Engine and power systems maker Cummins Inc. reported higher third-quarter sales across all segments and raised its full-year revenue estimate despite softening business conditions expected in Q4.
Cummins reported Q3 revenues of $8.4 billion, 15% ahead of the same quarter a year ago. It beat the $8.1 billion consensus of analysts surveyed by investor site Seeking Alpha. Five percent of the total sales increase resulted from the $3.7 billion acquisition of Meritor Inc. that closed in August 2022, CFO Mark Smith told analysts on the company’s Q3 earnings call.
Net income totaled $656 million, or $4.59 per diluted share, compared to $400 million, or $2.82 per diluted share, in Q3 2022. It included $26 million, or 14 cents, of costs related to the spinoff of Cummins’ filtration business now called Atmus Filtration Technologies.
Full-year revenue guidance raised
The company generated a record $1.5 billion in net cash from operations. It raised full-year revenue guidance to be in the 18-21% range compared to an earlier estimate of 15-20%.
Cummins reported Q3 earnings before interest, taxes, depreciation and amortization of $1.2 billion, or 14.6% of sales. That compared to $884 million, or 12.1%, a year ago. Excluding the Atmus and Meritor items, EBITDA was 14.9% compared to 13.3% a year. The company expects full-year EBITDA to range between 15.2% and 15.4%, narrowing an earlier estimate of 15-15.7%.
The outlook assumes full-year results for Atmus but does not include expected cost cuts in Q4. That includes offering voluntary retirements and a voluntary separation program in select regions for eligible employees in certain business segments.
“We’re not predicting like a precipitous decline in our revenues at all,” Smith said. “But we feel it’s prudent both to do the cost reduction actions, continue our focus on cash flow and debt reduction that should leave us with the best chances of being very successful in 2024.”
Acquisitions and higher prices help sales rise double digits
Sales in North America rose 16%. International revenues were up 13% with strong demand for engines, components, power distribution and new power products.
In its truck engine business, Cummins sold 29,000 heavy-duty units, up 18% from a year ago. The company produced 37,000 medium-duty engines, up 7% from the same quarter in 2022. Medium-duty sales of 32,000 surpassed 2022 by 19%.
Q3 revenues in China, including joint ventures, were $1.6 billion, an increase of 24% as markets continue to recover compared to a very weak third quarter of 2022.
“While full year revenues are at the high end of our expectations, we are seeing signs of moderating demand in some markets and are taking steps to reduce costs and position the company for success in 2024,” CEO and Chair Jennifer Rumsey said in a news release.
Cummins expects higher full-year revenues in its components segment and higher profits om power system, offset by lower profits in engines resulting from softening aftermarket and off-highway markets. Orders remain relatively strong but inventory management and truck component shortages and fewer working days in the current limit OEM production rates.
“Our leadership team is experienced in managing through periods of economic uncertainty and will continue to make the decisions that ensure we drive cost improvements and maintain a strong financial position,” Rumsey said.
5 for 5 in segment sales performance
Across its five segments, Cummins reported:
Components — Sales of $3.2 billion, up 20%, and EBITDA of $441 million, or 13.6%, compared to $297 million, or 11%, a year ago.
Engines — Sales of $2.9 billion, up 5%, and EBITDA of $395 million, or 13.5%, compared to $362 million, or 13%. On-highway revenues increased 8% because of strong demand in the North American truck market and higher prices.
Distribution — Sales of $2.5 billion, up 13%, and EBITDA of $306 million, or 12.1%, compared to $225 million, or 10%.
Power Systems — Sales of $1.4 billion, up 7%, and EBITDA of $234 million, or 16.2%, compared to $193 million, or 14.3%.
Accelera — Sales of $103 million, up 106%, and EBITDA loss of $114 million. The former New Power segment saw higher demand for battery electric systems, increased electrolyzer installations. Meritor’s electric powertrain unit and the $197 million purchase of the Siemens Commercial Vehicle business in November 2022 also contributed. Cummins has said it expects Accelera to reach break-even EBITDA by 2027.
Executive promotions announced
Cummins also announced three executive promotions effective Jan. 1:
Srikanth Padmanabhan, currently vice president and president of the Engine Business, will take on a newly created role of Executive Vice President and President of Operations.
Brett Merritt, currently Vice President of On-Highway Engine Business and Strategic Customer Relations will succeed Padmanabhan as vice president and president of the Engine Business.
Bonnie Fetch, vice president of Global Supply Chain, will become vice president and president of the distribution business. She succeeds Tony Satterthwaite, who has been acting as interim head.
Last week, Cummins said that Amy Davis, president of Accelera, would add the same role in the components business. Mahesh Narang, the incumbent, left the company last Friday to pursue an external opportunity.
Editor’s note: Updates with additional information from analyst call and adds executive promotions.
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