2015 cmi analyst day
TRANSCRIPT
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CMI Analyst Day
November 10, 2015
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CMI Analyst Day
Mark Smith
Vice President - Investor Relations
November 10, 2015
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Disclosure regardingforward-looking statements
Information provided in this presentation that is not purely historical are forward-looking stateme
of the Private Securities Litigation Reform Act of 1995, including statements regarding our forechopes, beliefs and intentions on strategies regarding the future. Our actual future results could
those projected in such forward-looking statements because of a number of factors, including, b
adoption and implementation of global emission standards; the price and availability of energy;
infrastructure development; increasing global competition among our customers; general econo
financing conditions; governmental action; changes in our customers’ business strategies; com
expense volatility; labor relations; the consummation and integration of the planned acquisitions
distributors; and other risks detailed from time to time in our Securities and Exchange Commis
in the Risk Factors section of our 2014 Annual Report on Form 10-K. Shareholders, potential inreaders are urged to consider these factors carefully in evaluating the forward-looking statemen
not to place undue reliance on such forward-looking statements. Any or all of these factors coul
operations, financial condition or liquidity for future periods to differ materially from those expres
any forward looking statements. The forward-looking statements made herein are made only as
presentation and we undertake no obligation to publicly update any forward-looking statements
new information, future events or otherwise. More detailed information about factors that may a
may be found in our filings with the Securities and Exchange Commission, which are available
or at http://www.cummins.com in the Investor Relations section of our website.
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Agenda
9:00 Welcome
9:05 Tom Linebarger, Chairman and CEO
9:50 Rich Freeland, President and COO
10:15 Break
10:30 Pat Ward, Vice President and CFO10:50 Tom Linebarger, Chairman and CEO
11:00 Q&A
12:00 Lunch
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CMI Analyst Day
Tom Linebarger
Chairman and Chief Executive Officer
November 10, 2015
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Agenda
Strategy to deliver profitable growth
Relentless focus on performance improveme
Disciplined investment to drive strong returns
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Strong total shareholder return
Total Shareholder Return CMI Peers S&P 500 DJIA
Jan. 2005 to Oct. 2015 459% 129% 72% 65%
Peers Include: BorgWarner, Caterpillar, Daimler, Danaher, Deere, Donaldson, Eaton, Emerson, Honeywell, Illinois Tool Works, Ingersoll Rand, Paccar, Parker Hannifin, Textron, W.W. Grainger, Volvo
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1 Compound Annual Growth Rate
2 EBIT is a non-GAAP measure which is defined as earnings before interest expense, income tax expense and noncontrolling interests in income3 The return on equity calculation is a non-GAAP measure- equity excludes non-controlling interests, defined benefit postretirement plans and sp
Driven by strong performance
9%
5%
CMI Peer Average
Revenue CAGR
7%
1%
CMI Peer Average
EBIT Margin %Improvement 22%
CMI
Ave
From 2004 to 2014
21
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Driven by a clear strategy and good deci
Geographic expansion through partnerships
Investment in the right technologies
Leading products in major markets
Global distribution
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Used a mix of organic growth,partnerships, and acquisitions
Acquisition Organic Joint Venture
1973Holset
2002
EmissionSolutions
1982ISB
1986Onan
1994Tata JV
1998
NelsonIndustries
2006Foton
JV
2008
SCR+EGRDevelopment
2012
SCR Dose
19951st KomatsuJV Engine
1996
WuxiTurbo JV
1997Dongfeng
JV
2008ISF
20N.
