Cummins Inc. reported its highest third quarter sales and profits ever, and second best quarter in its history, but warned Friday that it would not be able to meet its full-year target for revenue growth, sending its shares tumbling.


Cummins said its third quarter results were led by strong gains internationally that more than offset continued weakness in the company's North American consumer markets.

Third quarter sales of $3.69 billion were 10 percent higher than $3.37 billion during the same period in 2007. Net income rose 24 percent to $229 million, or $1.17 a share, compared to $184 million, or $0.92 a share a year ago. Earnings Before Interest and Taxes (EBIT) increased 24 percent to $380 million, from $306 million in the third quarter of 2007.

All four of the company's business segments improved their sales and Segment EBIT compared to the same period in 2007.

Non-U.S. sales accounted for 61 percent of revenues in the third quarter, compared to 52 percent a year ago. Cummins' international business was particularly strong in the Power Generation segment, where sales grew 29 percent outside North America, and the Distribution segment, which saw a 28 percent increase outside North America in the quarter.

"Despite the significant challenges facing the U.S. economy and signs of economic weakness in Europe, the Company performed extremely well in the third quarter," said Cummins Chairman and CEO Tim Solso. "Even more importantly, we continue to meet or exceed our profitability targets as we grow our sales. These results, which keep us on track for a fifth straight year of record financial performance, are further proof that our strategy of diversifying our product line and expanding our geographic customer base is working.

"While we expect the fourth quarter to bring more economic challenges - especially in the U.S. and Europe - Cummins has never been better positioned to ride out a turbulent economy than it is today," Solso added. "Our debt is less than 15 percent of our total capital. We have healthy cash balances and our business operations continue to generate cash. We also have a $1.1 billion revolving credit line for additional liquidity."

Despite the continuing economic softness in some markets, Cummins expects revenue to grow in 2008 by 12 percent from last year, down from earlier guidance of 15 percent, and to earn an EBIT margin of 10 percent on its sales.

Cummins improved its market share in the North American heavy-duty truck and bus markets in the third quarter. The company continued to see strong international demand for its medium-duty truck engines, especially in Latin America. Sales of exhaust aftertreatment products made by Cummins Emission Solutions showed strong growth, especially in North America.

However, Cummins said it is experiencing significant declines in some of its consumer markets as the U.S. economy continues to deteriorate. Revenue from the light-duty automotive and recreational vehicle markets fell 56 percent, compared to the same period in 2007, as engine shipments to Chrysler for the heavy-duty Dodge Ram pickup fell 75 percent. Within Power Generation, sales in the consumer line of business fell 34 percent in the quarter, driven primarily by sharply lower sales to the recreational vehicle and residential standby generator markets in the U.S.

Economic conditions in the U.S. and Europe are not going to improve in the fourth quarter. Cummins officials said they are closely monitoring the economic situation around the world and are "taking steps to appropriately adjust spending and investment levels to ensure that the company meets its financial commitments in the future."

In the Engine Segment, sales of $2.28 billion were 6 percent higher than $2.15 billion in the same period in 2007, while Segment EBIT increased 3 percent to $160 million, or 7.0 percent of sales, from $155 million, or 7.2 percent of sales.

Sales to the heavy-duty truck market increased 21 percent, driven by market share gains in North America. Medium-duty truck and bus market sales rose 13 percent, led by strong demand in Brazil and share gains in the North American bus engine market. Sales to the industrial engine markets increased 19 percent. The increases in these and other markets were partially offset by the dramatic drop in sales in the North American light-duty automotive and recreational vehicle markets.