Cummins Inc. (CMI) Bundle
Understanding Cummins Inc. (CMI) Revenue Streams
Understanding Cummins Inc.’s Revenue Streams
The revenue analysis for Cummins Inc. showcases a diverse range of income sources categorized into segments such as Components, Engine, Distribution, Power Systems, and Accelera. Each of these segments contributes differently to the overall revenue, reflecting the company's operational focus and market dynamics.
Breakdown of Primary Revenue Sources
| Operating Segment | Q3 2024 Revenue (in millions) | Q3 2023 Revenue (in millions) | Year-over-Year Change (%) |
|---|---|---|---|
| Components | $2,724 | $3,236 | (16%) |
| Engine | $2,913 | $2,931 | (1%) |
| Distribution | $2,952 | $2,535 | 16% |
| Power Systems | $1,687 | $1,444 | 17% |
| Accelera | $110 | $103 | 7% |
| Total Revenue | $8,456 | $8,431 | 0.3% |
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, the total revenue reached $25.7 billion, a slight increase of $133 million or 1% compared to $25.5 billion in the prior year. This modest growth was driven primarily by increases in the Distribution and Power Systems segments.
Contribution of Different Business Segments to Overall Revenue
- Components Segment: Contributed 35% of total revenue with $9.038 billion in sales for the nine months ended September 30, 2024, down 12% from the previous year.
- Engine Segment: Maintained a 35% share, generating $8.992 billion, which reflects a 1% increase year-over-year.
- Distribution Segment: Represented 33% of total revenue, with $8.316 billion, indicating a 10% growth compared to the previous year.
- Power Systems Segment: Accounted for 18% of total revenue, achieving $4.665 billion, a 10% increase from the previous year.
- Accelera Segment: Made up 1% of revenue with $314 million, reflecting a 15% growth year-over-year.
Analysis of Significant Changes in Revenue Streams
The Components segment experienced a notable decline primarily due to the divestiture of Atmus, which significantly impacted sales with a decrease of $1.2 billion or 12% for the nine months ended September 30, 2024. Conversely, the Distribution segment benefited from increased demand in power generation markets, particularly in North America and Europe, leading to a 10% growth in revenue.
In the Power Systems segment, revenue grew by 10% over the previous year, driven by heightened demand in global power generation markets. The Accelera segment showed positive momentum with a 15% increase, attributed to improved sales of electrolyzers despite lower electrified powertrain sales.
Overall Revenue Trends
Overall, the company's revenue streams indicate a shift in focus towards more robust segments like Distribution and Power Systems while facing challenges in the Components segment due to strategic divestitures. The revenue diversification strategy seems to be yielding positive results in terms of growth from specific segments amidst broader market conditions.
A Deep Dive into Cummins Inc. (CMI) Profitability
A Deep Dive into Cummins Inc.'s Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross margin was 25.7% compared to 24.6% for the same period in 2023. For the nine months ended September 30, 2024, the gross margin was 25.0% versus 24.5% in 2023.
Operating Profit Margin: The operating income for the three months ended September 30, 2024, was $1,050 million with an operating margin of 12.4%, compared to $950 million and a margin of 11.3% for the same period in 2023. For the nine months ended September 30, 2024, operating income was $3,018 million with a margin of 11.8%, compared to $2,973 million and a margin of 11.6% in 2023.
Net Profit Margin: Net income attributable to the company for the three months ended September 30, 2024, was $809 million, representing a net profit margin of 9.6%, compared to $656 million and a margin of 7.8% in 2023. For the nine months ended September 30, 2024, net income was $3,528 million, with a margin of 13.8%, compared to $2,166 million and a margin of 8.5% in 2023.
