Cummins Reports Best Quarter Historically as International Demand Surges

Cummins Inc. last week reported record sales and profits in the second quarter, as strong global growth offset softness in some North American markets. All four of the company’s business segments reported record financial performance in the quarter, as non-U.S. sales grew to 61 percent of Cummins’ business — up from 54 percent for all of 2007 and 57 percent in the first quarter of 2008.

Second-quarter sales grew 16 percent to $3.89 billion, from $3.34 billion during the same period in 2007. Net income increased 37 percent to $293 million, or $1.49 a share, compared to $214 million, or $1.06 a share, in 2007.

Earnings before interest and taxes of $469 million was a 32-percent improvement compared with $354 million during the same period a year ago.

The company experienced broad gains in product and geographic markets around the world including strong sales growth and market share in the North American heavy-duty engine market. Despite high fuel prices and weakness in the U.S. economy, Cummins posted gains in this market, compared to 2007 when changes in emissions regulations led to sharply lower demand — especially in the first half of the year.

Cummins also reported increased demand in its commercial generator business, most notably in the Middle East, Latin America, China and the United Kingdom, and strong sales growth in North America, Europe and China for turbochargers.

The company also reported significant sales gains for the company’s Emission Solutions products in North America and Europe, driven by new emissions regulations.

“We had an outstanding second quarter in the face of some very real economic challenges, especially in the U.S.,” said Tim Solso, Cummins chairman and CEO. “We are managing all of our businesses very carefully and the results speak to the effectiveness of our global growth strategy.”

In light of the company’s performance in the first half of the year and its forecast for the remainder of 2008, Cummins also announced that is now forecasting a 15-percent sales increase for all of 2008, up from its previous guidance of 12 percent. The company expects to earn an EBIT margin of 10 percent of sales for the year.

“As we look forward, despite the continuing economic uncertainty in the U.S. and Western Europe, and expected increases in materials costs, we are confident that we will continue to see growth in the second half of the year,” Solso said, adding that “2008 will be the fifth consecutive year of record sales and profits for Cummins.”

In the Engine segment Cummins reported that sales of $2.39 billion increased 13 percent from $2.11 billion in the same period in 2007, while segment EBIT of $221 million, or 9.3 percent of sales, rose 19 percent from $186 million, or 8.8 percent of sales.

Sales in the Power Generation segment were $938 million for the quarter, a 22-percent increase from $769 million in the second quarter of 2007. Segment EBIT increased 31 percent to $115 million, or 12.3 percent of sales, compared to $88 million, or 11.4 percent of sales, in 2007.

The commercial generator business, the segment’s largest, saw its sales increase 35 percent in the quarter, with very strong demand in the Middle East, Latin America, the U.K. and China. Alternator sales increased 14 percent and were strongest in the same international regions. In addition to the higher volumes, improved pricing led to the significantly higher Segment EBIT.

Components segment sales of $855 million were 13-percent higher than $757 million for the same period in 2007. Segment EBIT was sharply higher, improving by 60 percent to $77 million, or 9.0 percent of sales, from $48 million, or 6.3 percent of sales. The segment EBIT gains were the result of higher sales volumes, improved pricing and increased manufacturing efficiencies across many of the businesses.

Sales gains were led by a 24-percent increase in turbocharger revenue, a 21-percent gain in fuel systems sales and a 17-percent rise in emission aftertreatment sales. Sales in the filtration business — the segment’s largest business — were essentially flat as comparisons were negatively affected by the discontinuation of a product line last year and the sale of its Universal Silencer division at the end of 2007.

Distribution sales rose 58 percent to $581 million, from $368 million during the same period in 2007. Segment EBIT of $68 million, or 11.7 percent of sales, rose 48 percent from $46 million, or 12.5 percent of sales. The recently consolidated Power Systems distributor contributed $63 million to the sales increase.

Excluding Power Systems, the segment’s power generation sales increased 58 percent led by Europe, the South Pacific and Middle East. Likewise, engine sales, powered by strength in Europe, rose 62 percent; while parts sales increased by 26 percent.

Columbus, Ind.-based Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems.

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