Cummins Inc. posted strong fourth-quarter results and it set records in several financial metrics in 2022 as the engine maker integrated billions of dollars of acquisitions including taking over Meritor Inc.
Revenue of $7.8 billion in the last three months of 2022 was 32.2% above Q4 of 2021. It topped analyst estimates by $590 million, according to investor site Seeking Alpha.
Not counting the Meritor business and related integration costs, net income for the quarter was $644 million, or $4.52 per diluted share (EPS), compared to $394 million, or $2.73, in 2021. The EPS fell in line with analysts’ projections.
Cummins melts in Meritor
Cummins had five months of Meritor results to report following the August closing of the acquisition. During the year, Cummins also purchased Jacobs Automotive Systems for $325 million. And it paid $197 million for the Siemens Commercial Vehicles business that Meritor initiated with its new parent’s blessing.
“The innovative talent, technology and capabilities these acquisitions bring will position Cummins for success as the industry decarbonizes,” President and CEO Jennifer Rumsey said in a news release.
Cummins moved most of Meritor’s business into its components business unit. Meritor’s electric e-axle business became part of Cummins’ New Power segment, which now offers a fully integrated electric powertrain.
Including Meritor, Cummins’ Q4 results added $1.2 billion in revenue and earnings before interest, taxes, depreciation and amortization of $60 million. The results included $27 million of integration costs. Excluding those costs, Meritor operations were $87 million or 7.5% of sales, just over half the EBITDA rate for all of Cummins.
Whole company EBITDA in 2022 was $3.8 billion, or 13.5% of sales. Leaving out Meritor-related expenses and $111 million of costs related to suspending its Russia operations and $81 million of costs for separating its Filtration business, EBITDA was $4 billion, or 15.1% of sales, compared to $3.5 billion, or 14.7%, a year ago.
2023 outlook for Cummins
Cummins projects full-year 2023 revenues to be up 12% to 17%. EBITDA should range from 4.5% to 15.2% of sales. That includes projected results of $4.5 billion to $4.7 billion for the Meritor business. It excludes any impact positive or negative for the separation of the Filtration business to run as a stand-alone entity.
The New Power segment is still expected to post a negative EBITDA in 2023 even as sales rise. New Power houses Cummins’ hydrogen electrolyzer, fuel cell and electrification technologies.
“In 2023, we anticipate that demand will remain strong in most of our key regions and markets, especially in the first half of the year,” Rumsey said. “We will continue monitoring global economic indicators closely and ensure we are prepared should economic momentum slow further.”
Analysts: Meh on Cummins’ profit margins
One analyst wrote following Cummins’ earnings call that he is less optimistic about the company’s ability to maintain profit margins.
“Cummins margins came in weaker than expected during the quarter as the company reported stronger sales but lower-than-expected gross margins,” Jefferies analyst Stephen Volkmann said in a research note.
Joint venture income in China decreased $28 million due to lower demand for trucks and construction equipment. Total China revenue, including joint ventures, should be 7% higher this year.
The weakest results in China since 2019 could recover in 2023, Rumsey said.
“With the lift of the stringent lockdowns that they had in the last couple of years in December, we expect that that may result in economic strengthening and certainly, less operational disruption, but we’re still monitoring what happens with the COVID waves there,” Rumsey said on the analyst call.
Seventy percent of Cummins’ business in China is on-highway trucks.
“So, is the trucks do better, we’ll be up more than 7%,” CFO Mark Smith said. “If it doesn’t, we won’t.”
Evercore analyst David Raso said in a research note he will “err on the side of the positives” after the strong Q4 overall results with special attention on whether China reaccelerates in 2023.
Cummins (NYSE: CMI) shares closed at $250.90, down $5.21 or 2.03% lower on Monday.
Editor’s note: Updates with comment commentary from analyst call and reaction from analysts; closing stock price.
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