May 1, 2018   SOURCE: BusinessWire

Cummins Announces First Quarter Results; Raises Outlook for 2018

Cummins Inc. (NYSE: CMI) today reported results for the first quarter of 2018.

First quarter revenues of $5.6 billion increased 21 percent from the same quarter in 2017. Strong demand for trucks, construction and mining equipment drove the majority of the revenue increase. Currency favorably impacted revenues by 2 percent, primarily due to a weaker US dollar.

Sales in North America improved by 22 percent while international revenues increased by 20 percent led by strong growth in Europe, Latin America, China and India.

“Improving demand in a number of the Company’s core markets, combined with our strong global market share and the success of new products aimed at lowering emissions, resulted in sales growth of 21 percent in the first quarter,” said Chairman and CEO Tom Linebarger.

During the first quarter, the Company recorded a pre-tax charge of $187 million for the expected costs of a product campaign. This campaign is part of a proactive plan to address the performance of an aftertreatment component in certain on-highway products produced between 2010 and 2015 in North America. The Company is in the process of finalizing the details of the campaign and, as is customary, the campaign is subject to regulatory approval.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter were $700 million, or 12.6 percent of sales, down from $705 million or 15.4 percent of sales a year ago. Excluding the impact of the campaign charge, EBITDA for the first quarter of 2018 was $887 million or 15.9 percent of sales.

Net income attributable to Cummins in the first quarter was $325 million ($1.96 per diluted share), compared to $396 million ($2.36 per diluted share). First quarter results included $78 million in discrete tax charges, primarily related to U.S. tax reform. Excluding the discrete tax charges, net income attributable to Cummins in the first quarter was $403 million ($2.43 per diluted share), reflecting a 23 percent tax rate.

“Cummins delivered solid operating performance in the first quarter led by strong incremental margins in the Power Systems segment,” continued Linebarger. “As a result of rising demand and continued benefits from cost reduction initiatives, we have raised our full year outlook for sales and EBITDA.”

Based on the current forecast, Cummins expects full year 2018 revenues to be up 10 to 14 percent, compared to prior guidance of up 4 to 8 percent. EBITDA is projected to be in the range of 15.4 to 15.8 percent of sales, down from 15.8 to 16.2 percent of sales. Excluding the impact of the first quarter charge for the product campaign, full year EBITDA is expected to be in the range of 16.2 to 16.6 percent, reflecting strong incremental EBITDA of 28 percent at the midpoint, compared to 2017.

The Company returned $341 million to shareholders in the form of dividends and share repurchases in the first quarter, consistent with its plan to return at least 50 percent of Operating Cash Flow in 2018.

First Quarter 2018 Highlights:

  • Cummins was named one of the world’s Most Ethical Companies by the Ethisphere Institute, a leader in defining and advancing the standards of ethical business practices. This is the 11th consecutive year Cummins has made Ethisphere’s list.
  • Cummins received the highest ranking possible for its environmental and social performance from Institutional Shareholder Services (ISS), a key source of information for institutional investors. This is the first time ISS has reviewed companies on an environmental and social basis.
  • The new Cummins Westport ISX12N engine, manufactured at the Jamestown Engine Plant, became the world’s first class 8 on-highway truck engine certified by the California Air Resources Board to their near-zero emissions standard.

1 Generally Accepted Accounting Principles

First quarter 2018 detail (all comparisons to same period in 2017)

Engine Segment

  • Sales - $2.4 billion, up 21 percent
  • Segment EBITDA - $286 million, or 11.7 percent of sales, compared to $273 million or 13.5 percent of sales
  • Segment EBITDA reflects a charge of $93 million reflecting the expected costs of a campaign to address the performance of an aftertreatment component
  • On-highway revenues increased 20 percent, and off-highway revenues increased 23 percent primarily due to increased global demand in truck and construction markets

Distribution Segment

  • Sales - $1.9 billion, up 13 percent
  • Segment EBITDA - $123 million, or 6.6 percent of sales, compared to $130 million or 7.9 percent of sales
  • Revenues in North America increased by 15 percent and in international markets by 8 percent

Components Segment

  • Sales - $1.8 billion, up 30 percent
  • Segment EBITDA - $227 million, or 12.9 percent of sales, compared to $216 million or 16.1 percent of sales
  • Segment EBITDA reflects a charge of $94 million which represents the expected costs of a campaign to address the performance of an aftertreatment component
  • The Eaton Cummins Automated Transmission joint venture recorded sales of $117 million and an EBITDA loss of $3 million in the first quarter
  • Revenues in North America increased by 35 percent, and international sales grew by 25 percent due to higher commercial truck production in North America as well as additional content in India with the introduction of Bharat Stage IV in 2017 and a weak U.S. dollar

