Cummins: Tough Times Create Opportunity
The trucking industry has been worried about skyrocketing diesel prices throughout much of 2022. They have warned about possible supply chain disruptions and have indicated they are shipping loads at losses if they can pass along fuel surcharges. One company that may be affected is Cummins Inc. (NYSE:CMI).
The company manufactures and distributes diesel and natural gas engines, electric and hybrid powertrains and related components worldwide. It operates through five segments: Engine, Distribution, Components, Power Systems and New Power. The company primarily offers diesel and natural gas-powered engines under the Cummins brand for the heavy and medium-duty truck, bus, recreational vehicle, construction and other mobile markets.
Additional products include automated transmissions, generators, controls, paralleling systems, transfer switches and A/C generator and alternator products. The company services its products through a network of approximately 500 wholly-owned, joint venture and independent distributor locations and more than 10,000 Cummins certified dealer locations in over 190 countries.
Founded in 1919, Cummins is headquartered in Columbus, Indiana and currently has a $27 billion market capitalization.
Meritor acquisition
In February, the company announced it is acquiring Meritor Inc. (NYSE:MTOR) for $36.50 per share, which is an enterprise value of approximately $3.7 billion when including assumed debt and net of acquired cash. The deal is valued at 5.9 times fiscal 2022 enterprise value/Ebitda (7.4 time excluding synergies), according to Cummins. Meritor is a global leader of drivetrain, mobility, braking, aftermarket and electric powertrain solutions for the commercial vehicle and industrial markets. This transaction is expected to strengthen Cummins industry-leading range of powertrain components and accelerate development of electrified power solutions.
Financial review
Cummins had a good recovery year in 2021 as revenue increased 21% to $24 billion with North American revenue up 17% and international revenue growing 27%. Ebitda for the year was $3.5 billion (14.7% of sales) compared to $3.1 billion (15.7% of sales) in 2020.
The company generated net income for the full year of $2.1 billion ($14.61 per share), compared to net income of $1.8 billion ($12.01 per share) in 2020.
At year-end, the company had $3.2 billion in cash and equivalents and $4.1 billion in total outstanding debt. The company generated $1.5 billion in free cash flow for the year and was able to repurchase $1.4 billion in common stock.