Cummins (CMI) Q4 2015 earnings summary

Executive summary

• FY15 revenue $19.1B, down 1% YoY; adjusted net income $1.6B, or $8.93/share, vs. $1.7B and $9.13 in 2014.

• Q4 revenue $4.8B, down 6% YoY; adjusted net earnings $355M, or $2.02/diluted share, vs. $2.56 in Q4 2014.

• Weaker truck, off-highway and power generation demand plus U.S. dollar strength pressured results; cost savings and China share gains provided offsets.

Financial highlights

• FY15 gross margin 25.9%, up 50 bps YoY; Q4 gross margin 25.4%, flat YoY, supported by material cost savings and lower warranty costs.

• FY15 EBIT $2.4B, or 12.5% of sales, vs. $2.5B and 13.2% in 2014; Q4 EBIT $531M, or 11.1%, vs. $661M and 13.0%.

• FX reduced FY15 sales by over $700M and EBIT by $95M; Q4 FX impact was $34M on EBIT.

• Adjusted full-year operating tax rate was 27.4%; Q4 all-in tax rate of 16% included a $25M R&D tax-credit benefit.

Outlook and guidance

• FY16 revenue forecast down 5%-9%; EBIT margin 11.6%-12.2%, with 25% decremental margin at guidance midpoint.

• FY16 expected savings of $300M from restructuring, material costs and lower warranty costs, net of targeted investment; tax rate forecast at 28.5%, excluding discrete items.

• FY16 currency expected to reduce revenue by $250M-$300M and earnings by $30M-$40M; material-cost savings forecast near 1%, or ~$180M.

• FY16 operating cash flow expected within 10%-15% of sales; capex forecast at $600M-$650M.