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Chairman, CEO: Company solid despite tough economy


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The message Cummins Inc. Chairman and CEO Tom Linebarger will deliver to shareholders at today’s annual meeting will be that the company had a solid financial year in 2013 in difficult economic conditions.

Cummins experienced no revenue growth, Linebarger said. But based on poor performance in some of the company’s best international markets, Linebarger said he was satisfied with the results.

“I leave 2013 with a lot of pride in what we have achieved,” Linebarger said. “Even though we would have liked to see earnings grow and we are frustrated by that, we feel like we had a good performance.”

He said long-term growth will hinge on a number of factors, including a resurgence in some of the company’s emerging markets, which is unlikely to occur this year.

Linebarger said he is confident, however, that those markets will recover and that Cummins is well-positioned to capitalize when that happens.

Linebarger provided the summaries below during a meeting Monday with representatives of The Republic.

Look back at 2013

The outlook in the Chinese truck market continues to improve and there are indications of a resurgence in some of the European markets.

Sales of new North American heavy-duty trucks were below replacements for the seventh year in a row. Strong sales of North American products in the first quarter of 2014, however, suggest a resurgence in the American market.

The continued emphasis on reducing costs and increasing productivity allowed Cummins to hold earnings and revenue flat, despite challenging economic conditions.

The company’s return on assets was 24 percent, just below the target goal of 25 percent; its return on equity was 19 percent, also just missing the target of 20 percent. Linebarger saw the ability to nearly reach those profitability targets in a challenging economy as a positive sign.

The company’s already strong credit rating continued to improve and it has very little debt. According to Moodys, a leading global credit rating, research and risk-analysis firm, Cummins had a credit rating of A3 at the end of 2013, indicating stability in all areas to potential investors and lenders.

Outlook for 2014 and beyond

There are signs of life in the North American and international markets this year, but the resurgence that is expected to fuel long-range profits for Cummins will likely take a little longer. Company officials hope will occur in 2015.

The resurgence of the U.S. market and signs of a similar trends in Europe, with international investments of their own, might help emerging markets come back. With many of its plants at half-capacity and with a continued emphasis on new-product development, Cummins is well-positioned to capitalize on a resurgence.

Cummins is prepared for a turnaround when it does occur. Continued emphasis on joint ventures and development, including products that comply with more stringent international emissions requirements, have the company well-positioned for a resurgence.

Cummins has set long-term goals of between $25 billion and $31 billion in sales by 2018, compared to $17 billion in 2013. The projected growth is based on a return to stability in the company’s emerging markets, coupled with continued strength in North America and Europe.

Research, development and new products

Company strengths included the continued development of new products and an emphasis in investment on future growth.

Cummins invested $1 billion in capital for businesses and joint ventures in 2013.

The company also invested $700 million in research and development and introduced 70 new products in 2013.

Growing revenue

The distribution acquisition strategy in North America in recent years has shown positive results and is projected as a continued growth segment.

Cummins expects additional acquisitions of distributors this year and plans to develop a $30 million distribution headquarters in downtown Indianapolis.

Strong markets

The resurgence of the North American truck market in the first quarter of 2014 is expected to continue. Linebarger said the strength in North America, coming at a time when some of the emerging markets are suffering a downturn, demonstrates the value of a global company. When the North American market was in decline, the losses were offset by international gains and now the reverse is true.

The European markets also are showing signs of recovery.

The truck market in China continues to do well. A new engine developed as a joint venture with Foton Motors, introduced this year, will be built at a factory in Beijing that has a capacity of 400,000 engines per year.

The company’s component segment also continues to show growth fueled by strong demand in the North American, European and Chinese markets.

Weak markets

The weakness in some international markets presented challenges, especially in mining — long one of Cummins’ best markets, and power generation. Cummins’ mining-related revenues were down 43 percent worldwide in 2013.

International markets that continue to struggle include India, Brazil and the construction- and power-generation segments of the Chinese market. Overall, sales in the company’s power-generation markets are down 50 percent in the past two years.

Most of Cummins’ emerging markets, which had been strong over the previous 10 years, will continue to demonstrate the weakness that dampened the 2013 financial picture.

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