Cummins 4Q15 Earnings Call Notes

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Cummins (CMI) N. Thomas Linebarger on Q4 2015 Results

Industry demand in China decreased by 24%

“Our full-year revenues in China including joint ventures were $3.3 billion in line with 2014 as we significantly outperformed very weak end markets. Industry demand for medium and heavy duty trucks in China decreased by 24% for the full year as the industrial economy slowed.”

Almost all of our markets are declining in China even as the economy grows

“There is a couple of things going on in China. One, you know obviously is that from an economic point of view, there is a shift going on from what was largely an industrial and export economy to some more balanced economy; at least that’s what they’re trying to do. So almost all of our markets are declining even as the economy grows. And that’s just a reflection of that shift. We provide a lot to infrastructure in those kind of segments.”

It’s not clear that we’ll ever hit the peak number of trucks that were sold in China again

“And second thing that’s going on of course is efficiency improvements. So in the truck market for an example, the number of trucks sold in its peak, it’s not clear that we’ll ever hit that number again. It kind of depends. The efficiencies are improving, but so is the potential. So many parts of China where there is not much infrastructure built yet, the government is likely to build more infrastructure there.”

There is an increase in demand for equipment quality

“what we do know, is that as they have increased their focus on emissions out of their equipment and the quality, the demand for quality, and more professional fleets and operators increases, the demand for our products is increasing. So as a percentage of the total trucks sold, our market share continues to increase, and we are benefiting significantly from that along with our partners there.”

Pace of decline in US truck markets may be slowing down

“They’re not – the pace of decline might be slowing down in some markets, for example, on the off-highway markets. Although they’re still declining, which is remarkable, they are declining slower and again we boar a lot of the decline of the truck market in the second half. ”

There’s always room for further restructuring

“unfortunately, always room for further restructuring. I think the thing you’ve heard from us is that our – we find a way to do well in good and bad times, whenever they face us. And we want to do that quickly and with urgency and so that’s what we’re going to continue to do. We want to make sure we take our actions not in a kneejerk way, in a sensible way that leads to long-term performance of the company. But under the circumstances, we obviously had to make adjustments because conditions are weak. And if they got significantly weaker, we’d do what we needed to do to make sure that we continue to generate strong financial results even in the face of that.”