Hitting on ‘all cylinders’: Annual revenue at record high, but emissions settlement weighs on Cummins’ quarterly results


Cummins Inc. on Tuesday reported a net loss in the final three months of 2023 after costs from a record-setting settlement over alleged emissions violations cut into the company’s earnings.

The Columbus-based company reported a net loss of $1.4 billion, or $10.01 per share, in the fourth quarter of 2023, compared to $631 million in net profit, or $4.43 per share, during the same period in 2022, according to filings with regulators.

Cummins attributed the net loss to a $2.04 billion charge in the fourth quarter as part of the emissions settlement, as well as $42 million in costs related to voluntary retirement and separation programs and $33 million related to the separation of its filtration business, now called Atmus.

Excluding the emissions settlement, voluntary retirement and separation programs and the costs related to Atmus, earnings per share came in at $4.14 during the fourth quarter, which fell short of Wall Street expectations of $4.47.

The company reported $8.5 billion during the October-December quarter, up 10% from the same quarter in 2022 and exceeding Wall Street expectations of $8.1 billion.

Full-year revenue in 2023 was a record $34.1 billion, a 21% increase from 2022, the company said. Sales in North America increased 22% and international revenues increased 20% compared to 2022 due to the addition of Meritor and strong demand across most global markets.

The earnings report came several weeks after Cummins announced that it had reached a settlement agreement with the U.S. Department of Justice and California, who had accused the company of installing software on hundreds of thousands of RAM engines made in Walesboro that caused the vehicles to bypass emissions rules.

The settlement included a $1.675 billion fine — which the Justice Department said was the highest civil penalty ever under the Clean Air Act — and an additional $325 million in estimated costs of recalling certain RAM engines and bankrolling emissions mitigation projects.

Cummins, for its part, has said it “has seen no evidence that anyone acted in bad faith” and did not admit wrongdoing in the settlement.

“We are resolute about the leading role we play in the energy transition, and emissions compliance continues to be a critical element of this work and central to our values,” Cummins Chair and CEO Jennifer Rumsey told financial analysts during an earnings conference call on Tuesday. “…After 4.5 years of working diligently with the regulators, reaching an agreement was the best way for us to achieve certainty on this matter and move forward with certifying our new products and advancing our Destination Zero strategy. We have expanded and strengthened our emissions compliance program to help ensure our products comply with increasingly stringent emissions regulations around the world.”

Segment performances:

Components: Sales of $3.2 billion in the fourth quarter represented 3% compared to the same period in 2022, the company said. Revenue in North America decreased 2%, and international sales rose 10% due to increased demand, particularly in China.

Engine: Sales of $2.8 billion were up 5% compared to the same quarter in 2022.

Distribution: Sales of $2.7 billion represented a 17% increase compared to the fourth quarter of 2022. Higher revenue was driven by increased demand for whole goods, especially power generation products, and pricing actions.

Power Systems: Sales of $1.4 billion rose 8% compared to the same period in 2022. Power generation revenue increased 19% due to increased global demand and pricing actions. Industrial revenue decreased 3% due to lower oil and gas demand.

Accelera: Sales of $81 million were up 8% compared to the fourth quarter of 2022. Revenue increased due to higher demand for battery electric systems and the addition of Siemens Commercial Vehicle, which Cummins acquired during the fourth quarter of 2022.

2024 outlook

Cummins is projecting 2024 full-year revenue to decline 2% to 5% compared to last year due to slowing demand in some key markets and regions.

Rumsey said the company expects the North America heavy-duty truck market to continue at its current rate at the start of 2024 but soften in the second half of the year.

Cummins is projecting a 10% to 15% decline in industry production of heavy-duty trucks in North America this year compared to 2023. Medium-duty truck production is expected to be flat or down slightly in 2024.

“In 2024, we anticipate that demand will slow particularly in the North America heavy-duty truck market, partially offset by strength in other key markets, and (we) have already taken some actions to reduce cost,” Rumsey said. “We will continue to monitor global economic indicators closely and will ensure we are prepared to adjust our business should economic momentum slow further.”

Analysts react

Local analysts said they expect Cummins to quickly put the emissions settlement behind them and that the company appears to be in good shape to start the year.

Roger Lee, director of research at Columbus-based Kirr, Marbach and Co. said 2024 is likely shaping up to be a “pretty solid” year for Cummins despite the company’s projections of a slight decline in full-year revenue.

“The big takeaway is everyone knew 2023 was a record year, (and) 2024 is shaping up to be not too far off from it,” Lee said. “Your revenues are only going to be down 2% to 5%. Yes, they took that hit on the fine, but it wasn’t anything that derailed the company, and the company is (likely) still going to generate well in excess of $2 billion in cash this year.”

“…The company is still in very good shape, and 2024 is set up to still be a pretty solid year,” Lee added.

Craig Kessler, president and chief investment officer at Columbus-based Kessler Investment Group, said he does not see the emissions settlement hampering the company moving forward and that Cummins may have “set the bar low” with its revenue projections for this year “so they can clear it more easily.”

“I think they’re going to quickly put behind them the issues with the government, and they’ll digest that and move on,” Kessler said. “I don’t think that’s going to be something that is going to plague them going forward.”

Regarding the projected decline in revenue this year, Kessler said, “(Cummins does) like to under-promise and over-deliver.”

“We do think that the company is doing everything that it is setting out to do,” he said. “It’s kind of hitting on all cylinders. …I think they’re doing well.”

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