Lower truck production in North America and weaker demand in several global markets drove down Cummins Inc.’s fourth-quarter and year-end revenues for 2019.
The Columbus-based global diesel engine maker and power company Tuesday announced fourth-quarter revenues of nearly $5.6 billion, representing a 9% decrease from the same quarter in 2018.
Lower truck production in North America and weaker demand in global construction, mining and power generation markets drove most of the decrease in revenue during the October through December 2019 quarter. Fourth-quarter sales in North America were down 8%, and international revenues dropped 10%, largely because of declines in Europe, Asia Pacific, Latin America and India, the company said in a news release.
Full-year revenues for 2019 were nearly $23.6 billion, or almost a 1% decline compared to 2018. Revenues in North America increased 3% and international sales fell 6% largely due to lower demand in Europe and India, the company said.
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“After a strong start to 2019, demand declined across most geographies and end markets in the second half of the year,” said Cummins President and Chief Operating Officer Tony Satterthwaite. “We moved quickly to align costs with the weaker global outlook, executing a number of actions which we expect to yield annual savings of $250 to $300 million.”
In November, Cummins announced plans to reduce its global workforce by around 2,000 employees, or 3%, by the end of March to navigate what company officials project will be a cyclical downturn in business this year.
The job reductions started in the fourth quarter of 2019 and “most were completed by the end of January,” Cummins Chairman and CEO Tom Linebarger told financial analysts Tuesday. Cummins officials won’t say how many jobs would potentially be cut in Columbus.
“The actions we have taken to reduce costs will mitigate a further slowdown in 2020 and position the company for stronger performance when market demand improves,” Linebarger said. “We will continue investment in new technologies and products in 2020 to generate strong growth and profitability for the company in both the near and long term, which is consistent with how we have managed through prior cycles.”
Segment performances
Most of Cummins’ business segments saw a fourth-quarter decrease in sales compared to the same quarter in 2018. Here’s how they performed:
Engine: Sales of nearly $2.3 billion represented a decrease of more than 15%. On-highway revenues decreased 13%, and off-highway revenues dropped 22%, mainly because of decreased global demand in truck and constructions markets, the company said.
Distribution: Sales of $2 billion represented a 1% decrease. Revenues in North America were flat and international sales decreased 1%. An increase in shipments in data center markets for power generation equipment was offset, in part, by lower demand in oil and gas and construction markets and an unfavorable impact of 1% from a stronger U.S. dollar, the company said.
Components: Sales of $1.6 billion represented a 12% decrease. Revenues in North America decreased 13%, and international sales dropped 11% due to weaker global truck demand, the company said.
Power Systems: Sales of $1.1 billion were a 12% decrease compared to the fourth-quarter 2018. Cummins recorded a $15 million charge related to a planned exit of a business in Africa, the company said. Power generation revenues declined 11%, and industrial revenues decreased 14%.
New Power: Sales of $18 million.
2020 outlook
Cummins officials are projecting the company will experience a cyclical downturn this year, but have pledged to continue to investing in new technologies and products that they believe will help generate growth and profitability in the near and long term.
Overall, Cummins is forecasting year-end 2020 total company revenues to be down 8% to 12% from last year largely due to a projected decrease in lower truck production in North America, Europe, China and India, as well as lower projected demand in off-highway markets, the company said.
Cummins officials expect several markets to decrease in 2020, including a projected 40% decrease in the North American heavy-duty truck market, a 20% decline in the North American medium-duty truck market, a “double-digit” decrease in mining and oil and gas markets, among others.
In terms of investing in new technology, Linebarger spoke about what he characterized as a “broad portfolio of power solutions” that includes some hybrid and fully electric products, including electric prototype vehicles for the United States Postal Service and a fully electric bus that went into service last year in Santa Monica, California.
“There are currently over 200 fully electrified vehicles with Cummins’ new power systems in the hands of our customers today,” Linebarger said.
Analysts react
Local analysts agreed that Cummins’s fourth-quarter results were largely in line with what Wall Street expected.
“I don’t think any of it caught anyone off guard,” said Roger Lee, senior research analyst with Columbus-based Kirr, Marbach and Co.
Wall Street was projecting a 9% drop in revenue for Cummins this year, compared with the 8% to 12% projection from Cummins officials, Lee said.
Despite a tough fourth-quarter and projected downturn this year, there were some bright spots for the company, Lee added.
“The trade war (between the United States and China) didn’t derail the market for them,” Lee said. “…In fact, their business actually is executing well in China. Their operations are up 4% in the region, where demand is down 1%.”
Additionally, the company’s commitment to investing in research and development is a good sign because “because it shows that even in this down cycle, they’re still innovating,” Lee said.
Craig Kessler, president and chief investment officer with Columbus-based Kessler Investment Group, said the company was able to get out ahead of the downturn and said he thinks the “stage is set for an improved future for Cummins.”
“I think they’re doing the right thing, too, by using this (downturn) to trim a little fat around the edges to recommit their focus to those areas of the business that are higher margin and come out the other side of this in a stronger position than when they went into it,” Kessler said.
Kessler said he believes another round of job cuts is unlikely.
“I don’t think we’re going to see further (job) reductions down the road,” Kessler said. “I think that this conference call set a tone that suggests that’s not likely, and I think that will be a good thing for Columbus-area residents who might feel a little anxiety surrounding these recent layoffs… I think this is just a blip and not a sign of further cuts to come.”
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Cummins Inc.’s stock closed at $161.00, down $1.89 on Tuesday.
Tuesday’s closing price is $11.65 higher than a year ago, when Cummins’ stock closed at $149.35 on Feb. 6, 2019, according to data retrieved from the New York Stock Exchange.
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"After a strong start to 2019, demand declined across most geographies and end markets in the second half of the year. We moved quickly to align costs with the weaker global outlook, executing a number of actions which we expect to yield annual savings of $250 to $300 million."
— Cummins President and Chief Operating Officer Tony Satterthwaite
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