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Net income included a $37 million pre-tax charge ($0.13 per share) to cover the costs associated with job reductions in the fourth quarter. Excluding this charge, EBIT was $1.33 billion, or 9.3% of sales.
As the company publicly stated in mid-December when it revised its sales and EBIT guidance downward for 2008, market conditions around the world began to deteriorate rapidly and sharply in the fourth quarter as the global recession continued to spread. Fourth quarter sales fell 6% to $3.29 billion, compared to $3.52 billion during the same period in 2007. Net income dropped to $89 million, or $0.45 a share, from $198 million, or $1.00 a share, a year ago, while EBIT decreased to $129 million, or 3.9% of sales, from $324 million, or 9.2% of sales. Excluding the restructuring charge, EBIT was $166 million, or 5.0% of sales.
Sales declines in the company’s Engine and Components segments, driven by sharp demand drops in the global truck and construction markets, more than offset gains in Power Generation and Distribution. All four segments, however, experienced weakening demand during the course of the quarter. The company’s financial performance in the quarter was also negatively affected by lower joint venture income and the impact of a strengthening U.S. dollar.
“Given our record-setting performance during the first nine months of the year, the rapid drop in demand in the fourth quarter as a result of the global recession was a major disappointment,” said Tim Solso, chairman and chief executive officer. “At the same time, we moved quickly to lower our costs and tightly manage our capital spending, and already have taken further action in early 2009.”
Based on its latest market forecast and the expectation that the global economy will not improve in 2009, Cummins has provided sales and EBIT guidance that is below the company’s 2008 performance. Cummins expects sales in 2009 to be approximately 20% lower than 2008, and to earn an EBIT margin of 6.5% of sales, excluding restructuring costs associated with the actions announced in the first quarter of 2009.
Sales are forecast to drop across all business segments, with the largest decline expected to come from the Components and Engine segments. All business segments, however, are expected to be profitable in 2009, and the company will continue to aggressively reduce costs while investing in key growth opportunities.
Additional details are available at www.cummins.com.