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4 Important Things Cummins Inc. Management Wants You to Know

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Investors can't miss this Intriguing insight from Cummins Inc.'s latest call

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4 Important Things Cummins Inc. Management Wants You to Know

  1. 1. 4 Important Things Cummins Inc. Management Wants You to Know
  2. 2. China: A strong market#1
  3. 3. What management said “The good news in this challenging environment is that our market share has increased, and the Chinese government continues to plan for the adoption of more stringent emissions regulations which will be positive for our business longer term.” Tom Linebarger, Chairman and CEO
  4. 4. What that means Cummins’ revenue from China grew 6% year over year in Q2 despite industry sales of heavy-and- medium duty trucks falling 28%. Cummins’ engine market share in China shot up to 15.5% during the first half of the year from 10% a year ago. Enforcement of NS4 emission standards in China a significant growth catalyst going forward.
  5. 5. Hedgehog: A $5 billion opportunity#2
  6. 6. What management said “[…] this new product gives us access to about a $5 billion market globally that we've not had access to in the past.” Rich Freeland, President and COO
  7. 7. Betting on the big one The 9.5-liter QSK95 engine, nicknamed “Hedgehog”, is Cummins’ largest-ever diesel engine. Hedgehog is also the most powerful engine ever built for off-highway markets like locomotives, mining, marine, and power generation.
  8. 8. What’s next Commercial production of Hedgehog on schedule. First shipments to begin next year. Next move: To take Hedgehog to India to tap the country’s massive rail network. 
  9. 9. Margins: Growth on track #3
  10. 10. What management said “[…] we'll be figuring out ways to earn higher margins on the same sales. So driving cost out of our business through material costs has been a huge driver for us for improvement this year.” Tom Linebarger
  11. 11. What that means Aggressive restructuring over the past year paying off: Cummins’ operating earnings climbed 10% year over year on 4% revenue growth in Q2. Cost reduction to continue: Full-year operating margin to be 13.5%-14%, up from 13% last year.
  12. 12. Capital allocation: Plans intact#4
  13. 13. What management said “[…] we want to reinvest back into the business where we see really good attractive opportunities for profitable growth, and we're trying to do that as best as we can in this environment. And we're also very conscious about delivering on our commitments to return 50% of cash flows which we did last year, and we're on track to do again this year.” Pat Ward, CFO and Vice President
  14. 14. Cummins’ last-outlined cash-deployment plan Source: Cummins Analyst Day presentation, September 2013
  15. 15. What that means Cummins will plough back 50% of operating cash flow into business and return 50% to shareholders. Latest moves: Acquiring North American distributors that should add $600 million to full- year revenue. Boosted quarterly dividend by 25% last month. Company to provide more details about capital allocation on its upcoming Analyst Day in November.
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