Cummins Inc. (CMI)

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Cummins Inc. (CMI)

Q4 2009 Earnings Call Transcript

February 2, 2010 10:00 am ET


Dean Cantrell – Director, IR

Tom Linebarger – President and COO

Pat Ward – VP and CFO

Tim Solso – Chairman and CEO


Jerry Revich – Goldman Sachs

Henry Kirn – UBS

Meredith Taylor – Barclays Capital

Ann Duignan – J.P Morgan

Adam Uhlman – Cleveland Research

Andrew Casey – Wells Fargo Securities



Good day ladies and gentlemen and welcome to the Q4 2009 Cummins Incorporated earnings conference call. At this time all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this conference. (Operator instructions).

I would now like to turn the call over to Mr. Dean Cantrell, Director of Investor Relations. Please proceed, sir.

Dean Cantrell

Thank you, Antwain. Welcome everyone to our teleconference today to discuss Cummins results for the fourth quarter of 2009. Participating with me today our 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 would include certain forward-looking information. And a forward-looking statement involve risks and uncertainty the company’s future results may be affected by change 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 statements.

A more complete disclosure about our forward-looking statements begins on Page #3 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 Web site for the reconciliation of those measures to GAAP financial measures. Our press release with the copy of the financial statements and a copy of today’s webcast, presentation is available on our Web site at under the heading of investors and media.

With those formalities out of the way I would like to call your attention to our upcoming Analyst Day at the New York Stock Exchange on March 16. Invitations will be sent out shortly but please mark the date on your calendars as we will discuss our new five-year outlook for the company. Turning back to the fourth quarter results we will begin our remarks with our President and Chief Operating Officer, Tom Linebarger.

Tom Linebarger

Thank you, Dean. Good morning. I want to start today by sharing some thoughts about our performance in 2009 which ended with the most profitable quarter in the Company’s history and then give you a high level look at our expectations for this year. Pat Ward will then provide greater detail on both our fourth quarter results and the 2010 outlook, and Tim Solso will share his thoughts about the Company’s long-term prospects.

As I mentioned we had an outstanding fourth quarter. All four business segments reported stronger sales and higher EBIT percentages than in the third quarter, continuing our pattern of sequential quarterly profit improvement throughout 2009. Sales of $3.4 billion in the fourth quarter were 3.4% higher than the fourth quarter of 2008, and increased 34% from the third quarter. Earnings before interest and taxes before restructuring and other charges were 11.4% of sales. Our best quarterly performance since the peak of the previous economic cycle in the second quarter of 2008.

As you will recall we entered this recession in a very strong financial position and quickly established a plan to manage the business effectively through the downturn. In simple terms, our focus throughout the recessionary period has been to one, reduce costs, two align manufacturing capacity with real demand, three, earn a solid profit and generate positive cash flow despite dramatic reduced volumes, four, invest in projects and technologies critical to our growth, and fifth, continue to demonstrate to our customers that we care about their success more than anyone else.

I think our results in 2009 speak to our success in managing all these priorities. And I’m proud of the work that Cummins employees did to make this year a strong one despite the challenges we face.

Our efforts to lower working capital resulted in $442 million reduction in inventory in 2009, which contributed significantly to our improved cash position. We also strengthened our supply chain management system, which we expect to yield higher productivity and lower costs in 2010 and beyond.

We used our rings of defense approach to lower cost across our manufacturing systems quickly moving to reduce capacity and becoming more efficient in our manufacturing processes as volumes drop.

For example, we took advantage of the volume slow down in the first half of 2009 to better synchronize flows at a number of our plants and distribution centers. That work paid dividends in the fourth quarter, providing significant leverage as volumes increased.

While we are talking about our manufacturing operations I want to take a moment to recognize all the people who work in Cummins manufacturing plants or in our suppliers’ plants around the world.

2009 was a challenging year for our plants and for our suppliers. We began by making deep cuts in our plants to stay in front of rapidly falling demand across most of our markets. Then within a few months of hitting bottom, demand at many of our locations returned to record or near record levels.

By working together we were able to minimize the impact of the steep volume drop early in the year, take full advantage of the rapid increase late in the year. This was especially true in our U.S. engine and components plants, where we worked nearly non-stop to keep up with the temporary spike in demand during the fourth quarter in advance of the 2010 emissions standards change.

For example, production of our Jamestown Engine Plant was at its highest level ever during the fourth quarter. Today, just a month later volumes have dropped by 75%.

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