A major OEM announced it is cutting its workforce even though it’s still well in the black as it released third quarter earnings this week, while a truck and engine maker reported continued higher numbers.
Cummins Makes Cuts Amid Lower Profit
Cummins Inc. (CMI) reported net income of $380 million, or $2.14 per diluted share, in the third quarter, compared to $423 million, or $2.32 per diluted share, a year ago.
Third quarter revenue totaled $4.6 billion, down from $4.9 billion from the same quarter in 2014. Currency negatively impacted sales by 4% compared to last year, primarily due to a stronger U.S. dollar, according to the company, while weaker demand in global off highway and power generation markets was partially offset by distributor acquisitions in North America.
The engine maker also announced restructuring and cost reductions due to a slowdown in global markets and lowered its outlook for 2015. It expects to reduce its professional workforce by up to 2,000 people, with the majority completed by the end of this year.
This is about 4% of Cummins global workforce. Up to 500 of the cuts possibly could happen in the company’s home state of Indiana, according to IndyStar.com.
These actions are expected to deliver annual savings in the range of $160 million to $200 million, according to Cummins.
“We are taking difficult but necessary actions to lower costs in the face of weak demand in many of our markets,” said Tom Linebarger, chairman and CEO. “Global off highway and power generation markets have been weak for some time and are worsening. Industry orders in key end markets in Brazil and China are at multi-year lows and showing no signs of improvement in the near-term.”
He said given the uncertainty in the global economy, “we expect challenging conditions to persist for some time.”
Earnings before interest and taxes (EBIT) decreased in the third quarter to $577 million, down from $684 million a year ago. Revenues in North America increased 4% while international sales declined by 18%.
In the company’s engine business, sales totaled $2.5 billion, down 10% from a year earlier. EBIT was $252 million, or 10% of sales, compared to $330 million or 11.7% of sales last year.
“Weak demand in global off highway and power generation markets and the Brazilian truck market were partially offset by stronger demand in global bus markets,” said Cummins.
Cummins saw a 20% increase in its distribution segment business, while component segment sales fell 4% and power generation business sales declined 13%.
Based on the current forecast, Cummins expects full year 2015 revenues to be flat to down 2%, compared to the company’s prior guidance of growth between 2% and 4%. EBIT is expected to be in the range of 12.75% to 13% of sales, excluding costs associated with restructuring and other cost reduction actions, down from the company’s previous guidance of 13.5%to 14%.
More information is on the Cummins website.
Paccar Numbers Remain Strong
Paccar Inc. (PCAR) reported both strong profit and revenue for the most recent quarter.
The engine manufacturer and parent to truck makers Kenworth and Peterbilt had net income of $431.2 million, or $1.21 per diluted share. That's an increase of 16%, compared to $371.4 million, or $1.04 per diluted share, earned in the third quarter of 2014.
Third quarter net sales and financial services revenues were $4.85 billion this year compared to $4.93 billion for the same period last year.
“Paccar’s third quarter results reflect the benefits of increased truck sales in North America and Europe, and excellent aftermarket parts and financial services results worldwide. This was the second best quarter in Paccar’s 110-year history,” said Ron Armstrong, CEO.
Paccar Parts generated revenues of $778 million for the third quarter of 2015, compared to $784.2 million achieved in the third quarter of 2014. Third quarter 2015 pre-tax income was $145.4 million, 14% higher than the $127.9 million earned in the third quarter last year
Paccar Financial Services earned $92.9 million in the third quarter compared to $96.9 million earned in the same period last year while revenue slipped to $301 million compared to $305.9 million in the same quarter of 2014.
More details are on the Paccar website.