Distrib
1978KV38/50
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Business conditions have changed
Industry growth in the past four years has beexpectations
Conditions in our core markets have changed
– Growth in emerging markets has slowed
– Lower investment in infrastructure and weaker com
– Slower pace of growth in emissions – opportunity lemerging markets
Cyclical weaknesses are likely to persist
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Cummins will outperform
Manage effectively through periods of weak d
– Adjust cost structure quickly, in the right areas
– Execute and operate well
– Use the downturn to improve our business
Capture profitable growth from new products
Leverage and extend strong existing partners
Add to existing growth platforms
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Positioned well to add growth platforms
We have strong, defensible capabilities to levera
We have demonstrated success building profitabthrough organic investments, partnerships and a
We have a capable management team and the s
evaluate and execute investments
We have a strong balance sheet to make investmreturn projects
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Fuel Systems
Turbo
Technologies
Controls andSystems
Filtration
42%
35%
25%
17%
34%
78%
Global Construction
NA Truck HD
India Truck MD+HD
NA Truck MD
China Truck MD+HD
Global Mining
Engi
Scale Advantagein Manufacturingand Supply Chain
GlobalDistribution a
EmissionSolutions
* 2015 Es
TechnologyLeadership
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TechnologyLeadership
Scale Advantagein Manufacturingand Supply Chain
GlobalDistribution a
0 200,000 400,000 600,000 800,000 1,000,000 1,2
Deere
Cat-Perkins
Volvo Group
Ford Motors
Isuzu Motors
Weichai
Volkswagen Group
Daimler
Fiat
Yuchai
Toyota / Hino
Cummins
2.8-17L Diesel EnginesSource: Power Systems Research, 2014 Production Year; Cummins volumes include JV Volumes
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TechnologyLeadership
Scale Advantagein Manufacturingand Supply Chain
a
Cummins owned and Cummins joint ventureIndependent
GlobalDistribution
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TechnologyLeadership
Scale Advantagein Manufacturingand Supply Chain
GlobalDistribution a
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Opportunities for partnerships and acquis
Build on our strength in emissions control and fuel
Increase our participation in attractive markets
Capitalize on our global distribution network
1
2
3
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Build on our strengthin emissions control and fuel efficien
1
Strategic focus on components that most the power train and equipment performan
– Fuel efficiency
– Controls and system integration
– Adapting technology from developed marketsfor developing markets
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Capitalize on our global distribution n2
Fully realize sales and cost synergies from network of newly acquired distributors
Product line extensions to other industrial aaftermarket components
Data-enabled services to offer customers a
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Increase our participation in attractive3
Establish global leadership position in lightcommercial vehicles
Enable development of the natural gas veh
Move up the power range and strengthen mposition in high-horsepower markets
– Focus on businesses with high recurringaftermarket revenues
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Acquisitions and partnerships will bepursued with discipline
Investment criteria – Drive significant sales and / or cost synergies
– Build upon clear strategy for sustainable growth a
– Leverage existing capabilities
Discipline
– Develop multiple strategic options
– Proactively analyze potential targets for sources o
– Focus on return on investment
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Allocation of capital going forward
Disciplined investment in high return busineoutperform markets and competitors
Strategic use of balance sheet for high returacquisitions and partnerships
Active portfolio management
Continue to return cash to shareholders
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CMI Analyst Day
Rich Freeland
President and Chief Operating Officer November 10, 2015
C i I
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– Technology Leadership
– Scale Advantage in Manufacturing and Supply C
– Global Distribution
– Partnerships and Customers
Four strong capabilities
Cummins Inc.Global leader
Long track record of performance improve
C i I
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13%
Europe+ Middle East
7%
Latin America+ Mexico
8% Asia Pacific
7%
China 3%India
2% Africa
60%US/Canada
Q3’15 LTM Revenue: $19.4 B
Cummins Inc.Q3'15 LTM revenue by marketing territory
C i I
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$11,362
$13,048$14,342
$10,800
$13,226
$18,048$17,334 $17,301
$19,221 $
$-
$2,500
$5,000
$7,500
$10,000
$12,500
$15,000
$17,500
$20,000
$22,500
$25,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
3 Year Revenue $Millions
Cummins Inc.Track record of performance improvement
9.5%
11.8%
13.1%
EBIT excludes restructuring charges of $37M in 2008 and $99M in 2009. 2011 EBIT excludes $121 in gains from divestures. 2012 EBITexcludes $52M in restructuring charges. 2014 EBIT excludes $32M in one-time charges within the Power Generation segment.
Gl b l k t
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Global marketsOn different cycles
NA Construction
International
Data Centers
NA Pickup
NA MDTruck
NA HDTruck
Commercial Marine Oil & Gas
Global MiningChina Construction
Brazil TruckChina
India Co
E i S t
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Engine SegmentHistorical performance
$7,511$8,182
$8,810
$6,405
$7,888
$11,307$10,733
$10,013$10,96
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
EBIT excludes restructuring charges of $15M in 2008, $47M in 2009 and $20M in 2012.
