SEC Filings


10-Q
CUMMINS INC filed this Form 10-Q on 10/31/2017
Entire Document
 

Net sales for the nine months ended October 1, 2017, increased $1.9 billion versus the comparable period in 2016. The primary drivers were as follows:
Engine segment sales increased 14 percent primarily due to higher demand in most North American on-highway markets and improved demand in global industrial markets, especially international construction markets.
Components segment sales increased 18 percent due to higher demand across all businesses, especially the emission solutions business, due to strong on-highway sales in China, India and North America and sales related to the acquisition of the automated transmissions business.
Distribution segment sales increased 14 percent primarily due to an increase in organic sales and higher sales related to the acquisition of North American distributors since December 31, 2015.
Power Systems segment sales increased 14 percent primarily due to higher demand for all product lines, especially in industrial markets, due to higher demand in global mining and North American oil and gas markets.
Sales to international markets (excluding the U.S. and Canada), based on location of customers, for the three and nine months months ended October 1, 2017, were 41 percent and 42 percent of total net sales, respectively, compared with 41 percent and 41 percent of total net sales for the comparable periods in 2016. A more detailed discussion of sales by segment is presented in the “OPERATING SEGMENT RESULTS” section.
Gross Margin
Gross margin increased $260 million for the three months ended October 1, 2017, versus the comparable period in 2016 and decreased 0.5 points as a percentage of sales. The increase in gross margin dollars was primarily due to higher volumes, improved leverage and lower material costs, partially offset by higher warranty costs ($105 million primarily due to campaigns in the Engine and Components segments) and increased variable compensation expense of $59 million.
Gross margin increased $384 million for the nine months ended October 1, 2017, versus the comparable period in 2016 and decreased 0.7 points as a percentage of sales. The increase in gross margin dollars was primarily due to higher volumes, improved leverage and lower material costs, partially offset by higher warranty costs ($234 million primarily due to campaigns in the Engine, Components and Power Systems segments and changes in estimates in the Engine and Components segments) and increased variable compensation expense of $101 million.
The provision for base warranties issued, excluding campaigns, as a percent of sales for the three and nine months ended October 1, 2017, was 1.9 percent and 1.9 percent, respectively, compared to 1.5 percent and 1.7 percent for the comparable periods in 2016. A detailed discussion of margin by segment is presented in the “OPERATING SEGMENT RESULTS” section.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $111 million for the three months ended October 1, 2017, versus the comparable period in 2016, primarily due to higher compensation expenses ($94 million), especially variable compensation, and higher consulting expenses ($9 million). Compensation and related expenses include salaries, fringe benefits and variable compensation. Overall, selling, general and administrative expenses, as a percentage of sales, decreased to 11.8 percent in the three months ended October 1, 2017, from 12.3 percent in the comparable period in 2016.
Selling, general and administrative expenses increased $230 million for the nine months ended October 1, 2017, versus the comparable period in 2016, primarily due to higher compensation expenses ($162 million), especially variable compensation, and higher consulting expenses ($39 million). Overall, selling, general and administrative expenses, as a percentage of sales, increased to 11.8 percent in the nine months ended October 1, 2017, from 11.7 percent in the comparable period in 2016.
Research, Development and Engineering Expenses
Research, development and engineering expenses increased $56 million for the three months ended October 1, 2017, versus the comparable period in 2016, primarily due to increased compensation expenses ($29 million), especially variable compensation, and higher consulting expenses ($9 million). Overall, research, development and engineering expenses as a percentage of sales increased to 4.0 percent in the three months ended October 1, 2017, from 3.7 percent in the comparable period in 2016 .
Research, development and engineering expenses increased $67 million for the nine months ended October 1, 2017, versus the comparable period in 2016, primarily due to increased compensation expense ($45 million), especially variable compensation, and higher consulting expenses ($11 million). Overall, research, development and engineering expenses, as a percentage of sales, decreased to 3.6 percent in the nine months ended October 1, 2017, from 3.7 percent in the comparable period in 2016.

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