Record year for Cummins despite flat Q4

In spite of a flat fourth quarer, full year revenues for Indiana, US-based engine builder Cummins Inc increased by 21% on a year-over-year basis to more than US$24 bn, the company reported.

For the quarter ended December 31, 2021, the company reported net revenues of $5.9bn, esentially flat with the fourth quarter of fiscal year 2020. Sales in North America decreased 4% while international revenues increased 6% driven by strong demand across most global markets, with the exception of China.

A small increase in cost of goods sold attributed to supply and logistics headwinds led to a gross margin of $1.31bn, compared to $1.36bn for the prior Q4. Operating income of $495m for the quarter was 21% below the $629 in operating income reported for the fourth quarter of 2020. Net Q4 income of $394m was 21% below the $501m earned in the previous Q1.

Reporting by segment, the company noted fourth quarter sales of $2.4bn for its Engines segment, for a 4% YOY gain; sales of $2.1bn in its Diwstribution segment, for a 3% increase; sales of $1.7bn marking a 6% decrease for its Components business; sales of $1.1bn representing a 10% YOY gain for its Power Systems segment; and $34m in sales for its New Power segment, essentially flat with Q4 2020.

“Supply chain constraints are still terrible. There are labour shortages, suppliers are struggling, freight is struggling, it’s not any better in January than it was in December” – Cummins CEO Tom Linebarger

For its full fiscal year the company reported net sales of $24.0bn, over net sales of $19.8bn for fiscal 2020. Gross margin of $5.69bn improved over the $4.89 reported for the prior fiscal year, producing operating income of $2.7bn for a 19% YOY gain over operating income of $2.26bn declared for FY 2020.

Full year net income was reported as $2.13bn, or $14.61 per dilluted share, compared with a net income of $1.78bn, or $12.01 per dilluted share, in the previous fiscal year. EBITDA for the year was $3.5bn (14.7% of sales) compared to $3.1bn (15.7% of sales) in 2020.

“Strong economic recovery combined with high demand for our products resulted in record full year revenues in 2021,” said Cummins chair and CEO, Tom Linebarger. “On the other hand, 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. We have taken a number of actions to improve margins in 2022, and expect to generate strong incremental margins through increased pricing, surcharges, a number of cost reduction initiatives and operational improvements.”

On a call with analysts Linebarger cautioned that supply and logistics headwinds continue to impact throughputs and costs in the near term. “Supply chain constraints are still terrible, to tell it like it is. There are labour shortages, suppliers are struggling, freight is struggling, it’s not any better in January than it was in December,” said Linebarger. “Our plants are getting better at operating in those environments, which is not great, but we do expect things to ease over the course of the year. Not to become overwhelmingly better in the first quarter, or to be fixed, we are taking a conservative view on that. But we do believe they will start to ease over the year.”

Cummins projects full year 2022 revenues to be up 6% YOY, and EBITDA to be approximately 15.5% of sales.