Cummins Inc. (CMI)

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Cummins (CMI)

Q1 2011 Earnings Call

April 26, 2011 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


James Corridore - S&P Equity Research

Jerry Revich - Goldman Sachs Group Inc.

Eric Crawford - UBS Investment Bank

Andrew Casey - Wells Fargo Securities, LLC

Robert Wertheimer - Morgan Stanley

Ben Elias - Sterne Agee & Leach Inc.

David Raso - ISI Group Inc.

Timothy Denoyer

Joel Tiss - Buckingham Research Group, Inc.

Unknown Analyst -

Jamie Cook - Crédit Suisse AG



Good day, ladies and gentlemen, and welcome to the 2011 Cummins Earnings Conference Call. My name is Alicia, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Dean Cantrell, Director of Investor Relations. Please proceed sir.

Dean Cantrell

Thank you, Alicia. Welcome, everyone, to our teleconference today to discuss Cummins' results for the first quarter of 2011. 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 our forward-looking statements begins on Page 3 of our 2010 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 under the heading of Investors and Media.

With those formalities out of the way, we'll begin our remarks with our Chairman and Chief Executive Officer, Tim Solso.

T. Solso

Good morning. I'm going to start today by offering an overview of our first quarter results. I will then share a few thoughts on how the company is positioned to take advantage of our long-term opportunities. Tom will discuss our ability to meet the growth in demand we expect to see this year in all our markets. Pat will then conclude with a detailed look at our performance in the first quarter and share our updated guidance for 2011.

As you know, there are some debate over the strength and sustainability of the global economic recovery. We have a good perspective on the strength of the global markets, and we are seeing significant growth in demand for our products and services in nearly every geographic market we serve. In fact, we now expect our sales in 2011 to be almost 30% higher than in 2010 compared to our initial forecast of around 20%.

Our first quarter performance was very good. Sales of $3.9 billion represent the third highest quarterly sales in the company's history behind only our record performance last quarter and the second quarter of 2008 at the height of the last economic cycle. Our profitability as a percentage of sales represents solid performance and continuing improvement. Earnings before interest and taxes were 13.8% of sales in the first quarter. These earnings are higher than the fourth quarter of 2010 and the best quarterly performance ever at Cummins.

All 4 of our business segments reported improved EBIT percentage from the fourth quarter. The Engine and Components segments also earned record EBIT in the first quarter both in terms of total dollars and as a percent of sales. Our first quarter results reflect continued strong growth in key international markets especially China, India and Brazil. Consolidated sales in China grew by 66% from the same period in 2010. Sales in India increased by 31%, and sales in Brazil rose by 39%.

We also were starting to see signs of recovery in the North American truck markets. Shipments in North America heavy-duty truck market grew by 15% compared to the previous quarter, while medium-duty Engine segment increased by 14%. We have now shipped nearly 90,000 engines equipped with Selective Catalytic Reduction aftertreatment systems in North America. Our engines continue to perform very well, and orders for the rest of the year are increasing.

Our performance in the first quarter was further confirmation that our work to keep the company strong during the recession continues to pay off. It also has strengthened my belief that Cummins is entering into a period of accelerated profitable growth over the next few years, driven by several economic and market trends that we have shared with you over the past 2 years. Those trends include the continued rapid growth in international markets especially in emerging markets like India, Brazil and China; tightening emission standards around the world; increased infrastructure and investment; and a widening gap between the demand and supply of electricity. We are beginning to see the impact to some of these trends on our business already. For example, Cummins global reach continues to play a large role in our success, and we expect that to continue well into the future.

We've talked at some length about our strength in China, India and Brazil. We have aggressive plans in place to build on our leadership positions in all 3 countries. We are investing in additional capacity, entering new markets and launching new products tailored to specific needs within those markets. We also are setting the stage for even longer-term growth by investing in Africa, which we see as an important market for Cummins over the next decade and beyond. Much like we did in India and China in the 1970s and 80s, we are committed to establish a strong presence across Africa early in its economic development.

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