Revenue $Millions 3 Y
7.6%
9.6%
11.1%
Global leader
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Global leaderScale advantage
Source: Power Systems Research, 2014 Production Year; Cummins volumes include JV Volumes
0 200,000 400,000 600,000 800,000 1,000,000
Deere
Cat-Perkins
Volvo Group
Ford MotorsIsuzu Motors
Weichai
Volkswagen Group
Daimler
Fiat
Yuchai
Toyota / Hino
Cummins
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Engine business
Key partnerships working well
– Expanding existing relationships
– Developing new partners
New products launched and gaining tractio – Gaining share in China truck
– Growing position in off-highway markets
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New global products gaining traction
Indus10/12L
On- and Off-Highway
2.8/3.8L
On- and Off-Highway
Distribution Segment
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Distribution SegmentHistorical performance
$1,385 $1,540
$2,164$1,784
$2,324
$3,044$3,277
$3,749
$5,17
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
Revenue $Millions
$191
$306
$421
EBIT excludes restructuring charges of $2M in 2008, $5M in 2009 and $14M in 2012.
Gl b l di t ib ti ll iti d
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Global distribution well positioned
Cummins owned and Cummins joint venture
Independent
A i iti f N th A i di t ib t
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Acquisition of North American distributorsMeeting targets
Sales +$1.0 billion +$1.1 billion
EBIT +$120 million +$135 millio
EPS +$0.50 +$0.63Cumulative impact from 2013 - 2015
Target from2013 Analyst Day Current e
North American distributors
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North American distributorsCapturing synergies
Cost synergies – Consolidate back office operations and reduce
– Leverage our strength in purchasing across the
Sales synergies – System-wide focus on key end markets
– Opportunity to sell more products through our n
Components Segment
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Components SegmentHistorical performance
EBIT excludes restructuring charges of $14M in 2008, $35M in 2009 $6M in 2012.
$2,281
$2,932$3,152
$2,355
$3,046
$4,063 $4,012$4,342
$5,
5.1%
8.9%
12.2%
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
2006 2007 2008 2009 2010 2011 2012 2013 20
Revenue $Millions
C
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Components business
Leading technologies for emissions, fuel econo
performance
Proven capability to adapt advanced technologydeveloping markets
Key technologies to meet future emissions regu – Criteria emissions in emerging markets
– Fuel economy regulations in developed markets
Continuing opportunity from criteria
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Continuing opportunity from criteriaemission regulations
Global On-Highway Engines
Below
EPA 13/Euro VI:
~60%
Pie charts represents proportion of CMI and Joint Venture engines
at different emissions standards – 2014 production
EPA 13/Euro VI:~40%
BelowTier 4:
~80%
Global Off-Hig
Gl b l i i t it
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Global emission opportunity
315 700 1,600
Euro III NSIV/Euro IV
China LDChina MD/HDIndia MD/HD
70
BrazilMD/HD
124 285
NAFTAMD
NAFTHD
Criteria emissions F
Euro V EPA 2014/
2015 Estimated truck market sizes (in thousands)
Power Generation Segment
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Power Generation SegmentHistorical performance
$2,416
$3,060
$3,500
$2,417
$2,919
$3,498$3,268
$3,031 $2
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
2006 2007 2008 2009 2010 2011 2012 2013 20
Revenue $Millions
10.4%9.5%
7.8%
EBIT excludes restructuring charges of $3M in 2008, $12M in 2009 and $12M in 2012. EBIT in 2014 excludes one-time charges of $32M
Power Generation
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Power GenerationImportant earnings contributor across the comp
ComponentsEngine
Genset
Pa
Power GenerationSegment
P G ti t d ti
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Power Generation cost reduction
Actions taken in 2013 and 2014
– Exited alternator operations in Europe
– Simplified organization structure
– Delivered savings
Further and deeper actions underway
– Reduce manufacturing capacity
– Make structural and operational improvements
Relentless focus on cost reduction
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Relentless focus on cost reduction
Operational improvements
– Value engineering and material costs
– Supply chain
– Quality
Restructuring – Targeted capacity reductions
– Professional workforce actions
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CMI Analyst Day
Pat WardVice President and
Chief Financial Officer November 10, 2015
Creating shareholder value
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DisciplinedInvestment
Performance
Improvement
Strong Cash Returnsto Shareholders
Organic growth Acquisitions and Partners
20% Incremental margins
Increase Operating Cash F
Return 50% ofOperating Cash Flow
gthrough return on capital
Disciplined investment
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phas delivered strong returns
For year ending 2014 5-Year average 10-Year av
ROANA 29% 28%
ROE 23% 22%
ROIC 22% 20%
ROANA, return on average net assets, is a non-GAAP measure which is defined as earnings before interest and tax (EBIT) divided by average
ROE, return on equity, is a non-GAAP measure- equity excludes non-controlling interests, defined benefit postretirement plans and special item
ROIC, return on invested capital, is defined as net operating profit after tax divided by average total capital.
