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Cummins expects to keep raising prices to keep up with inflation

Company takes $158 million write-off for Russia business suspension

Cummins Inc. set a Q1 sales record but income fell compared with a year ago. (Photo: Cummins)

Cummins Inc. posted record Q1 sales because it charged more for new products than the cost of material Net income fell in part because of a $158 million write-off for indefinitely suspending business in Russia.

The engine maker, rapidly transforming to multiple forms of alternative power production, said business in North America improved by 12% because of those increases. More likely lie ahead.

“If we don’t take further pricing action, we will be worse on the same sales as we would have been before all the COVID pandemic stuff started,” said Tom Linebarger, Cummins CEO and chairman.

”We are continuing to look at future pricing actions to make up that difference because inflation continues,” he told analysts on a conference call Tuesday.

Cummins  (NYSE: CMI), like most manufacturers, continues to struggle with supply chain disruption. The company earlier expected some improvement in the second half of the year based on what suppliers said.

Cummins ‘losing confidence’ in suppliers ability to deliver

“We’re just losing confidence that they’re actually going to deliver,” Linebarger said. “Our concerns grow especially in chips and electronics. With some of the shutdowns in China, we may not see as much positive impact in the second half as we hoped.”

Overseas revenue declined 3%. The drop was confined to China, where Cummins has a large presence.

“The ongoing impact of COVID, especially in China, and the effect of the conflict in Ukraine continue to present challenges to our global operations,” Jennifer Rumsey, Cummins president and chief operating officer, said in a press release. 

Company beats on revenue – again

A consensus of analysts surveyed by investor site Seeking Alpha called for $3.55 earnings per share and revenue of $6.06 billion.  

Q1 revenues were $6.4 billion. Net income was $418 million, or $2.92 per fully diluted share. It was $603 million, or $4.07, in the first quarter a year ago. Earnings before interest, taxes, depreciation and amortization were $755 million, or 11.8% of sales. That compares to a record $980 million, or 16.1%, a year ago.

The company raised full-year revenue guidance to be up 8% versus an earlier estimate of up 6%. It maintained full-year EBITDA guidance at 15.5% of sales.

In addition to the Russia hit of $1.09 a share, Cummins took a $17 million, or 9 cents, write-off for the separation of its filtration unit. The company last week filed confidentially with the Securities and Exchange Commission for an initial public offering to spin off filtration into a stand-alone business.

Stock buybacks and dividends set at 50% of operating income

Cummins has seen mostly downgrades to estimates for EPS and revenue in recent months. It plans to return approximately 50% of operating cash flow to shareholders through dividends and share repurchases.

Also in the quarter, Cummins closed its $325 million acquisition of Jacobs Vehicle Systems. JVS supplies engine braking, cylinder deactivation, start and stop and thermal management technologies key to meet current and future emissions regulations. 

It also announced the $3.7 billion purchase of Meritor Inc., a leader in drivetrain, mobility, braking, aftermarket and electric powertrain solutions for commercial vehicle and industrial markets. Cummins will be capable of providing integrated powertrains for combustion, electric and fuel cell applications. 

Editor’s note: Updates earlier story with comments from analyst call.

A Cummins worker adjusting an engine on a production line.
Cummins is raising its guidance for revenue to be up 8% in 2022 from an earlier estimate of plus 6%. (Photo: Cummins)

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Alan Adler

Alan Adler is an award-winning journalist who worked for The Associated Press and the Detroit Free Press. He also spent two decades in domestic and international media relations and executive communications with General Motors.