Cummins will be cutting 2,000 employees by the end of the year, about 4 percent of its global workforce.
Weakening sales of engines and power generators around the world and no assurances that sales will pick up anytime soon is unquestionably the reason for the poorer numbers.
The stock price of the Columbus, Ind.-based manufacturer plunged 8.7 percent on the news in trading Tuesday, to $102.35 a share. That marked the stock’s lowest close since December 2012.
The job cuts should save Cummins $160 million to $200 million in ongoing expenses and will take place mostly among its professional employees, not on the factory floor, the company said. The cuts will carry one-time costs, for severance payouts and other expenses, of $70 million to $90 million.
Up to 500 job cuts could occur in Indiana, where Cummins employs 8,000 people, said spokesman Jon Mills. Its global workforce tops 54,000.
News of the workforce trims came as the company announced disappointing third-quarter results. The weak quarter was a surprise, following a strong second quarter that had investors hoping Cummins could buck a global slowdown in its key markets of construction, agriculture and transportation.
In fact, Cummins wasn’t able to withstand the weakening demand for heavy-duty truck engines and construction power generation, which became clear in recent months.
Chief Financial Officer Patrick Ward referred to the “surprising” speed of the sales downturn, adding, “This is a disappointing set of results.”
Chairman and CEO Tom Linebarger told stock analysts during an hour-long teleconference Tuesday that, “We’re in a tough period.”
“We are in a different business level globally than we anticipated … and on a different trend,” Linebarger said.
He referred to “very depressed” construction demand in China and plummeting sales in another major market, Brazil. Cummins’ engine shipments in Brazil have plunged 43 percent so far this year over last.
In North America, where Cummins sells 62 percent of its products, revenues rose 4 percent in the latest quarter over a year ago, despite a 35 percent decline in engine sales to the construction market.
President and Chief Operating Officer Rich Freeland said Cummins can quickly reduce output at its factories. “Our plants are very flexible at adjusting to this.”
All told, third-quarter revenue of $4.6 billion was down 6 percent from the same period last year. Profits slipped 10 percent to $380 million. International revenue plummeted 18 percent, with one of the few bright spots being India, where revenue rose 7 percent.
Cummins is forecasting 2015 overall revenue to range from flat to a 2 percent decrease. It previously foresaw a 2 to 4 percent increase in revenue.
Job cuts at Cummins are almost as common as the change in seasons, given the regular swings in the construction and trucking businesses. But in the past few years following the recession of 2007-09, the company had enjoyed some rare stability and prolonged steady growth in employment. The last significant job cuts at Cummins happened in 2012.
Asked by analysts for his economic prognostication, Linebarger wasn’t reassuring. “We haven’t already bottomed in most of those (key foreign) markets,” he said. “Where the bottom is we are not exactly sure.”
But Linebarger said Cummins still has strong cash flow and will use its cash reserves to pick up the pace of its stock buybacks. This summer Cummins hiked its quarterly dividend by 25 percent, to 97.5 cents a share. With its stock trading around $100 a share, the dividend payout is now running about 4 percent, an attractive rate to most investors.