Power Systems Segment

  • Sales - $1.1 billion, up 22 percent
  • Segment EBITDA - $142 million, or 13.2 percent of sales, compared to $85 million, or 9.6 percent of sales
  • Increased demand in mining, oil and gas and power generation markets drove the growth in sales

Electrified Power Segment

  • Sales - $2 million
  • Segment EBITDA loss: $10 million

About Cummins

Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service a broad portfolio of power solutions. The company’s products range from diesel and natural gas engines to hybrid and electric platforms, as well as related technologies, including battery systems, fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 58,600 people committed to powering a more prosperous world. Cummins serves customers in approximately 190 countries and territories through a network of approximately 500 company-owned and independent distributor locations and approximately 7,500 dealer locations. Cummins earned about $1 billion on sales of $20.4 billion in 2017. Press releases can be found on the Web at www.cummins.com. Follow Cummins on Twitter at www.twittter.com/cummins and on YouTube at www.youtube.com/cumminsinc.

Forward-looking disclosure statement

Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward looking statements include, without limitation, statements relating to our plans and expectations for our revenues and EBITDA percentage for the full year of 2018. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: the adoption and implementation of global emission standards; the price and availability of energy; the pace of infrastructure development; increasing global competition among our customers; general economic, business and financing conditions; governmental action; changes in our customers’ business strategies; competitor pricing activity; expense volatility; labor relations; and (i) a sustained slowdown or significant downturn in our markets; (ii) our truck manufacturing and OEM customers discontinuing outsourcing their engine needs; (iii) the development of new technologies; (iv) the discovery of any significant additional problems with our engine platforms or aftertreatment systems in North America; (v) performance or safety-related recalls; (vi) lower than anticipated market acceptance of our new or existing products or services; (vii) a slowdown in infrastructure development and/or depressed commodity prices; (viii) unpredictability in the adoption, implementation and enforcement of increasingly stringent emissions standards around the world; (ix) our reliance on significant earnings from investees that we do not directly control; (x) the adoption and impact of new tax legislation; (xi) potential security breaches or other disruptions to our information technology systems and data security; (xii) financial distress or a change-in-control of one of our large truck OEM customers; (xiii) our pursuit of strategic acquisitions and divestitures; and (xiv) other risks detailed from time to time in our Securities and Exchange Commission filings including particularly in the Risk Factors section of our 2017 Annual Report on Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information

EBITDA is a non-GAAP measure used in this release, and is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBITDA is a measure used internally to assess the performance of the operating units.

Webcast information

Cummins management will host a teleconference to discuss these results today at 10 a.m. EST. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.

 
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
 
Three months ended
April 1,   April 2,
In millions, except per share amounts 2018 2017
NET SALES $ 5,570 $ 4,589
Cost of sales 4,370   3,457
GROSS MARGIN 1,200 1,132
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 577 547
Research, development and engineering expenses 210 158
Equity, royalty and interest income from investees 115 108
Other operating income (expense), net 2   5
OPERATING INCOME 530 540
Interest income 7 2
Interest expense 24 18
Other income, net 10   24
INCOME BEFORE INCOME TAXES 523 548
Income tax expense 198   143
CONSOLIDATED NET INCOME 325 405
Less: Net income attributable to noncontrolling interests —   9
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 325   $ 396
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic $ 1.97 $ 2.36
Diluted $ 1.96 $ 2.36
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 164.9 167.5
Diluted 165.7 168.0
 
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 1.08 $ 1.025
         
(a)   Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
 
   
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
   
April 1, December 31,
In millions, except par value 2018 2017
ASSETS
Current assets
Cash and cash equivalents $ 1,207 $ 1,369
Marketable securities 180   198  
Total cash, cash equivalents and marketable securities 1,387 1,567
Accounts and notes receivable, net 3,845 3,618
Inventories 3,411 3,166
Prepaid expenses and other current assets 558   577  
Total current assets 9,201   8,928  
Long-term assets
Property, plant and equipment, net 3,892 3,927
Investments and advances related to equity method investees 1,288 1,156
Goodwill 1,085 1,082
Other intangible assets, net 960 973
Pension assets 1,058 1,043
Other assets 908   966  
Total assets $ 18,392   $ 18,075  
 
