Cummins Inc. posted positive returns for all five of its business segments in Q3, but cost increases from the supply chain crisis led to downward revisions for full-year sales and profits.
The Columbus, Indiana-based engine maker said Tuesday that Q3 revenues of $6 billion increased 17% year-over-year. Sales in North America increased 13%. International revenues increased 22% due to strong global demand everywhere but China, where moderation was expected after huge gains a year ago as China recovered from the COVID-19 pandemic.
“Economic trends such as order activity, freight rates and used equipment prices remain robust across a number of our key end markets, which points to strong demand extending into 2022 and beyond,” Chairman and CEO Tom Linebarger said in a press release.
Semiconductors still a problem
A shortage of semiconductors appears to be a problem with a long tail, Linebarger told analysts on a conference call.
“Semiconductors look like they have a longer-term capacity issue,” he said. “The freight side of things seems like it’s not quite getting better yet. Some element looks like it goes into next year.”
Cummins (NYSE: CMI) is paying about 2.5% more for materials across its businesses and higher logistics expenses to get finished goods to customers. That capped revenue below what Cummins forecast three months ago. Freight, labor and logistics costs added $90 million in Q3 expenses, which was lower than Q2, CFO Mark Smith told analysts.
But rising material costs offset lower logistics expenses. Higher aftermarket prices made up about 70 basis points, he said.
“Because of the supply chain challenges, right now, OEM truck production is capped by suppliers. So we’re not anywhere near the maximum production of the industry today.”
tom linebarger, chairman and ceo, cummins inc.
“Because of the supply chain challenges, right now, OEM truck production is capped by suppliers,” Linebarger said. “So we’re not anywhere near the maximum production of the industry today.”
Revised forecasts
Earnings before interest, taxes, depreciation and amortization in Q3 was $862 million, or 14.4% of sales, compared to $876 million, or 17.1%, a year ago. Net Q3 income of $534 million, or $3.69 per diluted share, compared to $501 million, or $3.36, in 2020.
Cummins lowered its full-year 2021 revenue guidance to be up approximately 20% versus last year, compared to prior guidance of 20% to 24%. EBITDA is now expected to be approximately 15% compared to previous guidance of 15.5% to 16% of sales because of ongoing supply chain challenges.
Cummins expects to return more than 75% of operating cash flow, or $345 million, to shareholders through stock repurchases and quarterly dividends, which it raised to $1.45 a share from $1.35 a share.
It’s a gas, naturally
During remarks to analysts on a call, Linebarger pointed out the addition of the 15-liter natural gas engine to the North American lineup along with a joint venture with Momentum Fuel Technologies, part of commercial truck dealership giant Rush Enterprises, to make Cummins-branded natural gas dispensers.
Cummins makes natural gas engines for all major industry players. The new engine is expected to be adaptable to run on other fuels, including hydrogen, as Cummins moves to reduce emissions by 30% in newly sold products by 2030.
“All of Cummins’ engine platforms are being designed with the same fuel flexibility,” Linebarger said on the conference call.
The company also began testing more than 100 trucks with several autonomous trucking software startups, including Embark Trucks and Kodiak Robotics, to launch a software integration in its powertrains with automated driving system technologies.
Cummins saw higher revenues across all segments in the quarter ranging from a 14% improvement in power distribution, such as data centers, to 28% in its New Power segment, which focuses on electrification and hydrogen projects.
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