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.”
As reported by the Indianapolis Star, Solso, 64, will be succeeded by Tom Linebarger, Cummins’ president and COO, the company said Tuesday (July 12).
Since Solso was named chairman and CEO of Columbus, Ind.-based Cummins in 2000, annual sales have doubled to $13.2 billion, its stock price has soared from a low of $4.28 a share in 2002 to a high of $121.49 in May, and international business has surged from 40% of sales to more than 60%.
“Tim has led the company through many years of record performance and outstanding shareholder returns,” said Alexis Herman, lead director of Cummins’ board.
The switch at the top was hardly unexpected at Cummins, a publicly traded Fortune 500 company that has had only five chief executives in its 92-year history.
“It’s time for fresh eyes to take this company to the next level,” Solso said. “It’s a great time to make the change.”
Linebarger, 48, has worked closely with Solso since being named CFO in 2000 and president and COO three years ago. He said he’ll retain his office at the company’s headquarters in Columbus after taking the top job Jan. 1. Solso in recent years primarily worked out of Cummins’ downtown Indianapolis office.
Solso, who has a bachelor’s degree in psychology from DePauw University in Greencastle, began his 40-year career at Cummins as an assistant in the personnel office. He later moved to the operations side of the business and worked for Cummins abroad, including in England and Brazil.
Barron’s magazine named him to its list of the 30 most respected company CEOs this year and last.
Solso, who lives in Indianapolis, said he’s been too busy running Cummins to make retirement plans. But they won’t include running another business, he said. He said he’d consider community work involving education, the environment or “social justice type issues.”
Linebarger, who has master’s degrees in business and engineering from Stanford University, began at Cummins as an intern working on an engine line. He was hired full time in 1994 and worked his way up through management jobs on the engine side.
The incoming CEO said he sees his biggest challenge as coping with Cummins’ growth opportunities. The company projects its sales to grow more than 12 percent a year, driven by demand for its high-efficiency truck engines and other power systems in the U.S. and abroad.
“The company is doing very well and has a good team in place. He (Solso) felt I was ready to go . . . and the board felt I was ready to go,” Linebarger said.
Cummins’ growth means hundreds of new jobs coming to Columbus, where the company is expanding its headquarters and manufacturing lines.
The chief executive who has led a dramatic turnaround at Columbus-based Cummins Inc. continues to be bullish on the future of the diesel engine maker.
During an extended interview to air this weekend on Inside INdiana Business Television, Cummins Chairman Tim Solso says he has “never seen us have as much opportunity as we have now.” Under his leadership, Cummins has gone from the brink of disaster to a technology-driven company focused on innovation and sustainability.
Solso was named CEO in 2000, at a time when the company was saddled with heavy debt and declining demand for its products. Under his leadership, Cummins shrank its work force to meet market demand and essentially changed its culture by embracing emissions regulations as a competitive advantage.
Cummins has used technology and innovation to grab market share in emerging areas around the globe and that has translated into jobs in Indiana. In late October, the company announced plans to add 350 jobs at its Columbus headquarters, a result, says Solso, of business growth in China, Indiana and Brazil. Earlier this month, Cummins announced plans for a major new plant in Turkey, that it expects to one day employ 800 workers.
Recently, MarketWatch selected Solso as one of the top five CEOs of the decade for his role in reinventing Cummins. One measure of Solso’s effectiveness: Cummins’ stock price. In late 2000, it stood at $9.48. It opened for trading this morning at more than $108.
Theodore M. “Tim” Solso, chairman and CEO of Cummins Inc., was one of five finalists for MarketWatch’s “CEO of the Decade.”
The other finalists were Apple’s Steve Jobs, Jeff Bezos of Amazon.com, Starbucks chief Howard Schultz and Google’s Eric Schmidt.
The editors announced the winner, Jobs, and the other finalists Tuesday night (Dec. 7).
Ford’s Alan Mulally was named “CEO of the Year.”
“Tim Solso spent nearly 30 years at Cummins before being tapped for the top job in 2000. Thirty months later he was struggling to save the company,” according to a news release. “Hammered by the recession at the beginning of the decade, Cummins was saddled with a 63% debt to equity ratio, a non-investment-grade credit rating and steeply declining demand … Yet eight years and an even worse recession later, Cummins is thriving. Under Solso the company has effectively turned a technology that predates the gasoline engine into a clean-and-green power source, seized a dominant position in the domestic heavy-diesel-engine category and positioned itself to capture more gains in the world’s fastest-growing markets. Along the way, Cummins has turned in one of the most spectacular decade-long stock performances of any U.S. manufacturer while hewing to its chief’s admonitions on sustainability and corporate citizenship.”
The piece notes, “Solso, 63, bleeds Cummins red. The longtime company man joined the manufacturer fresh out of Harvard Business School in 1971. The graduate of Lake Oswego High School in Oregon had done his undergraduate work at DePauw University in Greencastle, Ind. — just 60 miles northwest of Cummins headquarters in Columbus, Ind. — where he met his wife and was a classmate of one J. Danforth Quayle. He had no intention of sticking around Cummins for his whole career and certainly didn’t anticipate that one day he’d be running the show. To the Cummins hierarchy, however, there were clear signs early on that Solso had the makeup of a guy going places, and his superiors quickly began to groom him for the fast track.”
Solso, described as “remarkably humble,” states, “The idea is you do the very best you can and get the best people around you, and you make good things happen. Sometimes that gets recognized.”
Earlier this year, Barron’s listed Tim Solso as one of America’s “30 Most Respected CEOs.”Solso has also been honored with the Anti-Defamation League’s “Man of Achievement Award,” as well as the 2007 International Executive of the Year award from the Academy of International Business (AIB), the 2007 Six Sigma CEO of the Year Award, the American Business Award for “Best Chairman,” and the the Ellis Island Medal of Honor in 2008. He is a member of the American Energy Innovation Council.
He received DePauw’s Old Gold Goblet, given for “eminence in life’s work and service to alma mater,” in 2007.
Solso and his wife, Denise Manning Solso (’69), provided a gift to the University that created an approximately 3,800-square foot laboratory building, Manning Environmental Field Station, within the 520-acre DePauw University Nature Park.