Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowCummins Inc. is bracing for a rocky 2009 after reporting a 55-percent plunge in fourth-quarter profit this morning.
The Columbus engine maker reported earnings of $89 million, or 45 cents a share, down from $198 million, or $1 a share, in the same period a year ago.
Fourth-quarter sales fell 6 percent, to $3.3 billion, as market conditions deteriorated rapidly. Cummins executives expect the slide to continue this year and are forecasting full-year sales to be about 20-percent lower than the $14.3 billion recorded in 2008.
They said earnings before interest and income tax expenses should amount to about 6.5 percent of total sales – down from 9 percent last year.
The engine division, the company’s largest, saw a 10-percent drop in 2008 earnings, to $1.94 billion, due to higher material costs, a stronger dollar, increased warranty expenses and lower income from its joint ventures. Partnerships in China and India in particular are expected to see the largest drops in revenue, executives said.
“The recession almost certainly will last through the end of the year and [it] could take until 2011 for the global economy to fully recover,” CEO Tim Solso said this morning in a conference call. “For the short term, our focus will be on reducing costs.”
Cummins said it will have eliminated 1,400 salaried workers and 1,300 hourly workers, or about 6 percent of its work force, between the start of the fourth quarter and the end of the current quarter.
In addition, it said it has laid off 2,500 contract workers, cut the pay of corporate officers by 10 percent, temporarily idled or shortened work weeks at several plants, and significantly reduced planned capital expenditures for the year.
The company said it had suspended its share buyback program to preserve cash but said it would continue paying a dividend.
Despite the gloomy outlook, Cummins reported its fifth consecutive year of record sales and profit, and expects to be profitable this year.
Wall Street had expected an even sharper drop in fourth-quarter profit, which helped boost company shares nearly 3 percent, to $24.92, in late-morning trading.
Please enable JavaScript to view this content.