LIABILITIES
Current liabilities
Accounts payable (principally trade) $ 2,854 $ 2,579
Loans payable 56 57
Commercial paper 593 298
Accrued compensation, benefits and retirement costs 361 811
Current portion of accrued product warranty 658 454
Current portion of deferred revenue 489 500
Other accrued expenses 764 915
Current maturities of long-term debt 57   63  
Total current liabilities 5,832   5,677  
Long-term liabilities
Long-term debt 1,571 1,588
Postretirement benefits other than pensions 284 289
Pensions 331 330
Other liabilities and deferred revenue 2,078   2,027  
Total liabilities $ 10,096   $ 9,911  
 
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued $ 2,217 $ 2,210
Retained earnings 11,641 11,464
Treasury stock, at cost, 57.6 and 56.7 shares (5,061 ) (4,905 )
Common stock held by employee benefits trust, at cost, 0.5 and 0.5 shares (6 ) (7 )
Accumulated other comprehensive loss (1,397 ) (1,503 )
Total Cummins Inc. shareholders’ equity 7,394 7,259
Noncontrolling interests 902   905  
Total equity $ 8,296   $ 8,164  
Total liabilities and equity $ 18,392   $ 18,075  
         
(a)   Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
 
 
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
 
Three months ended
April 1,   April 2,
In millions 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 325 $ 405
Adjustments to reconcile consolidated net income to net cash (used in) provided by operating activities
Depreciation and amortization 154 139
Deferred income taxes (27 ) 10
Equity in income of investees, net of dividends (95 ) (83 )
Pension contributions under (in excess of) expense, net 13 (23 )

Other post retirement benefits payments in excess of expense, net

(5 ) (10 )
Stock-based compensation expense 9 7
Loss contingency payments (65 ) —
Translation and hedging activities 38 11

Changes in current assets and liabilities

Accounts and notes receivable (217 ) (205 )
Inventories (259 ) (202 )
Other current assets 56 73
Accounts payable 246 296
Accrued expenses (272 ) (90 )
Changes in other liabilities and deferred revenue 27 48
Other, net (45 ) 3  
Net cash (used in) provided by operating activities (117 ) 379  
 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (72 ) (81 )
Investments in internal use software (15 ) (27 )
Investments in and advances to equity investees (16 ) (20 )
Investments in marketable securities—acquisitions (67 ) (26 )
Investments in marketable securities—liquidations 82 147
Cash flows from derivatives not designated as hedges 27 (24 )
Other, net 25   4  
Net cash used in investing activities (36 ) (27 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings of commercial paper 295 62
Payments on borrowings and capital lease obligations (16 ) (11 )
Distributions to noncontrolling interests (11 ) (10 )
Dividend payments on common stock (178 ) (171 )
Repurchases of common stock (163 ) (51 )
Other, net 21   17  
Net cash used in financing activities (52 ) (164 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 43   14  
Net (decrease) increase in cash and cash equivalents (162 ) 202
Cash and cash equivalents at beginning of year 1,369   1,120  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,207   $ 1,322  
         
(a)   Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
 
               
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
 
Power Electrified Total Intersegment
In millions Engine Distribution Components Systems

Power (1)

Segment

Eliminations (2)

Total
Three months ended April 1, 2018
External sales $ 1,813 $ 1,847 $ 1,313 $ 595 $ 2 $ 5,570 $ — $ 5,570
Intersegment sales 633   6   440   479   —   1,558   (1,558 ) —  
Total sales 2,446 1,853 1,753 1,074 2 7,128 (1,558 ) 5,570
Research, development and engineering expenses 79 5 62 57 7 210 — 210
Equity, royalty and interest income from investees 67 13 16 19 — 115 — 115
Interest income 2 2 1 2 — 7 — 7
Segment EBITDA 286 123 227 142 (10 ) 768 (68 ) 700
Depreciation and amortization (3) 49 27 46 30 1 153 — 153
 
EBITDA as a percentage of total sales 11.7 % 6.6 % 12.9 % 13.2 % NM 10.8 % 12.6 %
 
Three months ended April 2, 2017
External sales $ 1,457 $ 1,637 $ 980 $ 515 $ — $ 4,589 $ — $ 4,589
Intersegment sales 566   8   364   367   —   1,305   (1,305 ) —  
Total sales 2,023 1,645 1,344 882 — 5,894 (1,305 ) 4,589
Research, development and engineering expenses 54 4 50 50 — 158 — 158
Equity, royalty and interest income from investees 72 11 13 12 — 108 — 108
Interest income 1 1 — — — 2 — 2
Segment EBITDA 273 130 216 85 — 704 1 705
Depreciation and amortization (3) 44 30 37 28 — 139 — 139
 
