Cummins reports lower 2Q net income

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Cummins Inc. today, July 30, reported lower sales and profit in the second quarter 2009 compared to its record performance during the same period in 2008 as the global recession continued to dampen demand around the world. Compared to the first quarter, the company increased its profit and improved cash flow on essentially flat sales, as a result of its ongoing efforts to reduce costs and align manufacturing capacity to the lower demand.

Sales for the quarter were $2.43 billion, 37 percent lower than $3.89 billion in the second quarter of 2008. Net income attributable to Cummins Inc. was $56 million, down from $293 million. The second-quarter results include a $7 million charge associated with the cost of job-reduction actions taken at several company manufacturing facilities during the quarter.

Based on the second-quarter results and company forecasts for the remainder of the year, Cummins said it still expects 2009 sales to be slightly more than 30 percent lower than 2008.

“The economic climate continues to be extremely challenging, and we are managing our business under the assumption that we won’t see any recovery in our markets in 2009,” said Tim Solso, chairman and chief executive officer of Cummins, based in Columbus, Ind. “Still, our aggressive efforts to reduce costs and align manufacturing capacity with demand have allowed us to perform well under the circumstances and to position ourselves to emerge from the downturn an even stronger company.”

Cummins said the decline in profitability was due primarily to the sharply lower volumes; the Engine and Components segments continue to see the most severe reductions in demand, while the pace of the sales decline in the Power Generation segment increased rapidly in the quarter. Profitability in all three segments was affected significantly by the lower volumes, the company said.

Despite significant weakness in almost all end-markets and geographic regions, the company said it improved its profitability from the first quarter, which – along with a significant reduction in inventory – contributed to the positive cash flow of $181 million in the quarter. The company said it continued to make capital expenditures on the most critical projects, especially those associated with the launch of new emissions-compliant products in 2010 and with fuel economy improvements.

“Cash management remains a top priority for the company this year,” said Pat Ward, chief financial officer. “And, despite the challenging economic conditions, the company generated significant positive cash flow and did not need to use any of its $1.1 billion credit facility.” At the end of the second quarter, the company had $534 million in available cash and cash equivalents, compared to $353 million at the end of the first quarter and $426 million at the beginning of 2009.