COLUMBUS, Ind. — Strong demand in China construction and truck markets and new product sales in India drove Cummins Inc. to its first quarterly revenue increase since the second quarter of 2019, but could not offset the impact of the pandemic on revenues earlier in the year.
On Thursday, the Columbus-based company announced fourth-quarter revenues of $5.8 billion, representing a 5% increase from the same quarter in 2019. But full-year revenues were $19.8 billion, a 16% decline compared to 2019.
International revenues climbed 12% during the October-to-December quarter, primarily driven by construction and truck markets in China, while North America revenues remained flat, said Cummins Chairman and CEO Tom Linebarger during an earnings conference call Thursday.
Full-year revenues in North America declined 21% in 2020 compared to the year before, largely due to lower demand related to the pandemic, Linebarger said.
International revenues declined 7% in 2020, with weaker demand in most markets “more than offsetting” a record year in China, where revenues were up 25%, Linebarger said.
The past year has been like no other, presenting what company officials described as “unprecedented challenges” as Cummins, which operates in more than 190 countries, weathered the viral outbreak that spread across the globe and upended the world economy.
Initially, Cummins temporarily closed its facilities in Wuhan, China, where COVID-19 was initially detected, before pivoting to contend with an evolving patchwork of government responses to the pandemic around the world, including a total lockdown of India’s 1.3 billion people and restrictive measures imposed across much of Europe.
This past spring, the company instituted temporary shut downs of manufacturing facilities in the Columbus area due to the pandemic, including Columbus Engine Plant, Fuel Systems Plant, Seymour Engine Plant and Cummins’ MidRange Engine Plant. The facilities later resumed operations, company officials said previously.
In July, Cummins reported that industry-wide company shutdowns and weak economic activity related to the pandemic resulted in a 38% decline in revenue during the second quarter, which Linebarger characterized on Thursday as “the most severe decline in quarterly sales” in the company’s 101-year history.
Revenues started to recover during the third quarter, but were still down 11% compared to the same quarter in 2019, with high demand volatility continuing across its end markets as the global economic recovery from the COVID-19 pandemic varied by market and region, the company said in October.
“In the second quarter, we faced the most severe decline in quarterly sales in our history, followed by a rapid recovery in demand and supported by a supply chain that was severely impacted by the pandemic,” Linebarger said Thursday. “Our employees have worked tirelessly to navigate the many challenges caused by COVID-19 across the globe.”
Before the pandemic, Cummins was anticipating a cyclical downturn in 2020 and initially projected year-end 2020 total company revenues to be down 8% to 12% from 2019 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 last year.
However, Cummins later withdrew its business outlook for 2020 because its initial forecasts were made before the pandemic.
Segment performances
Three of Cummins’ five business segments saw a fourth-quarter increase in sales compared to the same quarter in 2019.
Here’s how they performed:
Engine: Sales of $2.3 billion represented an increase of 2%. On-highway revenues increased 1%, and off-highway revenues increased 4%. Sales were flat in North America but increased 8% internationally due to increased demand in China and India.
Distribution: Sales of $2 billion represented a 2% decrease. Revenues in North America declined 7% and international sales climbed 8%. Declines in parts and service were offset by an increase in demand in power generation markets, the company said.
Components: Sales of $1.8 billion represented an 18% increase compared to the fourth quarter of 2019. International sales increased 40% due to higher demand in China and India. Revenues in North America increased 1%, the company said.
Power Systems: Sales of $989 million were down 6% compared to the same quarter last year. Power generation revenues dropped 2%, and lower demand in mining and oil and gas markets drove down industrial revenues by 12%.
New Power: Sales of $34 million were up 89% compared to the October-December quarter in 2019. Greater demand in transit and school bus markets, as well as commissioned electrolyzer projects, drove the increase in revenues.
‘Record year’ in China
Cummins reported what company officials said was a “record year” in China last year.
The company saw sales of excavators in China climb 58% in 2020 compared to 2019, Linebarger said. Additionally, sales of medium- and heavy-duty trucks in China increased 47%, and sales of light-duty trucks increased 24%.
Overall, Cummins brought in revenues of $6.9 billion in China last year, which was an increase of 25% compared to last year, Linebarger said.
The increase in demand for medium- and heavy-duty trucks in China was driven by Chinese government stimulus that increased the scrapping of old trucks, company officials said.
“We’ve never seen an increase in demand happen this quickly,” said Tony Satterthwaite, president and chief operating officer, during the earnings conference call.
Cummins, however, anticipates demand in China to taper off this year, particularly during the second half of the year as government stimulus tightens, company officials said.
2021 outlook
Cummins officials are projecting full-year revenues to increase in all regions and major markets except China in 2021.
Overall, Cummins is projecting year-end 2021 total company revenues to be up 8% to 12% compared to last year due to increases in heavy-duty and medium-duty truck production in North America, Europe and India, Linebarger said.
The company expects domestic revenues, including joint ventures, in China to be down 20% in 2021 compared to last year.
However, Linebarger said there is still “significant uncertainty” as markets around the world continue to recover from the pandemic.
“While current indicators point to improving demand in a number of key regions and markets, significant uncertainty remains,” Linebarger said. “…We are still operating under a pandemic, with extreme safety measures in place and our suppliers are doing the same.”
Analysts react
Local analysts agreed that Cummins’ year-end results were “extremely great given the circumstances.”
The company beat Wall Street earnings and profitability estimates every quarter in 2020.
Wall Street was expecting Cummins to pull in $5.18 billion in revenues in the fourth quarter, but Cummins came in at $5.8 billion, said Roger Lee, senior research analyst at Columbus-based Kirr, Marbach and Co.
“I would say 2020 was better than expected, by far,” Lee said. “…They still put out very good numbers for 2020.”
Craig Kessler, president and chief investment officer with Columbus-based Kessler Investment Group, said it is “undeniable” that the company was able to deliver results “in the most difficult environment one could possibly imagine.”
Kessler, however, said one of his “greatest concerns” for the city of Columbus is whether Cummins’ workforce environment will change going forward.
Currently, many employees working out of Cummins facilities in downtown Columbus are continuing to work from home due to the pandemic, and it is unclear when they will return to in-person work settings.
In December, city officials said Cummins opted not extend its lease of the former Goody’s department store location at FairOaks Mall because is is “looking at making changes to its workforce environment due to COVID-19.”
“It’ll be interesting to see how they handle their personnel and where they are going to working out of,” Kessler said. “We have a really beautiful building in downtown Columbus that has been effectively empty for the last 10, 11 months, and its impact on Columbus is undeniable, not having those folks downtown.”
“I don’t think that there’s a risk of headquarters necessarily moving out of Columbus, but where are the people going to be working from home forever?” Kessler added. “Are we going to see a return of the personnel to Columbus. That’s my biggest question mark and I don’t know that we have the answer yet.”
