Cummins Sees Sales Hitting $30 Billion in 2015
Cummins Inc. predicted Tuesday (Sept. 13) that its annual sales will grow by more than 60% to reach $30 billion in 2015, according to a report in the Wall Street Journal.
The commercial-engine maker said it expects overseas demand for its products and tougher standards for engine emissions to drive sales higher, despite sluggish economic growth in several of its geographic markets.
“Several of the economies where Cummins operates are clearly weakening,” said Tom Linebarger, the company’s COO, during a presentation to analysts Tuesday. “We really don’t know how deep it will go. We are confident in the long-term profitable growth of the company.”
To reach the $30 billion goal, Cummins expects revenue growth to average 14% a year from 2011 to 2015. The Columbus, Ind., company anticipates consolidated revenue this year rising 35% from 2010 to $18 billion, putting the company on a course to easily surpass its previous long-range revenue goal of $20 billion in 2014.
Cummins anticipates sales from its engine business will grow by an average of 11% a year from 2011 to 2015, pushing annual engine segment sales to $17 billion. In its power generation business, the company expects sales growth to average 15% a year, sending sales to $6.2 billion in 2015.
Cummins also increased its pre-tax profit margin target to 18% of sales in 2015, from the 14.5% seen for 2011. The company’s previous long-range profit margin goal was 12.5% for 2014.
The company’s sales and profit have been historically susceptible to cyclical demand swings for commercial trucks and construction machinery. But a decade-long campaign to diversify the company’s product lines and raise its sales in fast-growing emerging markets such as China, India and Brazil transformed Cummins into a larger and stronger company, Chairman and Chief Executive Tim Solso said.
“Where we are is clearly better than anybody at Cummins ever thought,” said Solso, who will be replaced as chairman and CEO by Linebarger at the end of the year.
The rapid construction of infrastructure and cities in emerging economies is driving demand for Cummins’s engines for construction equipment, commercial trucks, power generators and other machinery. Cummins’s engine sales are being further propelled by expanded production oil, natural gas and mined commodities.
Moreover, stricter standards for engine exhaust has allowed Cummins to flex its engineering muscle, particularly in the emerging markets where some domestic engine manufacturers lack the technical expertise to comply with the tougher standards. Linebarger predicted that further reductions in engine pollution and improving fuel efficiency will be dominant themes for engine technology for the next 10 years.
Cummins’ new strategy aims to make its engines more competitive at the lower price ranges of the engine markets. Like many U.S. capital equipment manufacturers trying to expand their sales in emerging markets, Cummins has run into stiff competition from domestic companies selling equipment at lower prices.
“There is no question that the competition is increasing,” said Linebarger. “Instead of running from low-cost Chinese competition, we’re going to be the low-cost Chinese competition.”