Cummins expects sales to drop 20% in 2009 but still maintain profitability

Cummins announced its 2008 results. Although the fourth quarter was affected by the external environment, the sales and profits of the company continued to hit a record high for five consecutive years. Last year, China's business continued to maintain a strong growth trend, accounting for a further increase in the proportion of global business; 09 Global sales are expected to fall 20% from 2008, but they will remain profitable.

February 6, 2009 - Cummins Corporation announced its operating performance in 2008. Despite the adverse impact of the external economic downturn in the fourth quarter of last year, Cummins’ sales and profits for the fifth consecutive year set a record high in 2008.


The overall performance reached new heights

In 2008, Cummins’ sales amounted to US$14.34 billion, an increase of 10% from the 13.05 billion in 2007; net profit climbed to US$801 million, an increase of 8 percentage points from US$739 million in 2007, equivalent to US$4.08 per share, and Cummins’s share for 2007 The net profit is equivalent to US$3.70 per share; the EBIT is US$1.29 billion, which is equivalent to 9% of sales, which is a slight drop from the EBIT of 9.4% in 2007.


Cummins's net profit figures in 2008 deducted the $37 million in pre-tax charges (equal to $0.13 per share) generated by layoffs in the fourth quarter. If this expenditure is not included, Cummins’ EBIT of $1.03 billion in 2008 was equivalent. 9.3% of sales.

The proportion of international business continues to increase, and China’s business continues to maintain strong growth.

In 2008, the proportion of overseas sales outside the United States increased further, from 54% in 2007 to 59% in 2008, and Asia accounted for more than one-fifth of global business, effectively resisting European and American development. The negative impact of the weak market once again demonstrated the advantages of Cummins' global geographic diversification strategy.

Cummins's total sales of imported products and joint ventures in China reached 2.3 billion U.S. dollars last year, a sharp increase of 33% over 2007, and set a record high again. In accordance with the sales of consolidated statements, the proportion of China's business in Cummins Global has increased from 6.6% in 2007 to 7.8% in 2008.


The global economic recession has a great impact on the fourth quarter of 2008. In 2009, both the cost and the new growth opportunities are weighed heavily. Both hands must be hard. Affected by the global economic depression, Cummins’ sales and profit margins fell sharply in the fourth quarter of last year - sales, net profit and EBIT decreased by 6%, 55% and 60% respectively from the same period of 2007.

Tim Solso, Cummins Chairman and Chief Executive Officer, pointed out that the sudden and rapid global economic recession in the fourth quarter caused a significant negative impact on Cummins’ operating performance in 2008, but Cummins began to make corresponding adjustments in early December. Reduce costs and tighten investment. At the beginning of 2009, the company also took further measures to reduce operating expenses.

In view of the latest market forecasts and the overall global economic situation in 2009 is still not very optimistic, Cummins lowered its 2009 sales and EBIT forecasts. This year, Cummins’ sales are expected to fall by about 20% from 2008. The pre-tax return rate is 6.5% (excluding the cost of layoffs and restructuring in the first quarter of 2009), and the company will remain profitable.

According to forecasts, the sales of all four Cummins divisions will show a downward trend in 2009, with the largest decline among the components and engine divisions, but all divisions will remain profitable. This year, Cummins will cut costs on the one hand and invest in new growth opportunities on the other.

In January of this year, Cummins announced that it will cut at least 800 white-collar workers globally before March 1, and at the same time freeze the salary adjustment of the vast majority of white-collar workers. In addition, the top executives of Cummins vice president in 2009 will also pay 10%.

From the fourth quarter of last year to the end of March this year, Cummins will reduce a total of more than 1,400 white-collar workers and more than 1,300 blue-collar workers on the production line in the world - a total of 6% of Cummins' global workforce. During this period, in response to the economic crisis, Cummins has also taken a number of other measures to increase revenue and reduce expenditure, including:

@ cut 2500 contractors and temporary workers

@ Freeze all recruitment except for certain special circumstances

Declined the number of senior executives above the vice president by 10% by the end of March

@ temporarily shut down a batch of factories or shorten the start time

@ Cut all kinds of unnecessary expenses

@ Reduce IT spending

@ Significantly reduce the scale of investment and focus on ensuring the input of key product platforms

Despite the negative impact of the external economic environment, Cummins's fundamentals remain very solid - debt ratio is low, cash reserves are adequate, and it also has a $ 1.1 billion revolving credit line. In 2009, one of Cummins' priorities was to focus on cash flow management and focus on key areas such as new products and customer support. Taking into account the current economic situation, Cummins decided to temporarily stop buying back its own shares, but still promised to maintain the current level of dividends.

Su Zhiqiang said that the scale and impact of the economic crisis are very large. The overall global economic environment in 2009 will not be greatly improved, but Cummins’ own operating conditions are in the best state in history. The company’s management is responsible for how to deal with the crisis. The severe test has a wealth of experience. We are very confident that through the joint efforts of the company, we will be able to turn the “crisis” into an “opportunity” and achieve business recovery as soon as possible.

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