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Cummins_07/03/06

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Cummins_07/03/06

  1. 1. A New Cummins: Sustainable Performance Jean Blackwell, Chief Financial Officer Citigroup’s 20th Annual Global Industrial Manufacturing Conference March 6, 2007
  2. 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. 3. Creating Greater Shareholder Value Doubled our revenue in 5 years Highest three year period of net earnings as a percent of sales in over 40 years Generated $3.5 billion in EBITDA over last 3 years Improved debt to capital from 60% to 22% in 3 years Actively repurchased 1.5 million shares in 15 months Third consecutive year to exceed both ROANA and ROE targets 3
  4. 4. Continuing to Deliver on Commitments Target FY2006 Revenue Growth 14.6% 8 to 10% EBIT Margin 7 to 10% 10.4% Cap Ex 2.2% of Sales 3% of Sales Debt to Capital Ratio 22% 30 to 40% Credit Rating Investment S&P: BBB- Moody’s: Baa3 Grade ROE 18% 25% ROANA 31% 22% 4
  5. 5. We Have Outperformed Our Peer Group 137% Growing net income CAGR Since 2003 faster than revenue Converting more 75% income into cash 37% 22% 18% 13% Revenue Net Income Operating Cash Flow CMI Peer Group M edian 5
  6. 6. Confident in our ability to perform in 2007 and beyond We have fundamentally changed our business model Our customers recognize Cummins for our technology leadership We are investing in the next generation of profitable growth opportunities 6
  7. 7. We have fundamentally changed our business model Diversifying to mitigate the cyclicality of our end markets Aggressively pursuing low cost leadership Building greater stability in earnings Focused cash management strategy 7
  8. 8. Diversified Global Power Leader Four Complementary Businesses Engines Power Components Distribution Generation 8
  9. 9. Reducing Cyclicality through Geographic Diversity 1999 2006 39% 61% 50% 50% US Consolidated Net Sales ROW Consolidated Net Sales 9
  10. 10. End Market Diversity Mitigates Economic Cycles 10
  11. 11. Aggressively Pursuing Low Cost Leadership Net Sales and Net Earnings Six Sigma $14,000 $11,362 $800 $700 $12,000 $9,918 $600 Technical productivity $10,000 $8,438 $500 Net Ea rnings ($M) $8,000 $6,597 Net Sa le s ($M) $6,296 $5,681 $5,853 $400 Global sourcing $6,000 $300 $4,000 $200 Lean manufacturing $2,000 $100 $0 $0 ($2,000) ($100) ($4,000) ($200) 2000 2001 2002 2003 2004 2005 2006 Net Sales Net Earnings 11
  12. 12. Building Stable Diversified Earnings Base Significant contributor to total EBIT China Distribution India Aftermarket 12
  13. 13. Focused Cash Management Strategy Operating Cash Flow ($M) $840 $760 Maintaining strong balance sheet $614 Investing in profitable growth $472 Returning value to our shareholders $193 $158 $152 13 2000 2001 2002 2003 2004 2005 2006
  14. 14. Our customers recognize Cummins for its technology leadership Virtually integrating through OEM partnerships Global technology leader in constantly changing emissions environment 14
  15. 15. Virtually Integrating Through OEM Partnerships Low Cost Strong Brand Global Presence Strong Partnerships Technology Leadership 15
  16. 16. Unique Technology Integration Fuel Systems Electronic Controls Air Handling Systems Filtration and Aftertreatment Combustion Technologies 16
  17. 17. Technology Leadership: Growing to Support our Customers Cummins Turbo Medium-Duty Truck Technologies Revenue and Bus Shipments 5% 2 8% Up 2 Up 2006 2007 2006 2007 17
  18. 18. Investing in profitable growth New Product Pursue underserved Increase share markets of wallet Current Product Increase share in Pursue untapped core markets markets Current Market/Customer New Market/Customer 18
  19. 19. Growth from new engine platforms 1,400 Engine Production (Thousands) 1,200 1,000 800 600 400 200 0 2006 Organic New 2010 Growth Platforms 19
  20. 20. Evolving global emission standards creates growth opportunities Global Market Size for On-highway Commercial Vehicle Diesel Catalytic Exhaust ($B) $0 $1 $2 $3 $4 $5 $6 2006 2010 20
  21. 21. Investing in Our Distribution Channel Company-owned Joint Venture Independent 21
  22. 22. Confident in our ability to perform in 2007 and beyond We have fundamentally changed our business model Our customers recognize Cummins for our technology leadership We are investing in the next generation of profitable growth opportunities 22
  23. 23. 23
  24. 24. Non-GAAP Reconciliations
  25. 25. Non-GAAP Reconciliation – EBIT Three Months Ended Millions December 31, December 31, October 1, 2006 2005 2006 Segment EBIT $ 303 $ 269 $ 296 Less: Interest Expense $ 20 $ 26 $ 23 Earnings before income taxes and minority $ 283 $ 243 $ 273 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. 25
  26. 26. Non-GAAP Reconciliation – EBIT Year Ended Millions December 31, December 31, December 31, 2006 2005 2004 Segment EBIT $ 1,179 $ 907 $ 543 Less: Interest Expense $ 96 $ 109 $ 111 Earnings before income taxes and minority $ 1,083 $ 798 $ 432 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. 26
