The supply chain crisis and rising material costs dented Q4 profits, but diesel and alternative powertrain manufacturer Cummins Inc. posted record revenues in 2021 and forecast continued global growth this year.
“Our industry continues to experience significant supply chain constraints, resulting in elevated manufacturing, logistics and material costs, resulting in margins below our expectations, particularly in the fourth quarter,” Tom Linebarger, Cummins chairman and CEO, said in a press release.
Cummins (NYSE: CMI) posted $5.9 billion in Q4 revenues with net income of $394 million, or $2.73 per diluted share, versus $501 million, or $3.36, in Q4 2020. Earnings before interest, taxes, depreciation and amortization was $705 million, or 12.1% of sales compared to $837 million, or 14.4% of sales, a year ago.
For the full year, the Columbus, Indiana-based company reported 21% higher revenues of $24 billion. Net income was $2.1 billion, or $14.61 a share. EBITDA for the year was $3.5 billion, or 14.7% of sales, compared to $3.1 billion, or 15.7% of sales, in 2020.
The shortfall in Q4 profits came primarily from $150 million in higher costs, worse than the $90 million Cummins expected, CFO Mark Smith said. Cummins is passing through its higher costs via price increases and surcharges. Those probably will remain even as supply chain pressures begin to ease later this year.
‘Supply chain constraints still terrible’
“Supply chain constraints are still terrible,” Linebarger said on a conference call with analysts. “There’s labor shortages, suppliers are struggling, freight is struggling. It’s not better in January than it was in December. Our plants are getting better at operating in those environments. That doesn’t mean it’s great.”
Unlike its customers — truck manufacturers that built units and held them while waiting for semiconductors — Cummins’ engines continued to ship to OEMs and were already installed on red-tagged trucks.
“Chip supply is still a disaster. It just moves around,” Linebarger said. “There just aren’t enough chips. That’s why I predict continued challenges. Even if we have a little bit of reprieve and there isn’t a replacement derivative for omicron in the next several months, that will steady our labor supply but make no mistake, chips will be right behind it.”
COVID-related absences, specifically from omicron, reduced production and created inefficiency in November and December. Cummins said it vaccinated 45,000 employees — the majority of them in India — at or near its plants during 2021.
“Each of us has dealt with our challenges last year differently,” Linebarger said. “There’s no question omicron has driven up our own absenteeism as well as that of our suppliers.”
Cummins expects supply constraints to continue through Q1 and begin to ease across the balance of the year. Charging higher prices and being able to build more engines, Cummins forecasts 6% higher revenues with a 15.5% EBITDA.
Cummins is continuing to explore a spinoff or separate structure for its filtration business that it announced in August. The timing is still being evaluated.