- Industrial and commercial engine-maker Cummins will layoff 2,000 workers by the end of Q1 2020 in an effort to cut costs amid shrinking demand, according to multiple media reports. Cummins employs 62,000 workers globally so the layoffs represent roughly 3% of the firm's workforce.
- "Revenue will be down double-digits in the fourth quarter. And we expect revenue will also be down in 2020. And just as in prior cycles, we have a plan to not only manage through it, but deliver on our track record of increasing profitability," COO Tony Satterthwaite said at an analyst day event Monday in New York City.
- Class 8 truck orders were down 42% year-over-year in the month of October, according to Act Research. Cummins engine sales specifically were down 11% year-over-year in the third quarter — 9% down for "on-highway" revenue and 20% down for "off-highway." The company expects revenue to be down double-digits in the fourth quarter and remain so for at least the first half of 2020.
In a statement to media, the company was emphatic that the layoffs are a last resort. Efforts to reduce discretionary spending, operations optimization and encouraging voluntary attrition were not enough to compensate for what it called a sharp downturn.
On the investor call, Cummins executives described the downturn as an opportunity to tune-up the business.
"We've been preparing all year for this. We are going to take out between $250 million and $300 million of costs through a comprehensive company-wide approach," Satterthwaite said at the analyst day Monday.
The COO offered the analogy of a car race. The economic downturn he foresees in Q4 and beyond represents a pit stop — an opportunity to tune-up and change the tires on Cummins operations. That tuneup includes reducing shifts and overtime at manufacturing facilities all over the world.
It's a direction many OEMs will be heading shortly if they're not already based on ACT Research's demand figures.
"Anecdotal information we've received indicates that CapEx commitments are proceeding at replacement levels, at best, as fleets balance equipment needs with the impact of softer freight demand and the resulting influence on their financials," Frank Maly, director of CV transportation analysis and research at ACT Research, said in a research note.
It's been a shippers' market for several months and C.H. Robinson CEO Robert Biesterfeld said in October he expects it to remain so through at least the first half of 2020 with low spot rates expected to hold.
Spot rates and truck orders tend to stick together.
How long the downturn will last is unclear. Cummins CFO Mark Smith said the company's down cycles tend to last four to six quarters — with Q4 2019 the first in that cycle. No matter how long, it's time to hunker down for a colder economy, executives said.
"We are facing a downturn in 2020. Nobody is surprised about that. That's where we are," said Cummins CEO Tom Linebarger.