Dip in Profit Leads Cummins to ‘Scale Back’ Production

Columbus-based Cummins Inc. (NYSE: CMI) has announced plans to scale back light-duty engine production in North America as a result of what Chief Operating Officer Rich Freeland calls weakening market conditions. The announcement comes as the global engine manufacturer is reporting fourth quarter net income of $161 million, compared to $444 million during the same period in 2014. Full-year profit also decreased. The company says it does not intend to reduce the size of its work force as a result of the reduced production plans.

In a quarterly earnings report, Freeland says "the Company reviewed its global manufacturing footprint and now expects to scale back the range of light duty engines it plans to manufacture in North America. This change in plans, combined with the uncertainty of winning additional customers for the V8 light duty engine, caused the Company to reassess the book value of its light duty manufacturing assets in North America. As a result, a non-cash, pre-tax impairment charge of $211 million was recorded to adjust the assets to fair value. We are disappointed that we had to record the charge, but we remain committed to our light duty engine customers and are confident in the growth potential of our global light duty engine business, including the V8 engine in North America."

For 2015, Cummins is reporting net income of $1.4 billion, down from $1.7 billion in the previous year.

Chief Executive Office Tom Linebarger says progress in some areas during the year, including increased market share in China, acquisition and integration of distributors in North America, improvements in quality and material cost reductions, was offset by several factors. "A combination of weak end markets and a stronger U.S. dollar presented significant challenges to our performance. As demand weakened in the third quarter we moved quickly to lower costs. Through a combination of restructuring and other staffing actions, we reduced headcount by more than 2,000 people in the fourth quarter, and launched a number of initiatives within our manufacturing operations to reduce costs." The cuts were announced in October, and at the time, the company projected the "difficult but necessary" decision could save $160 million to $200 million per year.

Looking to the future, Chief Executive Office Tom Linebarger says "the benefits of restructuring, material cost reduction initiatives and quality improvements combined with the launch of new and improved products in 2016, should position the Company for stronger performance in the future, despite the challenges of a weak macroeconomic environment."

Cummins says current forecasts suggest 2016 revenues could dip between 5 and 9 percent. Last year, revenues were $19.1 billion, off 1 percent from 2014.

The manufacturer says it currently employs approximately 55,000 throughout the world, with customers in around 190 countries and territories.