CMI Cummins Inc

By Bob Tita 

Cummins Inc. plans to cut about 3.7% of its workforce as lower demand for its engines intensified during the third quarter, causing the company's sales and profit to fall short of expectations.

Cummins said it would trim about 2,000 white-collar jobs, most by the end of the year. The company also is ratcheting down manufacturing capacity at its assembly plants and intends to evaluate whether more aggressive reductions are needed in the coming months. Cummins lowered its 2015 guidance after third-quarter profit dropped 11% from last year and revenue fell 5%. The company also offered a glum glimpse of 2016, noting that it expects "challenging conditions to persist for some time."

Cummins stock sank to a new 52-week low earlier Tuesday and was recently down 7.9% at $103.16.

Columbus, Ind.-based Cummins has been struggling for the past several quarters with a weaker global economy, especially in China and Brazil, and a stronger U.S. dollar that makes its products more expensive in overseas markets. But Chairman and Chief Executive Tom Linebarger said the severity of the downturn in many of the company's end markets intensified during the third quarter.

"They've gone down further. We haven't clearly bottomed in most of those markets," he said during a conference call Tuesday with analysts. "We thought we had and we have not. Where the bottom is, we're not exactly sure, but it doesn't look like we've reached it."

Engine sales for electricity generators dropped 13% in the third quarter led by an 11% decline in North America on lower sales of backup generators to computer data centers. Third-quarter sales of Cummins engines for off-highway vehicles, such as construction machinery and farm equipment, fell 20% from a year earlier.

"It's hard to see any immediate [increase] in these off-road, industrial markets," said Chief Financial Officer Pat Ward.

Cummins' significant exposure to markets for commercial trucks and construction equipment in China and Brazil had been a strength of the company's business mix. But international sales during the third quarter fell 18% from a year earlier amid a strong dollar and weaker economic growth. Cummins' overall revenue in China declined 6% during the quarter to a $775 million, as market share gains helped blunt plunging industrywide demand for commercial trucks and construction excavators. The company now expects 2015 sales from China to be flat with 2014 after previously predicting a 6% increase.

India was one of Cummins few bright spot among overseas markets, as revenue there rose 7% during the third quarter on improving sales of truck engines and power generators. The company expects overall sales in India to rise about 12% this year.

Cummins had been able to offset the weakness in overseas markets with strong demand for truck engines in North America where heavy-duty truck sales this year are expected to be the highest in a decade. But Cummins' third-quarter sales of heavy-duty truck engines dropped 9% from last year amid slowing orders.

"The production's been running higher than orders," said Rich Freeland, chief operating officer. "It's evident now that retail sales [of trucks] and production will be down going forward."

Overall for the third quarter, Cummins reported a profit of $380 million, or $2.14 a share, down from $423 million, or $2.32 a share, a year earlier. Revenue declined to $4.62 billion from $4.89 billion last year. Analysts expected $2.60 in earnings per share and $4.91 billion in revenue.

Cummins warned that sales would be flat to down 2% after previously predicting growth of 2% to 4%. The company also scaled back its 2015 profit margin guidance before interest and taxes to 12.75% to 13%, implying earnings per share of about $8.95 at the middle of the range. Analysts were expecting $9.95 a share.

Write to Bob Tita at robert.tita@wsj.com

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(END) Dow Jones Newswires

October 27, 2015 13:59 ET (17:59 GMT)

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