Cummins posts record quarter and year

COLUMBUS, Ind. – Marine engine and genset manufacturer Cummins Inc., has completed a record 2005 fiscal year by posting its most profitable quarter ever, the company reported in a release yesterday.

In the fourth quarter of 2005, Cummins sales increased 17 percent, to a record $2.75 billion from $2.35 billion during the same period in 2004. Net income rose 40 percent in the fourth quarter, to $167 million (or $3.31 per share) from $119 million (or $2.41 per share) during the same period in 2004.

Cummins said its profits were driven by continued strength in its engine segment, record performance from its distribution and power generation segments and growth in major markets around much of the world. Marine shipments were up 29 percent, compared to the same quarter in 2004.

Overall, engine segment sales of $1.84 billion for the quarter were 22 percent higher than the same period in 2004, and Segment EBIT rose 56 percent to $156 million, or 8.5 percent of sales, compared to 6.6 percent of sales during the same period in 2004. Sales were strong across nearly all end markets, with on-highway revenues up 21 percent and off-highway revenues up 28 percent.

The company’s Power Generation Segment sales rose 11 percent from 2004 to $575 million in the quarter, while Segment EBIT more than doubled to $49 million, or 8.5 percent of sales. Commercial sales led the segment’s strong performance, with sales up 11 percent over the same period in 2004.

Brisk sales in the United States, the Middle East, India and Russia more than offset a drop in sales in China from record 2004 levels. Alternator sales improved 13 percent for the quarter, driven by rising volumes in all major regions except China and Southeast Asia.

Improved pricing accounted for much of the segment earnings growth and Cummins said it expects to see further price realization through the first half of 2006.

Record year
For all of 2005, Cummins reported profits, as measured by earnings before interest and taxes (EBIT), of $907 million – a 67 percent increase from 2004. Sales increased 18 percent to $9.92 billion, from $8.44 billion in 2004.

Net income for 2005 was $550 million, or $11.01 a share, up 57 percent from $350 million ($7.39 a share) in 2004. The company’s operating performance in 2005 allowed it to improve its cash position by $168 million, while also reducing net debt by $259 million, Cummins said.

The company’s earnings before interest and taxes (EBIT) for the fourth quarter of 2005 of $269 million – or 9.8 percent of sales – were 56 percent higher than the same period in 2004. All four Cummins operating segments posted revenue and Segment EBIT increases.

The company’s gross margin in the fourth quarter of 2005 was 22.5 percent compared to 20.1 percent during the same period in 2004. For all of 2005, gross margins were 22.0 percent – their highest level since 1997.

Cummins fourth quarter of 2005 results include tax benefits of $13.5 million, or $0.26 per share, related to the favorable resolution of prior year matters and additional benefits from repatriated dividends under the American Jobs Creation Act of 2004.

“Our results for both the fourth quarter and all of 2005 are outstanding,” said Cummins Chairman and Chief Executive Officer Tim Solso. “This performance is evidence that we are transforming Cummins into a less cyclical, more diversified company while converting a larger percentage of sales into profit.

“As good as the last two years have been, we are expecting 2006 to be more profitable, even if growth in our end markets moderates. We have significant opportunities as a result of our product mix, our leading position in many of the markets we serve, our global network of plants, technical centers, distributors and first-rate partners as well as our commitment to being a low-cost producer.”

Based on its current plans and forecasts, Cummins said it expects to earn between $2.50 and $2.60 a share in the first quarter and between $11.90 and $12.10 a share for all of 2006.

Cummins said its North American engine business remains very strong, but international sales growth was even better in 2005. For all of 2005, international sales represented 51 percent of the company’s total consolidated sales and 55 percent in the fourth quarter.

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