  27. 27. Non-GAAP Reconciliation – EBITDA Year Ended Millions December 31, December 31, December 31, 2006 2005 2004 Segment EBIT $ 1,179 $ 907 $ 543 Depreciation & Amortization $ 296 $ 295 $ 272 EBITDA $ 1,475 $ 1,202 $ 815 EBITDA = Earnings before interest, taxes, minority interests, depreciation, and amortization. 27
  28. 28. Non-GAAP Reconciliation – Cash From Operations Excluding Pension Contributions Year Ended Millions December 31, December 31, 2006 2005 Cash provided by operations $ 840 $ 760 Add back: pension contributions $ 266 $ 151 Cash provided by operations excluding pension contributions $ 1,106 $ 911 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. 28
  29. 29. Appendix
  30. 30. Cummins Inc. 2006 Revenue by Segment Components 2006 – Outstanding Year Segment 17% Record revenue and Engine EBIT for the company Segment 55% Distribution and each operating Segment 10% segment Record net income Record cash flow from operations for the year Power Gen Segment 18% 2006 Data Sales: $11.4 billion EBIT: $1,179 million 30 EBIT Margin: 10.4% (Target: 7-10% )
  31. 31. Cummins Inc. 2006 Revenue by Marketing Territory Africa/Middle East International revenue Canada 5% 7% is 50% of consolidated revenue Mexico/Latin America Pre-emission demand 8% has accelerated US growth rate United States Most international 50% areas growing at Asia/Australia 16% double digit rate Europe/CIS 14% 31
  32. 32. Cummins – Historical Performance Sales EBIT $12,000 1400 $11,362 $1,179 $9,918 1200 $10,000 $8,438 1000 $907 $8,000 $ Millons $ Millons 800 $6,296 $5,853 $6,000 $543 600 $4,000 400 $181 $2,000 200 $139 $0 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 32
  33. 33. Engine Segment 2006 Revenue by Product Emission regulations Parts and Service 20% create opportunities Midrange (3-9L) 37% Aftermarket revenue creates stable earnings Emerging markets Strategic OEM partnerships High Horsepower (19-91L) 14% 2006 Segment Data Heavy-Duty Sales: $7.5 billion (10-15L) 29% EBIT: $733 million 33 EBIT Margin: 9.8% (Target: 7-10% )
  34. 34. Engine Segment 2006 Revenue by Market Application Heavy-duty Truck Stationary Power 10% demand remains strong Mining/Rail Heavy-duty Govt/O&G truck 33% Share gains in Medium- Marine 12% duty Truck & Bus Off-highway markets supported by non- Construction residential construction & Ag 15% and commodity markets Medium-duty Light-duty Truck & bus 13% 2006 Segment Data Automotive Sales: $7.5 billion & RV 17% EBIT: $733 million 34 EBIT Margin: 9.8% (Target: 7-10% )
  35. 35. Engines – Historical Performance Sales Segment EBIT 8000 800 $7,511 $733 7000 $6,657 700 $582 6000 600 $5,424 5000 500 $M $M 4000 400 $3,435 $3,582 $328 3000 300 2000 200 1000 100 $62 $37 0 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 35 *Data f or 2002 has not been restated f or changes in segment reporting announced May 2, 2005.
  36. 36. Power Generation Segment 2006 Revenue by Product Turnaround complete Alternators Commercial 19% Strengthening markets 56% Expanding market share Rental 2% Consumer growth opportunities Growing project business Consumer 13% capability Power Electronics 6% 2006 Segment Data Energy Sales: $2.4 billion Solutions 4% EBIT: $220 million 36 EBIT Margin: 9.1% (Target: 7-9% )
  37. 37. Power Generation – Historical Performance Sales Segment EBIT 3000 250 $220 $2,416 2500 200 $1,999 $145 2000 150 $1,842 $M $M 1500 100 $1,329 $1,226 $60 1000 50 500 0 ($19) ($25) 0 -50 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 37 *Data f or 2002 has not been restated f or changes in segment reporting announced May 2, 2005.
  38. 38. Components Segment 2006 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 17% Engine Filtration 2006 Segment Data Catalytic 21% Sales: $2.3 billion Exhaust EBIT: $107 million 6% 38 EBIT Margin: 4.7% (Target: 7-9% )
  39. 39. Components – Historical Performance Sales Segment EBIT 2500 120 $2,281 $107 $2,000 100 $94 2000 $89 $86 $1,783 $84 80 1500 $1,292 $M $M 60 $951 1000 40 500 20 0 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 39 *Data f or 2002 has not been restated f or changes in segment reporting announced May 2, 2005.
  40. 40. Distribution Segment 2006 Revenue by Product Service Broadening product 18% offering Engines 20% Expanding global coverage Increasing equity ownership Excelling in customer Parts, support Filters, & Consumables Power 38% Generation 2006 Segment Data 24% Sales: $1.4 billion EBIT: $144 million 40 EBIT Margin: 10.4% (Target: 8-10% )
  41. 41. Distribution – Historical Performance Sales Segment EBIT 1600 160 $144 $1,385 1400 140 $1,191 1200 120 $107 $973 1000 100 $79 $M $M 800 80 $669 $574 600 60 $51 400 40 $33 200 20 0 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 41 *Data f or 2002 has not been restated f or changes in segment reporting announced May 2, 2005.

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