Cummins Announces Strong First Quarter Results; Raises Full Year Profit Outlook

Cummins Inc. (NYSE: CMI) today reported results for the first quarter of 2019.

First quarter revenues of $6.0 billion increased 8 percent from the same quarter in 2018. Increased truck production in North America and stronger demand in global construction and North American power generation markets drove the majority of the revenue increase. Currency negatively impacted revenues by 2 percent primarily due to a stronger US dollar.

First quarter sales in North America improved by 13 percent while international revenues increased by 1 percent.

“The company shipped a record number of truck engines in North America during the first quarter,” said Chairman and CEO Tom Linebarger. “Our market-leading position in this region reflects our close partnerships with our customers who rely on us to provide a broad range of power solutions for their needs.”

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter were a record $1.0 billion, or 17.2 percent of sales, compared to $700 million or 12.6 percent of sales a year ago. First quarter results include a non-segment and non-taxable gain of $37 million ($0.23 per diluted share) related to the mark to market impact on assets related to our non-qualified benefit plans.

Net income attributable to Cummins in the first quarter was $663 million ($4.20 per diluted share), compared to net income of $325 million ($1.96 per diluted share), or $403 million ($2.43 per diluted share) excluding the impact of tax legislation in the first quarter of 2018.

“We achieved record EBITDA in the first quarter while also celebrating our 100th anniversary,” Linebarger said. “We are on track to deliver record results for the year and return significant capital to investors, and will continue to invest across our broad portfolio to power a strong future for our stakeholders.”

2019 Outlook:

Based on the current forecast, Cummins is maintaining its 2019 revenue guidance of flat to up 4 percent driven primarily by increased demand in North America on-highway markets. EBITDA is expected to be in the range of 16.25% to 16.75% of sales, an increase from the prior range of 15.75% to 16.25% of sales, primarily due to lower projected material costs. The Company expects to return 75 percent of Operating Cash Flow to shareholders in 2019 in the form of dividends and share repurchases.

Our outlook does not include any potential impact of the company’s recently announced review of its emission certification process and compliance with emissions standards.

First Quarter 2019 Highlights:

• Cummins was named to Ethisphere’s list of the World’s Most Ethical Companies for a 12th consecutive year.
• Barron’s magazine announced that Cummins made its 100 Most Sustainable Companies list, moving from No. 60 in its inaugural ranking in 2018 to No. 14 in its 2019 list.
• The Human Rights Campaign (HRC) announced that Cummins received a perfect score for a 14th consecutive year in its Corporate Equality Index.
• Amtrak announced that it will be purchasing 75 Charger locomotives for delivery starting in 2021 which will use Cummins’ QSK95 Tier 4 engine systems to help deliver clean, efficient power for passenger trains.

1 Generally Accepted Accounting Principles

First quarter 2019 detail (all comparisons to same period in 2018)

Engine Segment

• Sales - $2.7 billion, up 8 percent
• Segment EBITDA - $438 million, or 16.5 percent of sales, compared to $286 million or 11.7 percent of sales
• On-highway revenues increased 9 percent and off-highway revenues increased 6 percent primarily due to increased demand in North America truck and global construction markets

Distribution Segment

• Sales - $2.0 billion, up 8 percent
• Segment EBITDA - $171 million, or 8.5 percent of sales, compared to $123 million or 6.6 percent of sales
• Revenues in North America increased by 10 percent and international sales grew by 4 percent
• Strong demand across all product lines in North America, especially data centers, was partially offset by the unfavorable impact from a stronger US dollar, which impacted sales by 2 percent

Components Segment

• Sales - $1.9 billion, up 6 percent
• Segment EBITDA - $325 million, or 17.5 percent of sales, compared to $227 million or 12.9 percent of sales
• Revenues in North America increased by 17 percent due to higher heavy and medium-duty truck production while international sales declined by 8 percent

Power Systems Segment

• Sales - $1.1 billion, flat versus prior year
• Segment EBITDA - $138 million, or 12.8 percent of sales, compared to $142 million, or 13.2 percent of sales
• Industrial revenues increased 1 percent while Power generation revenues decreased 1 percent

