Company Overview
Cummins Inc. (CMI) is a global leader in the design, manufacture, distribution, and service of a broad portfolio of power solutions. The company's roots can be traced back to 1919 when it was founded as Cummins Engine Company in Columbus, Indiana. Over the past century, Cummins has evolved into a diversified power solutions provider, offering a wide range of advanced diesel, natural gas, electric, and hybrid powertrains, as well as related components and systems.
Cummins' business is organized into five key segments: Components, Engine, Distribution, Power Systems, and Accelera. The Components segment focuses on producing axles, drivelines, brakes, suspension systems, aftertreatment systems, turbochargers, fuel systems, valvetrain technologies, automated transmissions, and electronics. The Engine segment supplies engines 15 liters and smaller for on-highway and off-highway markets, including trucks, buses, recreational vehicles, and various industrial applications. The Distribution segment encompasses Cummins' network of wholly-owned and partially-owned distributors that sell, service, and support the company's products globally. The Power Systems segment designs, manufactures, and sells larger engines (16 liters and above) for industrial applications such as mining, oil and gas, marine, and rail, as well as power generation equipment. Finally, the Accelera segment focuses on developing and commercializing hydrogen production technologies, as well as electrified power systems and related components and subsystems.
Historical Background
In its early years, Cummins was one of the first diesel engine manufacturers, focusing primarily on developing and manufacturing advanced diesel engines. The company faced significant challenges in the 1970s and 1980s as it navigated changing emission standards and increased competition. However, Cummins demonstrated its ability to adapt and innovate, emerging as a leader in clean engine technologies. A major milestone for the company came in 2001 when it changed its name from Cummins Engine Company to Cummins Inc., reflecting its expanding product portfolio beyond just engines. Throughout the 2000s, Cummins continued to grow its global distribution network and made strategic acquisitions to expand its capabilities in areas such as filtration and turbochargers.
Competitive Advantages
Cummins' diverse product portfolio and global footprint have been key to its success over the years. The company serves a wide range of end markets, including on-highway, off-highway, power generation, and industrial, which helps mitigate the impact of cyclical downturns in any one industry or region. Cummins has a strong presence in major markets around the world, with a global manufacturing and service network that includes approximately 450 wholly-owned, joint venture, and independent distributor locations, as well as more than 19,000 Cummins-certified dealer locations in around 190 countries and territories.
Financials
Financial Snapshot
Cummins has a long history of solid financial performance, though the company's results can be impacted by macroeconomic conditions and industry-specific factors. In the most recent fiscal year (2023), the company reported revenue of $34.06 billion and net income of $735 million, or $5.15 per diluted share. Cummins' operating cash flow for the year was $3.97 billion, while free cash flow totaled $2.75 billion.
For the third quarter of 2024, Cummins reported consolidated net sales of $8.46 billion, representing a 0.3% increase compared to the same period in 2023. Net income attributable to Cummins Inc. was $809 million, or $5.86 per diluted share, up from $656 million, or $4.59 per diluted share, in the prior year quarter. The increase in profitability was driven by improved gross margin and favorable changes in corporate-owned life insurance, partially offset by the Atmus divestiture. Operating cash flow for the quarter was $640 million, with free cash flow of $381 million.
The company's international sales, excluding the U.S. and Canada, accounted for 39% of total net sales in Q3 2024 and 38% in the first nine months of 2024. Key international markets include China, India, Europe, and Latin America.
Segment Performance
In the Components segment, third-quarter 2024 sales decreased 16% to $2.72 billion, primarily due to the divestiture of Atmus Filtration Technologies Inc. on March 18, 2024. EBITDA for the segment was $351 million, down 20% from the prior year period.
The Engine segment reported sales of $2.91 billion in Q3 2024, a 1% decrease compared to the same period in 2023. However, EBITDA for the segment increased 8% to $427 million, primarily due to favorable pricing.
The Distribution segment saw a 16% increase in sales to $2.95 billion in Q3 2024, driven by higher demand for power generation products. EBITDA for the segment increased 21% to $370 million.