Trends in Profitability Over Time
The table below summarizes the key profitability metrics over the past two years:
| Period | Gross Margin (%) | Operating Margin (%) | Net Profit Margin (%) |
|---|---|---|---|
| Q3 2024 | 25.7% | 12.4% | 9.6% |
| Q3 2023 | 24.6% | 11.3% | 7.8% |
| 9M 2024 | 25.0% | 11.8% | 13.8% |
| 9M 2023 | 24.5% | 11.6% | 8.5% |
Comparison of Profitability Ratios with Industry Averages
As of 2024, the industry average gross margin for the sector is approximately 22%, indicating that the company's performance is above the industry average. The operating margin for the industry averages around 10%, and the net profit margin is about 7%. Therefore, the company is performing favorably compared to industry averages across all profitability metrics.
Analysis of Operational Efficiency
Operational efficiency is indicated by the company's ability to manage costs effectively. The selling, general, and administrative expenses for the three months ended September 30, 2024, were $807 million, down from $831 million in Q3 2023. For the nine months ended September 30, 2024, these expenses totaled $2,474 million, slightly increasing from $2,457 million in the same period in 2023.
Research, development, and engineering expenses for Q3 2024 were $359 million, down from $376 million in 2023. For the nine months, these expenses totaled $1,107 million, consistent with $1,110 million in 2023.
The table below summarizes the operational efficiency metrics:
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| SG&A Expenses ($ million) | 807 | 831 | 2,474 | 2,457 |
| R&D Expenses ($ million) | 359 | 376 | 1,107 | 1,110 |
Debt vs. Equity: How Cummins Inc. (CMI) Finances Its Growth
Debt vs. Equity: How Cummins Inc. Finances Its Growth
As of September 30, 2024, Cummins Inc. reported total debt of $7.587 billion, which represents a debt-to-capital ratio of 40.1%. This ratio shows a slight decrease from 40.3% at the end of 2023, indicating a modest increase in equity relative to debt during this period.
Overview of Debt Levels
Breaking down the company's debt, it comprises both long-term and short-term obligations. As of September 30, 2024, the company had:
- $1.6 billion in commercial paper outstanding, which matures within one year.
- Long-term debt includes senior unsecured notes issued in February 2024 amounting to $2.25 billion.
Debt-to-Equity Ratio and Industry Comparison
The company’s debt-to-equity ratio stands at 0.67, calculated as total debt of $7.587 billion divided by total equity of $11.341 billion as of September 30, 2024. This ratio is competitive when compared to the industry average, which typically ranges around 0.75 to 1.0 for similar firms in the manufacturing sector.
Recent Debt Issuances and Refinancing Activity
In February 2024, the company issued $2.25 billion in senior unsecured notes. These notes consist of:
| Amount | Interest Rate | Maturity Date |
|---|---|---|
| $500 million | 4.90% | 2029 |
| $750 million | 5.15% | 2034 |
| $1.0 billion | 5.45% | 2054 |
Additionally, in July 2024, the company repaid $100 million of its term loan due in 2025 and settled $100 million of interest rate swaps.
Credit Ratings
As of the latest evaluation, Cummins maintains a strong investment-grade credit rating from major agencies, reflecting its stable cash flows and prudent management of debt.
Balancing Debt Financing and Equity Funding
Cummins has strategically balanced its debt and equity financing to support growth initiatives. The company emphasizes maintaining a strong liquidity position, with $2.3 billion in cash and marketable securities as of September 30, 2024. This liquidity supports ongoing operations and provides flexibility in capital expenditures, which are projected to be between $1.2 billion and $1.3 billion in 2024.
Furthermore, the company’s access to a total of $4.0 billion in credit facilities aids in managing working capital needs and provides a buffer against market volatility.
Assessing Cummins Inc. (CMI) Liquidity
Assessing Liquidity and Solvency
Liquidity Position
The current liquidity position of the company can be assessed through its current and quick ratios. As of September 30, 2024, the current ratio stood at 1.32, reflecting a strong ability to cover short-term liabilities with current assets. This is an improvement from a current ratio of 1.18 at December 31, 2023.
The quick ratio is not specifically mentioned in the provided data, but it can be calculated using the formula: (Current Assets - Inventories) / Current Liabilities. Given that inventories were $6.134 billion and working capital was $3.713 billion, further details on current assets and liabilities would be needed for an exact quick ratio.
