Cummins Inc. (CMI)

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Cummins, Inc. (CMI)

Q1 2009 Earnings Call

April 30, 2009 10:00 AM ET


Dean Cantrell - Director of Investor Relations

T. M. (Tim) Solso - Chairman and Chief Executive Officer

Tom Linebarger - President and Chief Operating Officer

Patrick (Pat) J. Ward - Vice President and Chief Financial Officer


Henry Kirn - UBS

Adam Uhlman - Cleveland Research Co.

Ann P. Duignan - J.P. Morgan Securities, Inc.

Stephen E. Volkmann - Jefferies & Company

Andrew Casey - Wachovia Securities

Jamie Cook - Credit Suisse - North America

Eli Lustgarten - Longbow Research

Meredith Taylor - Barclays Capital

Kristine Kubacki - Avondale Partners



Welcome to the First Quarter 2009 Earnings Release for Cummins Inc. Conference Call. My name is Tanya and I will be your coordinator for today. At this point, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions).

I will now like to turn the presentation over to your host for today's call, Mr. Dean Cantrell, Director of Investor Relations. Mr. Cantrell, please proceed.

Dean Cantrell

Thank you, Tanya. Welcome everyone to our teleconference today to discuss Cummins' results for the first quarter of 2009.

Participating with me today are Chairman and Chief Executive Officer, Tim Solso; our President and Chief Operating Officer, Tom Linebarger and our Chief Financial Officer, Pat Ward. We will all be available for your questions at the end of the teleconference.

This teleconference will include 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 three of our 2008 Form 10-K and it applies to this teleconference.

During the course of this call, we will be discussing certain non-GAAP financial measures and we refer you to our website for the reconciliation of those measures to GAAP financial measures.

Our press release with a copy of the financial statements and a copy of today's webcast presentation is available on our website at under the heading of Investors and Media.

Before we review our first quarter performance and updated guidance for 2009, I'd like Tim to say a few words.

T. M. (Tim) Solso

Good morning. As we expected, the first quarter was extremely challenging due to the ongoing global recession.

Demand for our products has fallen in nearly every market and geographic region around the world. Pat Ward will offer more details about the first quarter, but here are the high level facts.

Sales declined by 30%, more than $1 billion compared to the first quarter of 2008. Sales dropped in all four segments during the quarter. The Engine and Components segments were the hardest hit.

Earnings before interest and tax for the company was 3.9% of sales excluding a $66 million severance charge relating to actions taken throughout the quarter. We don't expect the global economy to bottom out until late this year at the earliest and we are not expecting any improvement in our markets in 2010.

We remain confident that the company is well positioned to take advantage of a number of long-term market trends and will resume its growth once the recession ends.

In the short term, however, we are assuming the worst from the economy and are continuing to aggressively manage costs and capacity across the company.

Our goals for this year have not changed. They are to align cost and capacity with the real demand for our products so that we maintain a solid profit through the downturn, manage the business in such a way that generates positive cash flow and continue to invest in critical technologies and products for 2010 and beyond.

We already have moved quickly to address each of these goals and Tom Linebarger will in more detail about some of our actions.

I want to emphasize, though, that our management team has the experience and the willingness to make the difficult decisions necessary to get us through this recession. As I said last quarter, managing cash through this downturn will be critical to our future growth. We had a cash outflow in the first quarter, mainly as a result of paying out variable compensation earned on record 2008 results, as expected. But I am confident that the actions we have taken and will continue to take will allow us to generate positive cash flow for the year.

I would like to remind everyone that we entered this recession in the best financial shape in the company's history. Our record results from 2004 to 2008 allowed us to lower our debt to capital to below 20%, build our liquidity and invest in several profitable growth opportunities.

In addition to our available cash, we also have $1.1 billion credit revolver, which we did not need to use in the first quarter despite the challenging conditions. We are taking necessary steps to ensure that Cummins emerges from this downturn as a stronger company, which will be well positioned to take advantage of the recovery when it begins.

Given our outlook on the economy and end markets, we have revised our guidance for 2009. Our guidance for this year is now for sales to decline slightly more than 30% from our record year in 2008 and for EBIT to be approximately 5% of sales excluding restructuring charges.

Now Tom will share some additional details on the actions we have taken and why we think the company is well positioned for the future.

Tom Linebarger

Thank you, Tim. We began taking aggressive actions to lower our costs in the first quarter of 2008 when it became clear the recession was going to lead to a significant decline in our volumes in most markets around the world.

As Tim said, we took additional actions in the first quarter of this year including further reducing our global workforce by approximately 4100 people. These reductions include 800 professional job cuts announced in February, approximately 2000 hourly workers in our manufacturing facilities around the world and 1300 contracted temporary workers.

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