Cummins Inc. has reported results for the fourth quarter and full year of 2015. Fourth quarter revenues of $4.8 billion decreased 6 percent from the same quarter in 2014, with the impact of currency, primarily a stronger U.S. dollar, negatively impacting sales by 4 percent.
Revenues in North America declined 2 percent while international sales declined by 12 percent. Within international markets, sales in Latin America declined the most.
“As a result of weakening market conditions in the fourth quarter of 2015, the company reviewed its global manufacturing footprint and now expects to scale back the range of light duty engines it plans to manufacture in North America,” said Rich Freeland, president and chief operating officer. “This change in plans, combined with the uncertainty of winning additional customers for the V8 light-duty engine, caused the company to reassess the book value of its light-duty manufacturing assets in North America. As a result, a non-cash, pre-tax impairment charge of $211 million was recorded to adjust the assets to fair value. We are disappointed that we had to record the charge, but we remain committed to our light-duty engine customers and are confident in the growth potential of our global light-duty engine business, including the V8 engine in North America.”
The company incurred a pre-tax charge for restructuring of $90 million associated with a reduction in professional employees, and also recorded a loss contingency of $60 million in the fourth quarter of 2015.
Net income attributable to Cummins was $161 million (92 cents per diluted share), or $355 million ($2.02 per diluted share) excluding impairment and restructuring charges in the fourth quarter of 2015. This compares to $465 million ($2.56 per diluted share) in 2014, excluding one-time items.
Revenues for the full year 2015 were $19.1 billion, 1 percent lower than 2014. Revenues in North America increased 7 percent, but international sales declined 11 percent due to lower sales in Latin America, Europe and Asia Pacific.
Net income attributable to Cummins for the full year 2015 was $1.4 billion ($7.84 per diluted share) in 2015, or $1.59 billion ($8.93 per diluted share) excluding impairment and restructuring charges, down from $1.67 billion ($9.13 per diluted share) in 2014, excluding one-time items. The full year tax rate was 27.4 percent in 2015.
“We made significant progress in a number of our key initiatives in 2015, including gaining market share with our new products in China, successfully acquiring and integrating our North American distributors, improving the quality of our products and reducing material costs,” said Chairman and CEO Tom Linebarger. “However, a combination of weak end-markets and a stronger U.S. dollar presented significant challenges to our performance. As demand weakened in the third quarter we moved quickly to lower costs. Through a combination of restructuring and other staffing actions, we reduced headcount by more than 2,000 people in the fourth quarter, and launched a number of initiatives within our manufacturing operations to reduce costs.
“The benefits of restructuring, material cost reduction initiatives and quality improvements combined with the launch of new and improved products in 2016, should position the company for stronger performance in the future, despite the challenges of a weak macroeconomic environment. We plan to return 75 percent of operating cash flow to shareholders in the form of dividends and share repurchase in 2016, building on our actions in 2015 when we returned a record $1.5 billion to shareholders,” added Linebarger.
Based on its current forecast, Cummins expects full year 2016 revenues to decline between 5 and 9 percent and EBIT to be in the range of 11.6 to 12.2 percent of sales.
