Cummins’ corporate decision to shut down operations in Russia has cost the company nearly $160 million in first quarter revenue.
Cummins officials said on March 17 the company was suspending commercial operations in Russia after the country’s invasion of Ukraine. Cummins had 700 employees working in Russia.
The company’s first-quarter revenues was $418 million compared to $603 million in 2021, with $158 million of the revenue decrease attributed to closed Russian operations. The costs incurred relating to the indefinite suspension of operations in Russia include inventory write-downs, reserves on accounts receivable, the impairment of a joint venture investment and other costs.
“Another important development during the first quarter was the company’s decision to indefinitely suspend our operations in Russia, as the conflict in Ukraine persists with no peaceful resolution site,” said Tom Linebarger, Cummins chief executive officer. “We are continuing to evaluate the best way to support our employees during this difficult time in accordance with local laws and regulations. We are also actively working with community organizations, especially in Romania and Poland, to determine how we can assist refugees as they arrive .”
Cummins’ officials speaking during a conference call Tuesday with investors didn’t get into many specifics of how the loss of the Russian business hurt the company’s bottom line. Many of the Russian engines being sold were for mining equipment, and the expected lengthy closure of Cummins’ Russian operations is dampening an increasing demand for trucks and engines. Some of the build slots slated for Russian buyers are being taken by American oil and gas companies, Linebarger said. But having a buyer doesn’t mean Cummins is making the same profit .
“We redeployed the engines, but we had to modify them,” Linebarger said. “So you have essentially taken an engine that was set to go into a mine truck, and then you’re having to take it offline and do something else to it to make an oil and gas and reprogram and change the timing. And so you lose the margin and the markets don’t have significantly different margins as a general matter. But I would just say that redeployment and everything you redo anything in a plant it’s just costs more money. It’s just that simple, but we’re super excited that we could do it, because of course losing the sales and losing the margin would’ve been really bad and we were able to do it. It’s just that the incremental margin is a little worse than it would have been if we just sold the mine engine.”
Cummins is also dealing with continued uncertainty in China. The company projects total revenue in China, including joint ventures to decrease 10% in 2022. Cummins is also projecting a 40% reduction in heavy and medium duty truck demand and 12% reduction in demand in a light-duty truck market in China, a change from previously stated guidance of a 30% decline in heavy and medium duty truck demand and a 5% reduction in light-duty trucks. Industry sales of excavators in China are expected to decline 30% from record levels in 2021, consistent with our prior guidance.
In other first-quarter highlights:
¯ Cummins was named one of the World’s Most Ethical Companies for a 15th consecutive time by Ethisphere, a global leader in defining and advancing the standards of ethical business practices. The company also earned a place on Barron’s 100 Most Sustainable US Companies list, and received a perfect score on the Human Rights Campaign’s 2022 Corporate Equality Index for the 18th consecutive year.
¯ Cummins hosted its biennial analyst day highlighting its long-term decarbonization growth strategy, Destination Zero, which includes making meaningful reductions in carbon emissions through advanced internal combustion technologies widely accepted by the market, while continuing to invest in and advance zero emission technologies ahead of widespread market adoption.
¯ In February, Cummins unveiled the industry’s first unified, fuel-agnostic internal combustion powertrain platforms. This technology approach will be applied across Cummins’ X-Series, L-Series and B-Series product platforms, and helps fleets reduce carbon emissions today by enabling vehicles to run on low to zero carbon fuels. The platform utilizes the internal combustion engine technology that fleets are already familiar with while also applying a high level of parts and integration commonality across fuels including diesel, natural gas, hydrogen or other fuel applications.
¯ The New Power business continued to expand its green hydrogen presence globally. In North America, Florida Power & Light Company announced Cummins will supply a 25-megawatt electrolyzer system for the groundbreaking FPL Cavendish NextGen Hydrogen Hub – Florida’s first of its kind “green” hydrogen plant. The FPL Cavendish NextGen Hydrogen Hub will leverage solar energy to power the electrolysis process that produces “green,” or carbon-free, hydrogen from water.