Cummins Inc.: Diversity Has Engines Revving As Sales Increase

A declining heavy-duty truck market causes Cummins to map new business structure with positive results.

New diesel emissions standards may have caused a decline in North American heavy-duty truck sales, but Cummins -- a 2007 IndustryWeek 50 Best Manufacturing Company -- maneuvered around the potential sales sapper and posted a strong first-quarter performance.

According to the Columbus, Ind.-based company, its ongoing effort to lower its cost structure and to diversify its business beyond the North American heavy-duty truck engine market resulted in increased sales and net income.

For the quarter, which ended April 1, Cummins reported sales of $2.82 billion, up 5.2% from $2.68 billion during the same period in 2006. Net income of $143 million increased 5.9% from $135 million.

"Despite the predicted decline in the North American heavy-duty truck market, we achieved outstanding results in the first quarter," said Tim Solso, Cummins chairman and CEO in an April 27 statement. "These results show our strategy is working, and we expect that type of performance to continue the rest of this year and beyond.

"We did what we said we would do -- continued to deliver superior products and service to our customers, even in the face of significant changes to U.S. emissions regulations. Despite our outstanding performance in the first quarter, we don't intend to relax. We remain committed to making the 2007 product launch cycle the best in our history and we are focused on controlling our costs and providing the best possible products and service."

Cummins, which designs, manufactures, distributes and services engines and related technologies, is concentrating on capital spending for both the company and its manufacturing joint ventures. Spending is expected to increase significantly in 2007, with the majority going to support growth in current products or expansion into new products.

A few examples of current or planned capital spending programs include additional fuel system assembly capacity in the U.S., Mexico and China; expansion of exhaust after-treatment assembly in the U.S.; increased high-horsepower machining and assembly capacity in the United Kingdom and India; and new light-duty diesel engine manufacturing and assembly in the U.S. and China.

Additionally, Cummins will be starting construction on a fuel systems plant outside North America. The company stated that Cummins Fuel Systems-Wuhan will be the company's 13th production facility in China and it is expected to become operational early next year.

The plant is expected to cost approximately $10 million and will assemble Cummins common rail fuel pumps and CELECT injectors/fuel pumps intended mainly for the Chinese market. Cummins said advanced fuel systems are critical to helping Cummins and its customers to meet the strict emission regulations that are in force around the world and the Wuhan facility would help Cummins to meet the increasing demand for its products in China and other budding markets.

According to the company, Cummins is the largest foreign investor in the China diesel engine industry, and its ties in the country date back over 30 years to 1975 when then-CEO J. Irwin Miller led the first Cummins delegation to China as part of a deal to sell 14 KV12 engines to a mining customer. Today, Cummins operates more than 20 facilities in China -- including 13 manufacturing sites -- with all areas of the company's business represented in China.

As for emissions, Cummins has also continued progress toward meeting the stringent 2011 EPA Tier 4 and EU Stage IIIB regulations. Development work has now moved from test cell research to equipment level systems integration by Cummins. Combustion simulation and prototype work began as early as 2005.

Cummins Inc.
At A Glance

Cummins Inc.
Columbus, Ind.
Primary Industry: Motor Vehicle Parts
Number of Employees: 34,600
2006 In Review
Revenue: $11.4 billion
Profit Margin: 6.29%
Sales Turnover: 1.52
Inventory Turnover: 6.83
Revenue Growth: 14.56%
Return On Assets: 10.38%
Return On Equity: 38.36%

The regulations replace engine-measured emissions with tailpipe-measured emissions as a single system. Cummins is working toward Tier 4 and Stage IIIB under the more rigorous conditions of the non-road transient composite test cycle required for regulatory compliance.

"EPA and EU emissions reductions in 2011 require the use of exhaust after-treatment, and we are evaluating alternatives to minimize the impact on installation complexity for the equipment manufacturers," said Ric Kleine, vice president of Cummins Off-Highway Business in a May 17 statement. "Because of our investment in all the critical technologies, we are able to leverage our vast experience in other markets where exhaust after-treatment systems are already in production. Our stable technology base enables Cummins to focus on achieving the lowest initial cost for the OEM and on the lowest cost of operation for the equipment owner," added Kleine.


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