Cummins Inc. has revised its outlook for 2008 due to the continuing decline in many of its key markets around the world.
The company said it now expects 2008 sales to increase by 9 percent
over 2007, compared to its previous guidance of a 12 percent increase.
Earnings Before Interest and Taxes (EBIT) is forecast to be slightly
more than 9 percent of sales, compared to the company’s earlier
guidance of 10 percent.
“Like many other companies, Cummins is experiencing the negative impact
of the global economic downturn,” said Tim Solso, Cummins chairman and
chief executive officer. “Our Engine and Components segments are seeing
the most significant declines with revenues for the fourth quarter down
15 percent compared to what we anticipated in our previous guidance at
the end of October.
“We are taking aggressive steps to manage costs and production levels
to reflect current economic conditions,” Solso added. “We do not expect
market conditions to improve significantly in the immediate future.”
The company’s heavy-duty and medium-duty truck and construction markets
were hardest hit in recent weeks, with drops in demand in North America
and Europe. In addition, truck markets in China, Brazil and India also
have weakened.
As a result of the rapid decline in sales, the Engine and Component
segments are expected to report sharply lower EBIT margins in the
fourth quarter, compared to the same period a year ago.
Cummins has taken a number of steps to address the slowing demand over
the past month, including temporary plant shutdowns, shortened work
weeks and extended holiday closings; as well as cutting discretionary
spending, initiating a hiring freeze, eliminating temporary employees
at some plans and reducing permanent employee levels at some plants.
The company also announced last week that it will reduce its
professional workforce worldwide by at least 500 employees by the end
of 2008. The costs associated with the employee reductions are
estimated to be between $30-$40 million and will be recognized in the
company’s fourth quarter earnings. The revised guidance for 2008
excludes the severance costs associated with these actions.
Many of these measures are expected to continue into next year. The
company will provide sales and EBIT percentage guidance for 2009 when
it reports fourth-quarter earnings on Feb. 3, 2009.
“These are very challenging times, but Cummins is well positioned to
weather this downturn,” Solso said. “2008 will be our fifth consecutive
year of record sales and profits. The company is more diversified than
at any time in its history, we have grown market share in many markets
and our balance sheet is strong, which allows us to invest in our
critical growth opportunities. We are prepared to do the hard work
necessary to not only manage through this difficult period, but to
emerge an even stronger company.”
