A Cummins Inc. logo is pictured outside one of the company’s manufacturing plants. Press photo from Cummins.com

Cummins Inc. has netted a $511 million first quarter net income despite a 17% decrease in first quarter revenues when compared to 2019.

The company reported its first quarter results Tuesday. First quarter revenues of $5 billion decreased 17% from the same quarter in 2019. Lower truck production in North America and weaker demand in global construction, mining and power generation markets drove the majority of the revenue decrease. Currency negatively impacted revenues by 1% primarily due to a stronger U.S. dollar.

Sales in North America declined by 16% while international revenues decreased by 17% led by declines in Europe, Asia Pacific, Latin America, India and China.

Earnings before interest, taxes, depreciation and amortization (EBITDA) was $846 million in the first quarter of 2020, a decrease from $1 billion in the first quarter of 2019. The company’s $511 million first quarter net income in 2020 was a decrease from $663 million during the first quarter of 2019.

In November, Cummins officials announced a global workforce reduction of about 2,000 people as signs of a market decline appeared. Tom Linebarger, Cummins president and CEO, said the COVID-19 pandemic began impacting industry production of equipment in early February and the majority of its facilities in China were shut down for between four and six weeks. In March, production at Cummins’ Walesboro, Ind., plant was suspended, while pay cuts and hours reductions at remaining plants were announced earlier this month. Mark Smith, Cummins chief financial officer, said those moves are saving Cummins $30 million a month. Capital spending is also reduced 25% from 2019.

“We have also lowered our projected capital outlays by 25% compared to 2019 and reduced discretionary spending across the company,” Linebarger said during a conference call Tuesday with financial analysts. “These actions will help us maintain our strong financial position, while positioning us to deliver strong profitable growth when demand returns. While most of our manufacturing sites around the world are currently operating, they are doing so at reduced production levels, both due to changes in facilities, line layouts and work practices to support social distancing and employee safety, and because customer demand is weaker in almost all markets.”

“We are unable to project the full impact that the pandemic and the secondary effects will have on our demand for the remainder of the year, but we are planning for weak levels of demand for some time.”

Due to uncertainty related to the coronavirus pandemic, the company is not providing revenue or profitability guidance for 2020. While customer operations have begun to resume activity, the company does expect a significant impact to its second quarter results due to disruptions across customer and supplier operations and lower end market demand. For now, the company is planning for weak demand levels to persist for some time.

In response to these challenges, the company recently announced a set of cost reduction actions, including a temporary reduction in salaries. In addition, the company is lowering its targeted capital expenditures by more than 25% as compared to 2019 and will continue to closely monitor market conditions and adjust our plans accordingly.

“As you know, the headlines today are filled with negative reports about economic activity and rising unemployment in many countries,” Linebarger said. “Data more specific to many of our end markets, is not encouraging, and we are prepared for weak levels of demand until global economies stabilize and start to recover. Our leadership team is spending a lot of time planning ahead, running a number of scenarios and responses, including identifying opportunities to strengthen our competitive position during this time. And of course, we will continue to invest in the new products and technologies that are key to our future success. We are able to plan ahead with confidence, because of the strong position we started it.”

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter were $846 million (16.9% of sales), compared to $1 billion (17.2% of sales) a year ago. First quarter EBITDA included a $37 million benefit to joint venture earnings resulting from recent changes to tax law in India. Net income attributable to Cummins in the first quarter was $511 million compared to $663 million in 2019. First quarter net income included a benefit of $35 million resulting from recent changes to tax law in India.

The tax rate in the first quarter was 19.4%. Other areas of strength, according to Linebarger and Smith, are Cummins’ $2 billion in cash, cash equivalent and marketable securities holdings and borrowing capacity of $1.9 billion. The company’s pension plans are fully funded and debt-to-capital remains less than 30%.

“To summarize, the COVID-19 pandemic has presented all of us with unanticipated challenges,” Smith said. “But Cummins is in a strong financial position to navigate this environment. We delivered strong first quarter performance and are continuing to take actions to reduce the impact of further headwinds in a challenging second quarter. But even as we aggressively cut costs and reprioritize work, we plan to continue investments in new products and technologies to put us in an even stronger competitive position when the inevitable rebound in market demand occurs.”