Electrified Power Segment

• Sales - $3 million
• Segment EBITDA loss - $29 million

About Cummins

Cummins Inc., a global technology leader, is a corporation of complementary business segments designing, manufacturing, distributing and servicing a broad portfolio of power solutions. The company’s products range from diesel and natural gas engines to hybrid and electric platforms, as well as related technologies, including transmissions, battery systems, fuel systems, controls, air handling, filtration, emission solutions, and electrical power generation systems. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 62,600 people committed to powering a more prosperous world through three global corporate responsibility priorities critical to healthy communities: education, environment and equality of opportunity. Cummins serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations, and over 7,600 dealer locations. In 2018, the company earned about $2.1 billion on sales of $23.8 billion. See how Cummins is powering a world that’s Always On by accessing news releases and more information at https://www.cummins.com/always-on. Follow Cummins on Twitter at www.twitter.com/cummins and on YouTube at www.youtube.com/cumminsinc.

Forward-looking disclosure statement

Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward looking statements include, without limitation, statements relating to our plans and expectations for our revenues and EBITDA percentage for the full year of 2019. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: the adoption and implementation of global emission standards; the price and availability of energy; the pace of infrastructure development; increasing global competition among our customers; general economic, business and financing conditions; governmental action; changes in our customers’ business strategies; competitor pricing activity; expense volatility; labor relations; and (i) any adverse results of our internal review into our emissions certification process and compliance with emissions standards; (ii) a sustained slowdown or significant downturn in our markets; (iii) our truck manufacturing and OEM customers discontinuing outsourcing their engine needs; (iv) the development of new technologies; (v) the discovery of any significant additional problems with our engine platforms or aftertreatment systems in North America; (vi) performance or safety-related recalls; (vii) policy changes impacting international trade; (viii) the United Kingdom’s decision to end its membership in the European Union; (xi) lower than anticipated market acceptance of our new or existing products or services; (x) a slowdown in infrastructure development and/or depressed commodity prices; (xi) vulnerability to supply chain shortages from single-sourced suppliers; (xii) potential security breaches or other disruptions to our information technology systems and data security; (xiii) financial distress or a change-in-control of one of our large truck OEM customers; (xiv) our reliance on significant earnings from investees that we do not directly control; (xv) our pursuit of strategic acquisitions and divestitures; and (xvi) other risks detailed from time to time in our SEC filings, including particularly in the Risk Factors section of our 2018 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information

EBITDA is a non-GAAP measure used in this release, and is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBITDA is a measure used internally to assess the performance of the operating units.

We believe net income and diluted earnings per share attributable to Cummins Inc. excluding Tax Legislation is a useful measure of our operating performance without regard to Tax Legislation. These measures are not in accordance with, or an alternative for GAAP and may not be consistent with measures used by other companies.

Webcast information

Cummins management will host a teleconference to discuss these results today at 10 a.m. EST. This teleconference will be webcast and available on the Investor Relations section of the Cummins website atwww.cummins.com. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.

CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)

Reconciliation of Non GAAP measures - Earnings before interest, income taxes, noncontrolling interests, depreciation and amortization (EBITDA)

We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard for financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors.

EBITDA is not in accordance with, or an alternative for, accounting principles generally accepted in the United States (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data; however, the amounts included in the EBITDA calculation are derived from amounts included in the Condensed Consolidated Statements of Net Income. Below is a reconciliation of “Net income attributable to Cummins Inc.” to EBITDA for each of the applicable periods:

CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)

Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding special discrete tax items

We believe these are useful measures of our operating performance for the periods presented as they illustrate our operating performance without regard to other discrete tax adjustments. These measures are not in accordance with, or an alternative for GAAP and may not be consistent with measures used by other companies. This should be considered supplemental data. The following table reconciles net income and diluted EPS attributable to Cummins Inc. to net income and diluted EPS attributable to Cummins Inc. excluding special discrete tax items for the following periods:

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:

Distribution Segment Sales by Product Line

Sales for our Distribution segment by product line were as follows:

Component Segment Sales by Product Line

Sales for our Components segment by product line were as follows:

Power Systems Segment Sales by Product Line and Unit Shipments by Engine Classification

Sales for our Power Systems segment by product line were as follows:

High-horsepower unit shipments by engine classification were as follows:

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