Navigate Their Way
Cummins Ends Salary Cuts; Beats Revenue Expectations
Temporary salary cuts at Cummins Inc. ended earlier this month as corporate officials navigate their way through the COVID-19 pandemic.
Compensation expense is projected to increase by approximately $90 million in the fourth quarter due to the end of these salary reductions. Tom Linebarger, Cummins CEO and chairman, said the third financial quarter of 2020 has been a volatile one.
“Three months ago, we experienced the largest sales decline in the company’s history,” Linebarger said. “We have now followed that with the largest sequential increase in sales in the company’s history. Even with the dramatic increase, however, sales remained below last year’s levels. While we have seen increased demand around most of our end markets over the last three months, we continue to see differences in recovery rates, both by market and by region, and we expect these differences to continue. Our employees have done a remarkable job of supporting our customers through this period while maintaining a safe work environment. In the third quarter, our supply chain organization continue to support near record levels of truck production in China, as well as ramping up production to meet significantly increased demand in the North American heavy duty truck, and pickup market.”
The company’s third quarter revenues of $5.1 billion decreased 11% from the same quarter in 2019. Sales in North America declined by 18% while international revenues were flat. Earnings before interest, taxes, depreciation and amortization (EBITDA) in the third quarter were $876 million (17.1% of sales), compared to $958 million (16.6% of sales) a year ago.
“I want to thank our employees all over the globe once again for their dedication to our company and to our customers,” Linebarger said. “Over the last six months we have faced both the most severe decline in quarterly sales in our history as well as the largest sequential increase. We continue to work safely and effectively through an incredibly challenging period, meeting our commitments to customers who provide products critical to the functioning of the global economy.”
The company currently expects fourth quarter revenues to be similar to third quarter levels, with higher demand in North America truck markets and continued improvement in aftermarket sales, partially offset by lower demand in China.
“In summary, we delivered a strong set of results in the third quarter, including record operating cash flow,” said Mark Smith, Cummins’ chief financial officer. “I want to thank our employees around the globe for their dedication and commitment to excellence through these last six very challenging months. Following unprecedented decline in demand in the second quarter, we responded well in ramping back up in the third quarter, supporting our customers and maintaining financial discipline throughout. While many of our markets have improved, the effects of the pandemic can still be felt in many regions and may impact the pace of recovery. We will continue to align our business with market conditions, deliver strong operational performance, invest in the technologies that will fuel profitable growth and return any excess capital to shareholders.”
Other items of note in the are Cummins’ collaboration with the Department of Energy’s Oak Ridge National Laboratory (ORNL) has resulted in the ability to produce enough filter media to supply more than a million face masks and respirators per day to U.S. healthcare facilities and Cummins’ receipt of $12 million of funding for five separate Department of Energy projects related to PEM and solid oxide fuel cell and electrolyzer technologies, a sign of continued future growth in Cummins’ New Power segment.
“We are encouraged by the performance and market acceptance of these products that are already in the field. We also continue to focus on supporting our customers in their transition to carbon-neutral technologies. Our revenues doubled in our new Power Segment this quarter, and we are excited to share more about how we expect our hydrogen production and fuel cell business to develop at Cummins Hydrogen Day on November 16,” Linebarger said.