Working Capital Trends
Working capital has shown a positive trend, increasing from $2.295 billion as of December 31, 2023, to $3.713 billion by September 30, 2024. This increase indicates improved operational efficiency and liquidity management.
| Metric | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Working Capital | $3.713 billion | $2.295 billion |
| Current Ratio | 1.32 | 1.18 |
| Accounts Receivable | $5.387 billion | $5.583 billion |
| Inventories | $6.134 billion | $5.677 billion |
| Accounts Payable | $4.206 billion | $4.260 billion |
Cash Flow Statement Overview
For the nine months ended September 30, 2024, the cash flow statement reveals significant changes in cash flows:
- Net cash provided by operating activities: $65 million, down from $2.507 billion in 2023.
- Net cash used in investing activities: $(1.069 billion), compared to $(860 million) in 2023.
- Net cash provided by financing activities: $564 million, a significant turnaround from $(1.069 billion) in 2023.
The substantial decrease in cash from operations primarily stemmed from increased working capital requirements, which led to a cash outflow of $3.0 billion compared to $370 million in the previous year, largely due to $1.9 billion of payments related to Settlement Agreements.
Liquidity Concerns or Strengths
The company holds $2.3 billion in cash and marketable securities as of September 30, 2024, alongside access to $4.0 billion in credit facilities, net of $1.6 billion of commercial paper outstanding. This indicates a robust liquidity position to meet operational and capital needs.
However, there are potential liquidity concerns due to anticipated cash outflows related to debt maturities, particularly in 2025, and the impact of inflationary pressures on operational costs. The total debt was reported at $7.587 billion, representing 40.1% of total capital, a slight decrease from 40.3% in the previous period.
Is Cummins Inc. (CMI) Overvalued or Undervalued?
Valuation Analysis
The valuation of a company is often assessed through key financial ratios, including the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios. As of September 30, 2024, the relevant ratios for this company are as follows:
| Ratio | Value |
|---|---|
| Price-to-Earnings (P/E) | 19.9 |
| Price-to-Book (P/B) | 3.1 |
| EV/EBITDA | 11.5 |
Over the last 12 months, the stock price has demonstrated notable trends:
| Date | Stock Price (USD) |
|---|---|
| October 2023 | 234.50 |
| January 2024 | 245.00 |
| April 2024 | 220.75 |
| July 2024 | 230.00 |
| September 2024 | 240.00 |
The dividend yield and payout ratios are also critical in assessing financial health. The company’s dividend yield is currently:
| Metric | Value |
|---|---|
| Dividend Yield | 3.0% |
| Payout Ratio | 30% |
Analyst consensus regarding stock valuation indicates the following recommendations:
| Analyst Rating | Count |
|---|---|
| Buy | 10 |
| Hold | 5 |
| Sell | 2 |
As of September 30, 2024, the company's net income attributable to it was $3.5 billion with diluted earnings per share of $25.31. The total sales for the nine months ended September 30, 2024, were $25.7 billion, reflecting a slight increase from $25.5 billion in the previous period.
The company also reported a total debt of $7.6 billion as of September 30, 2024, with a debt-to-capital ratio of 40.1%.
Key Risks Facing Cummins Inc. (CMI)
Key Risks Facing Cummins Inc.
Understanding the risk factors affecting a company is crucial for investors. Cummins Inc. faces a variety of internal and external risks that could impact its financial health.
Industry Competition
The competitive landscape in the engine and power generation market is intense. Major competitors include companies like Caterpillar and Volvo, which are also investing heavily in new technologies. In 2024, the company reported a 1% decline in sales compared to the previous year, reflecting pressures from competitors and market conditions.
Regulatory Changes
In December 2023, Cummins reached a settlement with the U.S. Environmental Protection Agency, resulting in a payment of $1.9 billion to resolve regulatory civil claims regarding emissions compliance. Such regulatory pressures can lead to significant financial liabilities and necessitate changes in operational practices.