Relentless focus on performance improv
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4.8%
9.6%
13.2%
2001-2005 2006-2010 2011-2015
Average EBIT%
~ Includes an estimate for 2015.
EBIT excludes restructuring charges of $37M in 2008 and $99M in 2009. 2011 EBIT excludes $121 in gains from divestures. 2012 EBIT exclude
charges. 2014 EBIT excludes $32M in one-time charges within the Power Generation segment.
~
Relentless focus on performance improv
Relentless focus on performance improv
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$4.78
$18.53
$44
2001-2005 2006-2010 2011-2015
Diluted EPS
~
~ Includes an estimate for 2015.
Diluted Earnings Per Share amounts are adjusted for 2-1 stock splits in 2007 and 2008.
Relentless focus on performance improv
Relentless focus on performance improv
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$1.9B
$4.8B
$10B
2001-2005 2006-2010 2011-2015
Operating Cash Flow
~
~ Includes an estimate for 2015.
20% CAGR 2001 - 2015
Relentless focus on performance improv
Increasing cash returned to shareholders
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~ OCF = Operating Cash Flow
~ Includes an estimate for 2015.
25% of OCF
40% of OCF
~6
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2005 2006 2007 2008 2009 2010 2011 2012 2013
$Millions
Increasing cash returned to shareholders
Increasing cash returned to shareholders
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0.300.330.430.600.700.88
1.3
0.00
0.50
1.00
1.50
2.002.50
3.00
3.50
4.00
2005 2006 2007 2008 2009 2010 20
Dividend Per Sha
Share Repurchase
• Reduced diluted shares
by 12% since 2005
Dividend
• Increased > 1,100%
• Top 5% in growth in
204 203200
197 198 197194
190 187183
179
165
170
175
180
185
190195
200
205
210
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Diluted Shares Outstanding (M)
* Includes an estimate for 2015
Diluted shares outstanding are adjusted for 2-1 stock splits in 2007 and 2008.
g
*
Strong long-term shareholder returns
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Total Shareholder Return CMI Peers S&P 500 DJIA
Jan. 2005 to Oct. 2015 459% 129% 72% 65%
Peers Include: BorgWarner, Caterpillar, Daimler, Danaher, Deere, Donaldson, Eaton, Emerson, Honeywell, Illinois Tool Works, IngersollRand, Navistar, Paccar, Parker Hannifin, Textron, W.W. Grainger, Volvo
g g
Improvement since 2013,b t t i t d
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but not in expected range
12.5%
2013
EBIT %
23
17
20
2013 2015
Sales $B
What has changed from 2013
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What has changed from 2013
Growth in emerging markets has slowed
Lower investment in infrastructure
Weaker commodity prices
Declining demand in high-horsepower mark
Strong US dollar a headwind to revenues an
Current environment
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Current environment
Low growth
Committed to improving operational perform
Structural cost reduction
Maintain key investments for profitable grow
Capital allocation plans to increase return
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Cap ta a ocat o p a s to c ease etu
Strong
Balance
Sheet
Organic
Growth
Divid
Grow
Sha
Repurc
Capital
Structure
Acquisitions &
Partnerships
Capital allocation plans to increase return
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p p
Strong
Balance
Sheet
Organic
Growth
Divid
Grow
Sha
Repurc
Capital
Structure
Acquisitions &
Partnerships
Capital allocation plans to increase return
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p p
Strong
Balance
Sheet
Organic
Growth
Divid
Grow
Sha
Repurc
Capital
Structure
Acquisitions &
Partnerships
Capital allocation plans to increase return
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Strong
Balance
Sheet
Organic
Growth
Divid
Grow
Sha
Repurc
Capital
Structure
Acquisitions &
Partnerships
p p
Focused on creating shareholder value
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g
20% incremental EBIT margins across cycle
Disciplined investment focused on strong re
– Organic investments
– Acquisitions and Partnerships
Return 50% of Operating Cash Flow to shar
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CMI Analyst Day
Tom Linebarger
Chairman and Chief Executive Officer
November 10, 2015
Summary
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We remain committed to profitable growth and strong capital to drive shareholder return
We will manage our business well even in tough timesoutperform the market
– Execute restructuring and drive operational improvemen
– Capture profitable growth from new products – Realize synergies from distributor acquisitions
– Expand existing partnerships
Summary
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We will continue to seek adjacent growth through a cof organic growth, partnerships and acquisitions
We will leverage our strong capabilities to create val
We will likely shift more towards acquisitions and pa
We will be disciplined in all of our investments to drivreturn on capital
We will continue to return cash to shareholders throudividends and share repurchases