Cummins Inc. reported strong second-quarter earnings in North America while one-time charges and COVID lockdowns in China acted as a counterweight.
The leading manufacturer of engines and power systems equipment reported Q2 net income of $702 million compared to $600 million in the same quarter of 2021. Earnings per diluted share were $4.94 compared to $4.10 a year ago.
Record second-quarter revenues of $6.6 billion increased 8% from the same quarter in 2021. For the full year, Cummins stuck to its projection of an 8% increase in revenue. of that, $4 billion came in North America, up 15% year over year.
Cummins (NYSE: CMI) took a $29 million, or 16 cents-per-share, charge related to the separation of its filtration business. The company also took a $48 million, or 34 cents-a-share, hit for losses on investments related to benefit plans.
Reserves related to the indefinite suspension of its Russia business partially offset those charges. The adjustment added $47 million or 33 cents a share to the bottom line. Cummins took a $158 million hit in Q1 related to the suspension.
Off-highway revenues in the engine business unit fell 8% because of a slowdown in China construction linked to COVID lockdowns. The components and power systems businesses also took a hit in addition to a tough comparison with year-ago results in China, whose economy recovered faster from initial COVID infections than the rest of the world.
Joint venture income fell 31%, mostly related to China, in the quarter.
“We are committed to continuing to invest in the products and joint ventures that we have there, while also ensuring from a global supply chain perspective that we have resiliency in our supply chain,” Jennifer Rumsey, who became Cummins’ seventh CEO in its 103-year history on Monday.
She succeeds Tom Linebarger, who became executive chairman to oversee the finalization of the Meritor acquisition and other unidentified projects. On the call, one analyst after another praised his leadership. One mentioned that Cummins’ earnings power is up sevenfold in the decade Linebarger helmed the company.
Earnings of $1.1 billion before interest, taxes, depreciation and amortization amounted to 16% of sales. That compared to $974 million or 15.9% a year ago. Adjusted for the one-time charges, EBITDA was $1 billion or 15.7% of sales.
Cummins maintained full-year guidance of 15.5% EBITDA. But that does not count further expenses from Russia or the filtration business separation. The $3.7 billion acquisition of axle and chassis suppler Meritor Inc. also could add expense in future quarters. That Meritor (NYSE: MTOR) deal is expected to close this week.
“High inflation and rising global interest rates have increased uncertainty about the pace of growth in the global economy,” Rumsey said. “We continue to monitor economic conditions closely and will adjust our operating plans should the outlook for our core markets weaken.”
Busy quarter of collaboration
Cummins, which regularly forms collaborations, accelerated the pace during Q2, including working with:
- Daimler Truck North America and Sweden’s Scania to deliver fuel cell electric powertrains for heavy-duty truck applications.
- Japan-based construction equipment maker Komatsu on the development of zero-emissions haulage equipment, including hydrogen fuel cell solutions for large mining haul truck applications.
- Chevron and Walmart to integrate the Cummins X15N natural gas engine, powered by renewable natural gas, into Walmart’s heavy-duty truck fleet.
- Startup hybrid powertrain maker Hyliion Holdings to certify Cummins’ X12N natural gas engine for use in the Hypertruck ERX.
“These customer collaborations are significant steps in alignment with our Destination Zero strategy to evolve our company, our products and our customers’ products to the technologies needed for a decarbonized world,” Rumsey told analysts on a conference call Tuesday.
Also in Q2, Cummins completed the $325 million acquisition of Jacobs Vehicle Systems, adding engine braking, cylinder deactivation, start-stop control and thermal management technologies, all key components to meeting current and future emissions regulations.
Editor’s note: Updates with comments from analyst call.