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Q3 2010 Earnings Call
October 26, 2010 10:00 am ET
T. Solso - Chairman of the Board, Chief Executive Officer and Chairman of Executive Committee
N. Linebarger - President, Chief Operating Officer and Director
Dean Cantrell - Director of Investor Relations
Patrick Ward - Chief Financial Officer and Vice President
Ann Duignan - JP Morgan Chase & Co
Jerry Revich - Goldman Sachs
Henry Kirn - UBS Investment Bank
Andrew Casey - Wells Fargo Securities, LLC
Eli Lustgarten - Longbow Research LLC
Robert Wertheimer - Morgan Stanley
Meredith Taylor - Barclays Capital
Adam Uhlman - Cleveland Research
Jamie Cook - Crédit Suisse AG
Previous Statements by CMI
» Cummins Q2 2010 Earnings Call Transcript
» Cummins Inc. Q1 2010 Earnings Call Transcript
» Cummins Inc. Q4 2009 Earnings Call Transcript
Thank you, Anne. Welcome, everyone, to our teleconference today to discuss Cummins' results for the third quarter of 2010. 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 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 condition and by the action 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 3 of our 2009 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, are available on our website at www.cummins.com under the heading of Investors and Media.
With those formalities out of the way, we'll begin our remarks with our President and Chief Operating Officer, Tom Linebarger.
Good morning. I will start today by sharing some thoughts on our performance in the third quarter. Pat will then provide greater detail on the quarter and our updated 2010 outlook. And Tim will talk about our longer-term priorities.
The third quarter was a continuation of our strong performance throughout 2010. Sales and profits rose sharply from the same period last year, led by strength in our international markets and the significant improvements we have made in manufacturing productivity during the downturn. Sales of $3.4 billion were 34% higher than the same period in 2009. All four business segments reported significantly higher sales, led by our Engine and Power Generation segment, which increased by 44% each. Earnings before interest and taxes also increased from the third quarter of 2009 to $449 million or 13.2% of sales. That compares to 7% of sales, excluding restructuring charges, during the same period in 2009.
To further illustrate our improved profitability, consider that in the second and third quarters of this year, we produced the same EBIT as we did during the second and third quarters of 2008 at the height of our business before the recession on $1 billion lower in sales.
Our Engine business reported record quarterly EBIT of 10.8% of sales despite continued weakness in the North American truck market. The Power Generation business has rebounded strongly from its low point of the downturn during the third quarter last year and matched its best-ever quarterly EBIT percentage at 12.3%. Our Distribution businesses set a quarterly record by earning EBIT of $74 million. And our Components group continued to perform well during the quarter as EBIT doubled from the same period in 2009.
As has been the case all year, strong markets in China, India and Brazil continues to drive large sales increases in the third quarter. Consolidated sales in China rose 72% from the third quarter of last year, while sales in Brazil increased 90%, and sales in India were up 49%. Overall, sales outside the U.S. increased 56% from the same period last year, accounting for 63% of our total consolidated revenues in the quarter.
For example, international sales of engines to the industrial markets increased 96% compared to the same quarter last year, led by sharply higher demand for construction engines in emerging markets. Sales to the mining market doubled in the third quarter, due to stronger demand for coal and other commodities. And Power Generation sales to international markets increased 65% compared to last year. Many of our U.S. markets remain weak as a result of the slow recovery in the U.S. economy. We are well positioned for the recovery in these markets but don't expect to see any meaningful improvement until 2011.
While we're on the topic of our U.S. business, I want to provide an update on our 2010 engine launch, which continues to go extremely well. To the end of September, we have shipped nearly 37,000 medium- and heavy-duty engines to North American truck and bus customers equipped with Selective Catalytic Reduction aftertreatment devices. The feedback we have received from our customers has been very positive and confirms that the new engines are performing as expected in terms of both reliability and fuel economy. Many of our heavy-duty customers say they are experiencing a 5% to 6% improvement in fuel economy compared to our EPA 2007 engines, with some reporting even greater improvement.
More than ever, we are confident that SCR is the right choice to meet current and future emission standards in this market while helping us to achieve the fuel economy our customers demand. In addition to our leadership positions in several growing international markets, we continue to benefit from our efforts to become low-cost producer around the world. We have talked in recent quarters about productivity improvements in our manufacturing operations, which have allowed us to respond quickly to demand fluctuations, to gain market share and to improve our profitability. Today, I want to share a few thoughts about a broad effort we have launched to strengthen our global supply chain.