An emissions violation settlement wiped nearly $14 a share from Cummins Inc.’s fourth-quarter earnings. The engine maker pointed to softer results this year as the North American truck equipment market cools.
Without the second-largest fine ever imposed for violations of the federal Clean Air Act, Cummins reported record results for all of 2023.
Cummins reported Tuesday net loss of $1.4 billion in the quarter after the $2.04 billion write-down, or $13.76 per fully diluted share. The company has admitted no wrongdoing in using software that destroys emissions in about 1 million Ram trucks. In the fourth quarter of 2022, Cummins reported net income of $631 million, or $4.43.
A 4 1/2-year investigation concluded in December with a strong admonition of the company by U.S. Attorney General Merrick Garland. The $1.675 billion civil penalty was the largest ever assessed. It was ranked second only to a $2.8 billion criminal fine against Volkswagen AG in 2017.
One-time fees for separations and spinoffs
The Columbus, Indiana-based company also took a charge of $42 million, or 22 cents, related to voluntary retirement and severance plans and $33 million, or 17 cents, related to the spinoff of the filtration business now called Atmus. Cummins plans to sell 80% of its Atmus shares.
The loss in Q4 earnings of $878 million before interest, taxes, depreciation and amortization equates to a negative 10.3% of sales. EBITDA a year ago 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. 4Q cash flow of $1.5 billion was $642 million higher than the same period last year.
“Excluding impacts related to the agreement to resolve US regulatory claims, 2023 was a record year for EBITDA, net income and EPS for Cummins,” Jennifer Rumsey, president and CEO, said in a statement.
Investors liked the underlying numbers. Shares of Cummins (NYSE: CMI ) closed at $251.54 on Tuesday, up 4.33%.
Cummins guided for a softer 2024. It predicts revenue will decline 2% to 5% from the 2023 full-year total of $34.1 billion. The company forecasts EBITDA ranging between 14.4% and 15.4% of sales this year.
“Demand will slow especially in the North American heavy truck market”
“In 2024, we expect demand to slow particularly in the North American heavy-duty truck market, partially offset by strength in other key markets, and we have already taken some steps to reduce costs,” Rumsey said in her statement. He later told analysts that the company expects a slowdown toward the end of the second quarter in the second half of the year.
“The truck backlog is slowly coming down,” CFO Mark Smith said on the call. “What causes us the biggest concern is spot prices and the health of truck operators. The [OEM] backlog and orders continue at fairly decent levels. It’s what happens to the underlying economics of commodity activity.”
Cummins remains patient as it invests in new zero emission technologies housed in the Accelera by Cummins unit. Formerly known as New Power, Accelera’s sales rose 8% to $81 million in the fourth quarter. The addition of the Siemens commercial vehicle business acquired in Q4 2022 helped. Ramsey told analysts on a conference call that Accelera has a $500 million backlog of hydrogen-producing electrolyte 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 electrolytes and developing electric drive systems and fuel cells led to an EBITDA loss of $121 million in the fourth quarter.
“We will continue to invest in new technologies and products in 2024,” Ramsey said. “That [electrolyzer] the production rate will start to increase. Then you will see margin performance… [as] we deliver that backlog to 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 plant in north Mississippi that is expected to create about 2,000 new jobs.
Editor’s note: Updates with the closing price of the stock.
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