007 19
  • SAVE THE DATE CMI Analyst Day Tuesday, September 18, 2007 Heavy-duty Engine Plant Jamestown, NY Contact Information: Dean Cantrell Director – Investor Relations (812) 377-3121 Investor_Relations@Cummins.com www.cummins.com 20
  • 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 21
  • Non-GAAP Reconciliations
  • Non-GAAP Reconciliation – EBIT Three Months Ended Millions April 1, April 2, December 31, 2007 2006 2006 Segment EBIT $ 243 $ 255 $ 303 Less: Interest Expense $ 16 $ 27 $ 20 Earnings before income taxes and minority $ 227 $ 228 $ 283 interests EBIT = Earnings before interest, taxes, and minority interests. 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. 23
  • Non-GAAP Reconciliation – EBITDA Three Months Ended Millions April 1, April 2, December 31, 2007 2006 2006 Segment EBIT $ 243 $ 255 $ 303 Depreciation & Amortization $ 68 $ 74 $ 74 EBITDA $ 311 $ 329 $ 377 EBITDA = Earnings before interest, taxes, minority interests, depreciation, and amortization. 24
  • Non-GAAP Reconciliation – Cash From Operations Excluding Pension Contributions Three Months Ended Millions April 1, 2007 April 2, 2006 Cash provided by operations $ (113) $ 18 Add back: pension contributions $ 61 $ 41 Cash provided by operations $ (52) $ 59 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. 25
  • Non-GAAP Reconciliation – Net Assets April 1, April 2, Millions 2007 2006 Net assets for operating segments $ 4,041 $ 3,609 Liabilities deducted in computing net assets 3,516 3,385 Minimum pension liability excluded from net assets - (837) Pension and other postretirement liabilities (824) - Deferred tax assets not allocated to segments 689 814 Debt-related costs not allocated to segments 26 26 Total assets $ 7,448 $ 6,997 26
  • Non-GAAP Reconciliation – Equity Used for Return on Equity Calculation April 1, April 2, Millions 2007 2006 Equity used for return on equity calculation $ 3,480 $ 2,501 less Defined other postretirement benefits 5 - less Defined benefit pension plans 538 - less Minimum pension liability adjustment - 523 Total shareholder’s equity $ 2,937 $ 1,978 27
  • Appendix
  • Long-term Targets* Sales growth: 8-10% Cummins Inc. EBIT margin: 7-10% ROANA: 22% Selected Financial Data ROE: 18% Change Change $ Millions Q107 Q106 Amount Percent Sales 2,817 2,678 139 5% EBIT 243 255 (12) (5%) % of Sales 8.6% 9.5% ROANA 31% 30% ROE 24% 26% Global customer demand leading to growth in nearly every market Improved cost structure results in all profitability targets to be 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 29
  • Cummins Inc. Q1 2007 LTM Revenue by Segment Components Q1 2007 – Great Quarter Segment 17% Strong global demand Engine for our product Segment 54% Distribution Year-over-year Segment 10% growth in revenue and earnings Investing in profitable growth opportunities Power Gen Segment 19% Q1 2007 LTM Data Sales: $11.5 billion EBIT: $1,167 million EBIT Margin: 10.1% (Target: 7-10%) 30
  • Cummins Inc. Q1 2007 LTM Revenue by Marketing Territory Africa/Middle East International revenue Canada 5% 6% is 49% of consolidated revenue Mexico/Latin America International revenue 8% was 54% in the first quarter United States Most international 49% areas growing at Asia/Australia 17% double digit rate Europe/CIS 15% 31
  • Cummins – Historical Performance Sales EBIT $14,000 $1,400 $11,501 $1,179 $1,167 $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 Q1 '07 2003 2004 2005 2006 Q1 '07 LTM LTM 32
  • Engine Segment Q1 2007 LTM Revenue by Product Emission regulations Parts and Service 21% create opportunities Midrange (3-9L) 37% Aftermarket revenue creates stable earnings Emerging markets Strategic OEM partnerships High Horsepower (19-91L) 15% Q1 2007 LTM Segment Data Heavy-Duty Sales: $7.5 billion (10-15L) 27% EBIT: $682 million EBIT Margin: 9.1% (Target: 7-10%) 33
  • Engine Segment Q1 2007 LTM Revenue by Market Application Heavy-duty Truck Stationary Power 10% demand remains strong Mining/Rail Heavy-duty Govt/O&G truck 31% Share gains in Medium- Marine 14% duty Truck & Bus Off-highway markets supported by non- Construction residential construction & Ag 16% and commodity markets Medium-duty Light-duty Truck & bus 13% Q1 2007 LTM Segment Data Automotive Sales: $7.5 billion & RV 16% EBIT: $682 million EBIT Margin: 9.1% (Target: 7-10%) 34
  • Engines – Historical Performance Sales Segment EBIT $8,000 $800 $7,511 $7,455 $733 $682 $6,657 $7,000 $700 $582 $6,000 $600 $5,424 $5,000 $500 $M $M $4,000 $3,582 $400 $328 $3,000 $300 $2,000 $200 $62 $1,000 $100 $0 $0 2003 2004 2005 2006 Q1 '07 2003 2004 2005 2006 Q1 '07 LTM LTM 35
  • Power Generation Segment Q1 2007 LTM Revenue by Product Turnaround complete Alternators Commercial 19% 56% Strengthening markets Expanding market share Rental 2% Consumer growth opportunities Growing project business Consumer 13% capability Power Electronics 6% Q1 2007 LTM Segment Data Energy Sales: $2.6 billion Solutions 4% EBIT: $252 million EBIT Margin: 9.9% (Target: 7-9%) 36
  • Power Generation – Historical Performance Sales Segment EBIT $3,000 $300 $252 $2,555 $250 $2,416 $2,500 $220 $200 $1,999 $2,000 $1,842 $145 $150 $M $M $1,500 $1,329 $100 $60 $1,000 $50 $500 $0 ($19) $0 ($50) 2003 2004 2005 2006 Q1 '07 2003 2004 2005 2006 Q1 '07 LTM LTM 37
  • Components Segment Q1 2007 LTM Revenue by Product Specialty Strategic advantage in Filtration 6% Air Intake emissions compliance Systems Turbocharger 11% Significant future growth 27% in revenue and earnings Multiple new product Acoustic introductions Exhaust 12% Winning non-CMI Fuel business Systems 16% Engine Filtration Q1 2007 LTM Segment Data Catalytic 20% Sales: $2.4 billion Exhaust EBIT: $100 million 8% EBIT Margin: 4.2% (Target: 7-9%) 38
  • Components – Historical Performance Sales Segment EBIT $120 $3,000 $107 $100 $2,383 $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 Q1 '07 2003 2004 2005 2006 Q1 '07 LTM LTM 39
  • Distribution Segment Q1 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 37% Generation Q1 2007 LTM Segment Data 25% Sales: $1.4 billion EBIT: $152 million EBIT Margin: 11.0% (Target: 8-10%) 40
  • Distribution – Historical Performance Sales Segment EBIT $1,600 $160 $152 $144 $1,385 $1,377 $1,400 $140 $1,191 $1,200 $120 $107 $973 $1,000 $100 $79 $M $M $800 $80 $669 $600 $60 $51 $400 $40 $200 $20 $0 $0 2003 2004 2005 2006 Q1 '07 2003 2004 2005 2006 Q1 '07 LTM LTM 41