Cummins Reports Most Profitable Third Quarter in Company History

Cummins Inc. last week reported an 18-percent increase in net earnings on a 14-percent increase in sales, compared to the same period in 2005.

Sales for the quarter were $2.81 billion, compared to $2.47 billion for the third quarter of 2005. Net income of $171 million, or $3.37 a share, was up from $145 million, or $2.90 a share, in the same period last year. Earnings before interest and taxes (EBIT) rose 23 percent to $296 million, or 10.5 percent of sales, while gross margins remained near record levels at 23.3 percent of sales.

Each of the company's business segments reported double-digit percentage sales growth in the third quarter, led by the Power Generation and Distribution businesses, both of which performed above the top end of their targeted sales and profit ranges.

The company saw sales growth in most of its markets around the world — both in its wholly owned businesses and at its joint ventures, where income increased 19 percent from the same period in 2005.

"We performed well in the third quarter and see great opportunities for the future," said Cummins chairman and CEO Tim Solso. "In particular, our Power Generation and Distribution businesses enjoyed significant growth — both in terms of revenue and profit.

The company also repurchased $14 million of its common stock in the third quarter as part of a previously announced plan to repurchase up to 2 million shares.

"Our continued strong financial performance has allowed us to create a strong balance sheet," said Cummins chief financial officer Jean Blackwell. "As a result, the company is well positioned to withstand the challenges of the business cycle and invest in growth opportunities that will be the key to our future success."

Cummins reaffirmed its previous full-year guidance of $14.00 to $14.20 a share. The company will provide guidance for 2007 in January, but expects EBIT margins to be within its 7- to 10-percent target range, on flat-to-5 percent increase in sales.

In the Engines segment revenues rose 10 percent to $1.84 billion and segment EBIT increased 20 percent to $183 million, or 9.9 percent of sales, which is at the top of the targeted range of 7 to 10 percent.

In the Power Generation segment revenues rose 24 percent to $624 million — well above the targeted range of 8 to 10 percent. Segment EBIT increased 24 percent to $57 million, or 9.1 percent of sales — compared to the targeted range of 7 to 9 percent.

Sales increases were driven by volume gains as a result of strong demand in the commercial generator set and alternator businesses. Commercial sales rose 32 percent as demand grew around the world, with the exception of China and Southeast Asia.

In its Distribution segment revenues rose 17 percent to $346 million — above the segment's 10-percent growth target. Sales gains primarily were driven by growth in the Middle East, Europe and the South Pacific. Increases in sales of power generation equipment were led by the reconstruction effort in the Middle East, which accounted for more than half the sales growth in this business line.

The company also saw significant improvement in income from its North American distributor joint ventures during the quarter.

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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