For the year, sales increased 10 percent to $14.34 billion, from $13.05 billion in 2007. Net income rose 8 percent to $801 million, or $4.08 per share, compared to $739 million or $3.70 per share the previous year. Earnings Before Interest and Taxes (EBIT) were $1.29 billion, or 9.0 percent of sales, compared to $1.23 billion, or 9.4 percent of sales.
Net income included a $37 million pre-tax charge ($0.13 a share) to cover the costs associated with job reductions in the fourth quarter that included reducing its professional workforce by nearly 650 people. Excluding this charge, EBIT was $1.33 billion, or 9.3 percent of sales.
As the company publicly stated in mid-December when it revised its sales and EBIT guidance downward for 2008, market conditions around the world began to deteriorate rapidly and sharply in the fourth quarter as the global recession continued to spread.
Fourth quarter sales fell 6 percent to $3.29 billion compared to $3.52 billion during the same period in 2007. Net income dropped to $89 million or $0.45 a share, from $198 million, or $1.00 a share a year ago, while EBIT decreased to $129 million, or 3.9 percent of sales, from $324 million, or 9.2 percent of sales. Excluding the restructuring charge, EBIT was $166 million, or 5.0 percent of sales.
Sales declines in the company's engine and components segments, driven by sharp demand drops in the global truck and construction markets, more than offset gains in power generation and distribution. All four segments, however, experienced weakening demand during the course of the quarter. The company's financial performance in the quarter also was negatively affected by lower joint venture income and the impact of a strengthening U.S. dollar.
"Given our record-setting performance during the first nine months of the year, the rapid drop in demand in the fourth quarter as a result of the global recession was a major disappointment," said Tim Solso, Cummins chairman and chief executive officer. "At the same time, we moved quickly to lower our costs and tightly manage our capital spending, and already have taken further action in early 2009."
Sales are forecast to drop across all business segments, with the largest decline expected to come from the components and engine segments. All business segments, however, are expected to be profitable in 2009 and the company will continue to aggressively reduce costs while investing in key growth opportunities.
In January, Cummins announced that it will reduce its worldwide professional workforce by at least an additional 800 people by March 1 and freeze pay for most salaried workers. In addition, the company's officers had their pay reduced by 10 percent for 2009.