Cummins Inc. building momentum with focus on technology

COLUMBUS, Indiana — The chairman and CEO of Cummins Inc. said he will deliver a message today to shareholders that is a mixture of gratitude and cautious confidence, coming one week after the Columbus-based global company reported that first quarter revenues had snapped a string of six year-over-year quarterly declines.

Tom Linebarger, in an interview Monday with The Republic in advance of the Cummins annual meeting, said that he is grateful for the hard work of employees over the past year because of struggles Cummins has faced in multiple markets.

“Shareholders have kept their confidence in the company because they believe Cummins manages its business well and invests in the future,” Linebarger said.

Evidence can be seen in the company’s stock price over the past year.

Cummins reported its gains despite its largest business segment, engine, recording the company’s smallest first-quarter revenue increase at 2.4 percent, among its four divisions.

“During the downturn, Cummins positioned itself very well for the upturn. That means our cost structure is in good shape, our profitability is in good shape and our new product line is strong,” Linebarger said.

The company has been reducing material costs for four to five years, warranty costs — the expenses to repair products -— last year were low and restructuring of businesses saved about $160 million last year, Linebarger said.

Also, the company saw improvements in mining and the oil-and-gas markets, and sales in the truck market were not as bad as originally projected, he said.

Shareholders also seem to be supportive of Cummins’ strategy of building on its core businesses and adding new areas of growth — including acquisitions, joint ventures or partnerships, the chairman and CEO said.

Growth opportunities

Linebarger expressed confidence in several new company offerings.

For example, Cummins recently announced a joint venture with Eaton, a global power management company, to design, assemble, sell and support automatic transmissions for heavy-duty and medium-duty commercial vehicles. The joint venture, expected to be finalized later this year, is named Eaton Cummins Automated Transmission Technologies. Cummins paid $600 million for its 50-percent stake.

This was the next logical step, the one where the most differentiation existed, Linebarger said. The joint venture follows the company’s previous examples of investing in subsystems — filtration, turbo, fuels systems and emissions controls — that can make its engines and others achieve better fuel economy and power, and reduce emissions.

Because most commercial vehicles are moving from manual to automated transmissions, opportunity exists for Cummins to bring its expertise with engine control systems to the joint venture so vehicles shift smoother and achieve greater fuel efficiency, Linebarger said.

Sales of the joint venture should be about $300 million initially, but reach about $900 million over the next five years, the chairman and CEO said.

Cummins early this year launched its Electrification Division to seize on opportunities with commercial electric vehicles in urban markets, such as buses and delivery vehicles.

Cummins has had employees working on hybrid electric vehicles for about a decade, but the time is right to go full scale with electrification, Linebarger said. The company launched its first hybrid bus project in China about nine years ago.

The focus now is on fully electrified powertrains — the entire system to deliver power to the wheels — and powertrains for plug-in hybrid electric vehicles that also have engines for range extension, Linebarger said.

The division already is developing and offering products for sale to Cummins bus customers and other other urban transportation vehicle customers, he said.

“Cummins is investing in the technologies necessary for us to be a technology leader 10 or 20 years from now,” Linebarger said.

Also, a U.S. version of a 12-liter engine from its ISG line that has been successful in China is being rolled out, Linebarger said. The domestic version will be upgraded to meet U.S. emissions standards so that it’s available to customers in vocational markets.

“We launched that in China a couple of years ago. It’s now the leading heavy-duty engine in China. It’s got a technical advantage; it’s cost-competitive,” Linebarger said.

Other interests

With new products and technologies a focus for Cummins, research and development is important. Its new Machine Integration and Rebuild Center at Woodside Northwest Industrial Park will play a role in ensuring that the company’s products perform well in vehicles.

“It’s been a needed investment for some time. We’re going to create a center where we can bring in people from different parts of the company and do a wide range of application development and application testing,” Linebarger said.

Employees from company operations in North Carolina, New York, Tennessee, Brazil and Mexico are just as likely to work on projects at the center as those from Columbus and Seymour, he said.

While Cummins saw the mining and oil-and-gas markets improve, that won’t have an impact on the QSK95, the company’s largest and most powerful high-speed engine with 4,000 horsepower.

Production for rail and power generation applications began in 2015, and last year 212 of the engines were made, manufactured only in Seymour.

However, Linebarger said production is expected to be a little lower this year.

While Cummins is focused on its core businesses and new opportunities, it also is keeping tabs on new president Donald Trump’s ideas abut immigration, including the potential for new rules and changes to the H-1B visa program as a way to protect American workers and their jobs.

More than 1 in 20 Cummins workers are hired through the H-1B visa program. Linebarger said that when Cummins recruits engineering students, most candidates in the master’s and doctoral programs are from foreign countries.

The chairman and CEO said the company is trying to work with the new administration on the issue.

“We sit on important industry associations, plus we work directly with both congressional leaders and the administration through our Washington office,” Linebarger said.

Congressional leaders and the administration want to know how to help promote business and jobs in the U.S.

Cummins has made it clear that its stays competitive by trying to attract the best talent, and the H-1B visas are helpful in doing that, the chairman and CEO said.

“We’re watching with interest,” Linebarger said.

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Kirk Johannesen is assistant managing editor of The Republic. He can be reached at johannesen@therepublic.com or (812) 379-5639.