Cummins Inc. (CMI)

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Cummins Inc. (CMI)

Q4 2010 Earnings Conference Call

February 1, 2011 10:00 AM ET


Dean Cantrell – Director, IR

Tom Linebarger – President and CFO

Pat Ward – VP and CFO

Tim Solso – Chairman and CEO


Jamie Cook – Credit Suisse

Jerry Revich – Goldman Sachs

Robert Wertheimer – Morgan Stanley

Henry Kirn – UBS

Ann Duignan – JPMorgan

Eli Lustgarten – Longbow Research

Andy Casey – Wells Fargo

Tim Denoyer – Wolfe Research

Tim Thein – Citigroup

David Raso – ISI Group



Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Cummins Incorporated Earnings Conference Call. My name is Anne, and I will be your coordinator for today’s call.

As a reminder, this conference is being recorded for replay purposes. At this time, all participants are in listen-only mode. (Operator Instructions) We will be facilitating a question-and-answer session following the presentation.

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

Dean Cantrell

Thank you, Anne. Welcome everyone to our teleconference today to discuss Cummins’ results for the fourth quarter of 2010. 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 risks 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 our forward-looking statements begins on page three 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, the copy of the financial statements, and a copy of today’s webcast presentation are available on our website at under the heading of Investors and Media.

With those formalities out of the way, I would like to call your attention to our 2011 Analyst Day in New York on Tuesday, September 13. Please mark the date on your calendars as we will reveal 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 will start today by sharing some thoughts on our performance in the fourth quarter and for the full year. Pat will then provide greater detail on the quarter and will discuss our 2011 financial guidance, while Tim will talk about our longer term priorities.

As you can see from the results, we had an outstanding fourth quarter capping a very strong year for Cummins. Our revenues in the fourth quarter surpassed $4 billion for the first time and were 22% higher in the same period of 2009. Fourth quarter EBIT of $541 million or 13.1% of sales also was a quarterly record and was 41% higher than a year ago.

Our Engine, Components and Distribution segments reported record sales and EBIT in the fourth quarter. All three segments also earned record EBIT for the year. Our Power Generation business, which entered the downturn later than our other businesses, also saw dramatic sales and EBIT gains in the fourth quarter and full year compared to the same periods in 2009. Cummins full-year sales of $13.2 billion were 22% higher than 2009 and our second best sales year ever. Our profit results were even stronger. Earnings before interest and taxes of $1.7 billion or 12.5% of sales were more than double what we earned in 2009 and represent our highest annual EBIT ever.

We continued to return value to our shareholders in 2010 as well. In addition to a 140% appreciation in our stock price, we increased our dividend by 50% in the third quarter and repurchased $241 million in stock over the course of the year. Our financial results in 2010 were much stronger than we had expected when the year began and can be attributed primarily to two factors, which we have discussed over the past few quarters.

The first is the strong growth we experienced in China, India, and Brazil where our markets returned in dramatic fashion after relatively brief downturns in 2009. For the fourth quarter, our sales in China were up 92% over the same period in 2009. In India, sales increased 12% from the same period a year ago, but were up 37% for the full year. In Brazil, sales grew by 30% quarter-over-quarter as we continue to see strong growth as the leader in the Medium-Duty truck market.

I was in China last month visiting our plants and meeting with key customers and partners. The Chinese government is clearly concerned about inflation and has taken actions to reduce credit availability as well as ramping down fiscal stimulus. These actions are likely to have some impact on economic growth in 2011, though just how much impact is not clear. I can say that, at this point, demand in China remains strong in our market segments, especially in Construction where infrastructure projects continue to grow, especially in second tier cities. In my discussions, our Chinese partners confirmed their long-term growth prospects and the increased role they would like to commence to play in that growth, both domestically and internationally. I left feeling highly confident about our growth prospects, both near term and long term in China.

The other major contributing factor to our success in 2010 was the improved productivity in our manufacturing operations around the world. The actions we took during the downturn to restructure our operations have made our plants significantly more efficient. As a result, we saw improved margins as our volumes returned in many markets. For us the most satisfying aspect of our performance in 2010 was the fact that we achieved record profitability despite significant weakness in the North America on-highway markets.

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