The Power Systems segment reported a 17% increase in sales to $1.69 billion in Q3 2024, mainly due to higher global demand for power generation products, particularly in data center markets. Segment EBITDA increased 40% to $328 million.
The Accelera segment, which focuses on hydrogen production technologies and electrified power systems, saw a 7% increase in sales to $110 million in Q3 2024. Segment EBITDA was $115 million, up 1% from the third quarter of 2023.
Liquidity
As of September 30, 2024, Cummins had a strong liquidity position with $1.73 billion in cash and cash equivalents. The company's debt-to-equity ratio stood at 0.678, while its current ratio was 1.32 and quick ratio was 0.791. Cummins had $2.36 billion available in revolving credit facilities and $527 million in other credit facilities, providing additional financial flexibility.
Challenges and Opportunities
Cummins has faced its share of challenges in recent years, including the impact of the COVID-19 pandemic, supply chain disruptions, and regulatory changes related to emissions standards. In 2023, the company reached a $2 billion settlement with U.S. regulatory agencies to resolve certain claims regarding its emissions certification and compliance process for certain engines. While this settlement resulted in a significant one-time charge, it has enabled Cummins to move forward and focus on its core business operations.
Despite these challenges, Cummins has remained nimble and proactive in adapting to changing market conditions. The company has continued to invest in research and development to maintain its technological edge, with a particular focus on developing cleaner, more sustainable power solutions to meet evolving customer needs and environmental regulations.
Cummins' Accelera segment, for example, is at the forefront of the company's efforts to commercialize hydrogen production technologies and electrified power systems. In 2024, the company celebrated the opening of its electrolyzer manufacturing plant in Spain, showcasing its commitment to scaling up the development, manufacturing, and adoption of zero-emission technologies.
Furthermore, Cummins has leveraged its global distribution network and strong customer relationships to capitalize on growth opportunities in key markets, such as the robust demand for power generation equipment in data center and mission-critical applications. The company's Power Systems segment has been a standout performer, with record sales and profitability in recent quarters.
Looking Ahead
As Cummins navigates the road ahead, the company remains focused on delivering innovative solutions, maintaining operational excellence, and generating strong financial results for its shareholders. The company's diversified business model, global reach, and commitment to sustainability position it well to capitalize on the evolving needs of its customers and the broader power solutions market.
For the full year 2024, Cummins is maintaining its revenue guidance of down 3% to flat compared to the previous year. The company has improved its EBITDA margin guidance to approximately 15.5%, which is at the top end of its prior guidance range of 15% to 15.5%. This guidance reflects the company's expectation of continued softness in certain end markets, such as the North American heavy-duty truck segment, as well as the strength and resilience of its other business segments.
Breaking down the guidance by segment, Cummins expects the Components segment revenues to decrease 12% to 15% in 2024, with EBITDA margins in the range of 13.3% to 13.8%. The Engine segment is projected to see revenues down 2% to 1%, with EBITDA margins between 13.7% and 14.2%. The Distribution segment is expected to experience revenue growth of 8% to 11%, with EBITDA margins in the range of 11.5% to 12%. The Power Systems segment is forecasted to see revenue growth of 8% to 11%, with EBITDA margins between 18.3% and 18.8%. For the Accelera segment, revenues are expected to be in the range of $400 million to $450 million, with net losses between $400 million and $430 million.
Cummins also anticipates an effective tax rate of approximately 23.5% for the full year 2024, down from the prior guidance of 24%. Capital investments are expected to be in the range of $1.2 billion to $1.3 billion, consistent with previous guidance.
Despite the near-term challenges, Cummins remains poised for long-term success. The company's focus on innovation, operational efficiency, and strategic investments in key growth areas, such as hydrogen and electrification, should enable it to maintain its position as a global leader in power solutions. As Cummins navigates the road ahead, investors will undoubtedly be watching closely to see how the company leverages its diverse capabilities and solid financial foundation to drive sustainable growth and value creation in an evolving energy landscape.