EBITDA as a percentage of total sales 13.5 % 7.9 % 16.1 % 9.6 % — % 11.9 % 15.4 %
                                   

"NM" - not meaningful information

(1)   We formed the Electrified Power Segment effective January 1, 2018. Our Electrified Power segment provides fully electric and hybrid powertrain solutions along with innovative components and subsystems to serve all our markets as they adopt electrification, meeting the needs of our original equipment manufacturer partners and end customers.
(2) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended April 1, 2018 and April 2, 2017.
(3) Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Income as "Interest expense." The amortization of debt discount and deferred costs was $1 million and less than $1 million for the three month periods ended April 1, 2018 and April 2, 2017, respectively.
 

A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Income is shown in the table below:

 
Three months ended
April 1,   April 2,
In millions 2018 2017
Total EBITDA $ 700 $ 705
Less:
Depreciation and amortization 153 139
Interest expense 24   18
Income before income taxes $ 523   $ 548
 

CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)

EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the reporting periods was as follows:

 
Three months ended
April 1,   April 2,
In millions 2018 2017
Distribution entities
Komatsu Cummins Chile, Ltda. $ 7 $ 7
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd. 21 33
Dongfeng Cummins Engine Company, Ltd. 17 22
Chongqing Cummins Engine Company, Ltd. 17 9
Cummins Westport, Inc. 6 1
Dongfeng Cummins Emission Solutions Co., Ltd. 5 3
All other manufacturers 25   20
Cummins share of net income 98 95
Royalty and interest income 17   13
Equity, royalty and interest income from investees $ 115   $ 108
 

PENSIONS AND OTHER POSTRETIREMENT BENEFITS

On January 1, 2018, we retroactively adopted the new accounting standard related to the presentation of pension and other postretirement benefit costs, which resulted in the adjustment of prior period balances in the Condensed Consolidated Statements of Income by the following amounts:

 
Favorable / (Unfavorable)
2017   2016
In millions Q1   Q2   Q3   Q4   Total Total
Cost of sales $ 4 $ 2 $ 2 $ 2 $ 10 $ 6
Selling, general and administrative expenses (10 ) (10 ) (9 ) (10 ) (39 ) (53 )
Research, development and engineering expenses (1) —   (1 ) —   (1 ) (2 ) (1 )
Total change in operating income (6 ) (9 ) (7 ) (9 ) (31 ) (48 )
Other non operating income, net 6   9   7   9   31   48  
Total change in income before income taxes $ —   $ —   $ —   $ —   $ —   $ —  
 

INCOME TAXES

Our effective tax rate for the year is expected to approximate 23.0 percent, excluding any discrete tax items that may arise.

Our effective tax rate for the three months ended April 1, 2018, was 37.9 percent and contained $78 million, or $0.47 per share, of unfavorable discrete tax items, primarily related to a 2017 Tax Cuts and Jobs Act (Tax Legislation) adjustment of $74 million. This includes $39 million associated with changes related to the Tax Legislation measurement period adjustment and $35 million associated with the one-time recognition of deferred tax charges at historical tax rates on intercompany profit in inventory.

Our effective tax rate for the three months ended April 2, 2017, was 26.1 percent and contained only immaterial discrete tax items.

The increase in the effective tax rate for the three months ended April 1, 2018, versus the comparable period in 2017, was primarily due to the unfavorable discrete changes associated with the Tax Legislation passed in December 2017.

ENGINE SYSTEM CAMPAIGN ACCRUAL

During 2017, the California Air Resources Board (CARB) and U.S. Environmental Protection Agency (EPA) selected certain of our pre-2013 model year engine systems for additional emissions testing. Some of these engine systems failed CARB and EPA tests as a result of degradation of an aftertreatment component. We have not been issued an official notice from the CARB or EPA regarding these particular engine systems. We continue to work with the agencies to develop a resolution of these matters. We are developing and testing a variety of solutions to address the technical issues, which could include a combination of calibration changes, additional service practices and hardware changes. We recorded a charge of $29 million to cost of sales in our Condensed Consolidated Statements of Income in the third quarter of 2017 for the then expected cost of field campaigns to repair some of these engine systems. We have concluded based upon additional emission testing performed, and further discussions with the agencies in the first quarter of 2018, that the field campaigns should be expanded to include a larger population of our engine systems that are subject to the aftertreatment component degradation, including our model years 2010 through 2015. As a result, we recorded an additional charge of $187 million, or $0.87 per share, to cost of sales in our Condensed Consolidated Statements of Income in the first quarter of 2018, to reflect our current estimated cost of these expanded campaigns.