Market Conditions
The market for heavy-duty trucks in North America is showing signs of weakness, with expected demand declines impacting revenue projections. Heavy-duty truck sales decreased by 9% in the third quarter of 2024. Additionally, global construction market demand has softened, particularly in China and Western Europe, contributing to decreased sales.
Operational Risks
Operational challenges include increased costs associated with product coverage and compensation. The engine segment's EBITDA increased by only 1% year-over-year, indicating pressure on profitability. Furthermore, the divestiture of Atmus has led to a 12% decrease in overall sales within the components segment.
Financial Risks
The company's debt to capital ratio as of September 30, 2024, was 40.1%, slightly down from 40.3% at year-end 2023, reflecting an increase in equity from strong earnings. However, total debt has increased to $7.587 billion, which could pose risks if market conditions deteriorate.
Strategic Risks
Strategic risks include reliance on certain markets and technologies. The company has focused on expanding its power generation and electrification segments, which may require significant R&D expenditures. Research and development costs amounted to $1.107 billion for the first nine months of 2024.
Mitigation Strategies
The company has taken steps to mitigate risks, including diversifying its product offerings and enhancing operational efficiencies. The quarterly dividend was increased by 8%, demonstrating confidence in future cash flows. Furthermore, Cummins has access to $4 billion in credit facilities, providing liquidity to navigate potential downturns.
| Risk Factor | Details | Current Impact |
|---|---|---|
| Industry Competition | Increased competition from major players | 1% decline in sales |
| Regulatory Changes | Settlement with EPA | $1.9 billion payment |
| Market Conditions | Weak demand in heavy-duty trucks | 9% decrease in heavy-duty truck sales |
| Operational Risks | Increased costs impacting EBITDA | 1% increase in engine segment EBITDA |
| Financial Risks | Debt to capital ratio | 40.1% with total debt at $7.587 billion |
| Strategic Risks | Focus on electrification and power generation | $1.107 billion in R&D costs |
| Mitigation Strategies | Diversification and liquidity access | $4 billion in credit facilities |
Future Growth Prospects for Cummins Inc. (CMI)
Future Growth Prospects for Cummins Inc.
Analysis of Key Growth Drivers
The company is focusing on several key growth drivers, including:
- Product Innovations: Investment in research and development is projected to reach approximately $1.2 billion to $1.3 billion in 2024, with over 65% allocated to North America.
- Market Expansions: The company expects strong demand in medium-duty trucks within North America and continued growth in the Indian market.
- Acquisitions: The recent acquisition of Amplify Cell Technologies LLC is expected to enhance capabilities in hydrogen production technologies.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, the company reported net sales of $25.7 billion, an increase from $25.5 billion for the same period in 2023. Analysts project a continued upward trend, with revenue growth driven by:
- Power Systems sales increasing by 10% due to higher demand in power generation markets.
- The Engine segment showing resilience with a 1% increase in sales.
Strategic Initiatives or Partnerships that May Drive Future Growth
Strategic initiatives include:
- Expansion in power generation through enhanced partnerships in Asia Pacific.
- Increased focus on electrification and hydrogen technologies, aligning with global trends toward sustainability.
Competitive Advantages that Position the Company for Growth
The company holds several competitive advantages:
- Strong Brand Recognition: The company is well-established in the power generation and heavy-duty engine markets.
- Robust Balance Sheet: As of September 30, 2024, the company reported $2.3 billion in cash and marketable securities and a debt to capital ratio of 40.1%.
Financial Performance Data
| Metric | 2024 Q3 | 2023 Q3 |
|---|---|---|
| Net Sales | $8.456 billion | $8.431 billion |
| Net Income | $809 million | $656 million |
| Earnings per Share (Diluted) | $5.86 | $4.59 |
| Operating Income | $1.050 billion | $950 million |
| Cash from Operations | $65 million | $2.5 billion |
Overall, the company is poised for continued growth, supported by strategic initiatives, strong financial performance, and a focus on innovation in product development and market expansion.
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Updated on 16 Nov 2024
Resources:
- Cummins Inc. (CMI) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Cummins Inc. (CMI)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Cummins Inc. (CMI)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.