Emissions-rigging fine takes huge bite from Cummins’ Q4 earnings
An emissions-rigging settlement wiped nearly $14 per share from fourth-quarter profits at Cummins Inc. The engine maker pointed to softer results this year as the North American truck equipment market cools.
Without the second-largest fine ever assessed for federal Clean Air Act violations, Cummins reported record results for all of 2023.
Cummins on Tuesday reported a net $1.4 billion loss in the quarter after setting aside $2.04 billion, or $13.76 per fully diluted share. The company admitted no wrongdoing in the use of emissions-defeating software in about 1 million Ram pickup trucks. In Q4 2022, Cummins reported net earnings of $631 million, or $4.43.
A 4 1/2-year-old investigation wrapped up in December with a strong admonishment of the company by U.S. Attorney General Merrick Garland. The $1.675 billion civil fine was the largest ever assessed. It ranked second only to a $2.8 billion criminal fine against Volkswagen AG in 2017.
One-time charges for separations and spinoff
The Columbus, Indiana-based company also took a $42 million, or 22-cent, charge related to voluntary retirement and separation programs, and $33 million, or 17 cents, related to the spinoff of its filtration business now called Atmus. Cummins plans to sell the 80% of Atmus stock it owns.
The Q4 earnings loss of $878 million before interest, taxes, depreciation and amortization equated to a negative 10.3% of sales. Year-ago EBITDA was $1.1 billion or 14.2% of sales. Q4 revenue of $8.5 billion finished 10% ahead of the same period in 2022.
Operating cash flow for 2023 was a record $4 billion, compared to $2 billion in 2022. Q4 cash flow of $1.5 billion was $642 million higher than the same period last year.
“Excluding the impacts related to the agreement to resolve U.S. regulatory claims, 2023 was a record year for EBITDA, net income and EPS for Cummins,” Jennifer Rumsey, chair and CEO, said in a statement.
Cummins guided to a softer 2024. It projects revenues to fall 2% to 5% from the full-year 2023 total of $34.1 billion. The company projects EBITDA ranging between 14.4% and 15.4% of sales this year.
‘Demand will slow particularly in North America heavy-duty truck market’
“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 have already taken some actions to reduce cost,” Rumsey said in her statement. She later told analysts the company expects the slowdown toward the end of the second quarter into the second half of the year.
“The backlog of trucks has been slowly edging down,” CFO Mark Smith said on the call. “The thing that gives us the broader concern is the spot rates and the health of the truck fleet operators. The [OEM] backlog and the orders still continue at quite decent levels. It’s what’s happening to the underlying economics of freight activity.”
Cummins remains patient as it invests in new zero-emissions technologies housed in its Accelera by Cummins unit. Formerly known as New Power, Accelera sales rose 8% to $81 million in Q4. The addition of the Siemens Commercial Vehicle business acquired in Q4 2022 helped. Rumsey told analysts on a conference call that Accelera has a $500 million backlog of hydrogen-producing electrolyzer orders. Cummins expects full-year 2024 Accelera sales of $450 million to $500 million compared to $354 million in 2023.
The cost of investing in electrolyzers and developing of electric powertrains and fuel cells resulted in a $121 million EBITDA loss in Q4.
“We will continue investment in new technologies and products in 2024,” Rumsey said. “That [electrolyzer] production rate is going to begin to grow. Then you’ll see margin performance… [as] we deliver that backlog out into the market.”
Cummins, Paccar Inc. and Daimler Truck announced a joint venture in September to jointly invest $2 billion to $3 billion to make lithium-iron phosphate batteries for electric trucks. In January, they announced a greenfield plant in northern Mississippi expected to create about 2,000 new jobs.
Editor’s note: Updates with comments and information from analyst call.
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