For the engine populations under evaluation, we are in the process of finalizing the form and extent of solutions to address the technical matters. The accrual recorded in the first quarter of 2018 represents our current best estimate of the expected cost of our recommended courses of action to address these matters and is based upon certain assumptions about the effectiveness of our proposed solutions and the agencies' acceptance of those solutions. Since there are many variables with respect to these degradation issues, it is difficult to assess whether our future costs will be consistent with our current accrual for this matter. If, through the course of our ongoing internal work to develop and test our proposed solutions, it becomes apparent that more extensive repairs are required for certain populations of engine systems, or if the agencies do not accept our proposed solutions, then further charges may be recorded in the period in which our current assumptions change. It is reasonably possible that such changes in assumption could occur, with a range of zero, if our current proposed solutions are effective and approved, up to an incremental exposure of approximately $400 million above our recorded accrual at the end of the first quarter.

We do not currently expect any fines or penalties from the EPA or CARB related to this matter.

CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)

Reconciliation of Non GAAP measures - Earnings before interest, income taxes, noncontrolling interests, depreciation and amortization (EBITDA)

Effective January 1, 2018, we use EBITDA as a primary basis for the Chief Operating Decision Maker to evaluate the performance of each of our operating segments and our consolidated results. It is also a component in measuring our variable compensation programs. EBITDA assists investors and debt holders in comparing our performance on a consistent basis without regard for depreciation and amortization, which can vary significantly depending upon many factors. Our 2017 and 2016 EBITDA measures, as restated, were as follows:

               
Power Total Intersegment
In millions Engine Distribution Components Systems Segment Eliminations Total
2017
Q1 $ 273 $ 130 $ 216 $ 85 $ 704 $ 1 $ 705
Q2 323 127 228 90 768 (4 ) 764
Q3 276 120 259 111 766 22 788
Q4 271   123   214   125   733   36   769
2017 Total $ 1,143   $ 500   $ 917   $ 411   $ 2,971   $ 55   $ 3,026
             
2016 Total $ 849   $ 508   $ 774   $ 378   $ 2,509   $ 17   $ 2,526
 

EBITDA is not in accordance with, or an alternative for, accounting principles generally accepted in the United States (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data; however, the amounts included in the EBITDA calculation are derived from amounts included in the Condensed Consolidated Statements of Income. Below is a reconciliation of “Net income attributable to Cummins Inc.” to EBITDA for each of the applicable periods:

 
Three months ended
April 1,   April 2,
In millions 2018 2017
Net income attributable to Cummins Inc. $ 325 $ 396
 
Net income attributable to Cummins Inc. as a percentage of net sales 5.8 % 8.6 %
 
Add:
Net income attributable to noncontrolling interests —   9  
Consolidated net income 325   405  
 
Add:
Interest expense 24 18
Income tax expense 198 143
Depreciation and amortization 153   139  
EBITDA $ 700   $ 705  
 
EBITDA as a percentage of net sales 12.6 % 15.4 %
 
Add: Engine system campaign charge 187   —  
 
EBITDA, excluding engine system campaign charge $ 887   $ 705  
 
EBITDA, excluding engine system campaign charge, as a percentage of net sales 15.9 % 15.4 %
 

Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding discrete tax items

We believe these are useful measures of our operating performance for the periods presented as they illustrate our operating performance without regard to special items including tax adjustments. These measures are not in accordance with, or an alternative for GAAP and may not be consistent with measures used by other companies. This should be considered supplemental data. The following table reconciles net income attributable to Cummins Inc. to net income attributable to Cummins Inc. excluding discrete tax items for the following periods:

 
    Three months ended
April 1, 2018   April 2, 2017
In millions Net Income   Diluted EPS Net Income   Diluted EPS
Net income attributable to Cummins Inc. $ 325 $ 1.96 $ 396 $ 2.36
Add:
Discrete tax items 78   0.47   —   —
Net income attributable to Cummins Inc. excluding discrete tax items $ 403   $ 2.43   $ 396   $ 2.36
 

CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)

Engine Segment Sales by Market and Unit Shipments by Engine Classification

Sales for our Engine segment by market were as follows:

         
2018
In millions Q1 Q2 Q3 Q4 YTD
Heavy-duty truck $ 815 $ — $ — $ — $ 815
Medium-duty truck and bus 692 — — — 692
Light-duty automotive 402 — — — 402
Off-highway 537   —   —   —   537
Total sales $ 2,446   $ —   $ —   $ —   $ 2,446
 
2017
In millions Q1 Q2 Q3 Q4 YTD
Heavy-duty truck $ 620 $ 714 $ 776 $ 730 $ 2,840
Medium-duty truck and bus 544 701 625 643 2,513
Light-duty automotive 423 429 452 423 1,727
Off-highway 436   463   483   491   1,873
Total sales $ 2,023   $ 2,307   $ 2,336   $ 2,287   $ 8,953
 

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:

         
2018
Units Q1 Q2 Q3 Q4 YTD
Heavy-duty 26,600 — — — 26,600
Medium-duty 74,000 — — — 74,000
Light-duty 61,900   —   —   —   61,900
Total units 162,500   —   —   —   162,500
 
2017
Units Q1 Q2 Q3 Q4 YTD
Heavy-duty 19,200 24,100 28,100 24,500 95,900
Medium-duty 60,300 71,600 68,500 67,700 268,100
Light-duty 63,100   65,600   66,300   62,500   257,500
Total units 142,600   161,300   162,900   154,700   621,500
 

Distribution Segment Sales by Product Line

Sales for our Distribution segment by product line were as follows:

         
2018
In millions Q1 Q2 Q3 Q4 YTD
Parts $ 808 $ — $ — $ — $ 808
Engines 367 — — — 367
Service 352 — — — 352
Power generation 326   —   —   —   326
Total sales $ 1,853   $ —   $ —   $ —   $ 1,853
 
2017
In millions Q1 Q2 Q3 Q4 YTD
Parts $ 745 $ 759 $ 768 $ 768 $ 3,040
Engines 275 314 342 438 1,369
Service 319 320 326 347 1,312
Power generation 306   329   317   385   1,337
Total sales $ 1,645   $ 1,722   $ 1,753   $ 1,938   $ 7,058
 

Component Segment Sales by Business

Sales for our Components segment by product line were as follows:

         
2018
In millions Q1 Q2 Q3 Q4 YTD
Emission solutions $ 775 $ — $ — $ — $ 775
Turbo technologies 340 — — — 340
Filtration 320 — — — 320
Electronics and fuel systems 201 — — — 201
Automated transmissions 117   —   —   —   117
Total sales $ 1,753   $ —   $ —   $ —   $ 1,753
 
2017
In millions Q1 Q2 Q3 Q4 YTD
Emission solutions $ 616 $ 674 $ 696 $ 689 $ 2,675
Turbo technologies 287 307 297 288 1,179
Filtration 277 291 287 298 1,153
Electronics and fuel systems 164 182 184 188 718
Automated transmissions —   —   69   95   164
Total sales $ 1,344   $ 1,454   $ 1,533   $ 1,558   $ 5,889
 

Power Systems Segment Sales by Product Line and Unit Shipments by Engine Classification

Sales for our Power Systems segment by product line were as follows:

         
2018
In millions Q1 Q2 Q3 Q4 YTD
Power generation $ 571 $ — $ — $ — $ 571
Industrial 414 — — — 414
Generator technologies 89   —   —   —   89
Total sales $ 1,074   $ —   $ —   $ —   $ 1,074
 
2017
In millions Q1 Q2 Q3 Q4 YTD
Power generation $ 526 $ 570 $ 580 $ 629 $ 2,305
Industrial 275 353 385 386 1,399
Generator technologies 81   94   91   88   354
Total sales $ 882   $ 1,017   $ 1,056   $ 1,103   $ 4,058
 

High-horsepower unit shipments by engine classification were as follows:

         
2018
Units Q1 Q2 Q3 Q4 YTD
Power generation 2,100 — — — 2,100
Industrial 1,700   —   —   —   1,700
Total units 3,800   —   —   —   3,800
 
2017
Units Q1 Q2 Q3 Q4 YTD
Power generation 1,900 2,100 2,200 2,000 8,200
Industrial 1,300   1,700   1,600   1,800   6,400
Total units 3,200   3,800   3,800   3,800   14,600