Engine manufacturer Cummins' (NYSE: CMI) share price has sagged since I purchased shares for the Prosocial Portfolio last summer. However, given the fact that it's a high-quality company with a ton of integrity and a bright future, I'm going to take advantage of a slightly cheaper price to add to the position.
A history of responsibility
Columbus, Ind.-based Cummins is nearly 100 years old, but not only has it refused to stand still, in some ways, it's been ahead of the curve for a long, long time.
It's highly worthy of a larger position in the Prosocial Portfolio, through which I aim to identify and invest real money in best-in-class businesses with socially responsible attributes.
As I was running through Cummins' latest Sustainability Report, I ran across some interesting facts about how the company has run its business for decades. At some of the best companies, corporate responsibility isn't an add-on, it's in its DNA, and Cummins is an example.
In fact, one of the company's original executives, J. Irwin Miller, looks to have been an ardent supporter of the idea that business could -- and even should -- be socially responsible. Miller, who served as Cummins' chairman of the board from 1951 until 1977, and remained active with the company until his death in 2004, had the following to say in 1972:
"While some still argue that business has no social responsibility, we believe our survival in the very long run is as dependent upon responsible citizenship in our communities and in the society as it is on responsible technological, financial, and production performance."
That's contextually interesting, when you consider Milton Friedman's famous view that the only social responsibility of business is to profit; his thoughts on the topic appeared in his 1962 book Capitalism and Freedom as well as in a New York Times magazine piece published in 1970, and have stuck for decades.
People still heatedly argue that point, of course. However, for all that our modern marketplace has become increasingly obsessed with near-term bottom-line results over the ensuing decades (often waving Friedman's argument like a flag), today, more and more companies are realizing that care for all stakeholders is actually the mark of truly great businesses that will create value for everyone, including shareholders, over the long haul.
As Cummins says in its sustainability report, "As a global company, Cummins wants to make a difference for all of its stakeholders, today and in the future." Its view of sustainability encompasses safety, diversity, leadership, and governance, as well as environmental practices, corporate responsibility, and of course, financial performance.
Cummins' products often provide green attributes (also money-saving ones) like fuel efficiency and greenhouse gas reduction for its customers through its products. However, the company has also established goals to reduce its own greenhouse gas emissions and is working on areas like water conservation in its own operations and facilities. It's also making headway in recycling and related waste reduction.
More and more people are recognizing the importance of diversity, and Cummins sees it as an important attribute to a robust business. "The Company strongly believes that innovation is more likely to happen in groups where members come from different skill sets than in groups where everyone is the same." Cummins is not only interested in this area internally, but it also takes supplier diversity into consideration, and tries to procure and develop minority- and women-owned suppliers. It makes repeat appearances on DiversityInc's top companies for diversity, and it has also been lauded by the Human Rights Campaign.
Revving the engine
Regardless of whether a socially responsible element is a component you value in your portfolio, Cummins is still ultimately an engine manufacturer. That's the kind of basic, unsexy business some investors love. Then again, sometimes it's a little more exciting.
For example, USA Today called out some "sexy" new vehicles at January's Detroit Auto Show, and Nissan's 2016 Titan pickup truck made the list; it's got a Cummins engine under the hood.
Here's another headline-grabber from last year: the Cummins-Peterbilt SuperTruck, a concept tractor-trailer that uses technology that generates a whopping 75% improvement in fuel economy compared to your run-of-the-mill truck. As Cummins states, "At one time, the thought of developing a truck that could meet or exceed 10 mpg when fully loaded was considered unlikely if not impossible."
Some of the best companies out there are the ones that drive us all into the future by tackling technological achievements that others would call "unlikely if not impossible."
Overall, though, Cummins' product gamut includes diesel and natural gas engines, as well as engine-related components such as filtration, fuel systems, air handling systems, and electric power generation systems.
The company's wares are used in trucks big and small, everything from massive industrial mining trucks to fire trucks and the aforementioned Nissan. Some of its many customers include PACCAR, Navistar International, and Ford.
Economic slowdowns in some international markets have curtailed Cummins' growth since last summer, leading it to recently ratchet down its 2015 sales guidance (and exhibit the sagging share price I mentioned earlier). Still, there have been some highlights even if recent quarters have left some investors cold.
For example, last quarter, it reported growth in China -- a great achievement given the fact that China's growth has slowed overall and demand for trucks and construction equipment has been falling there. However, Cummins had a serious edge: Its engines help Chinese truck manufacturers meet China's new emissions rules.
Cummins may not be exciting investors right now, but it's still a company with solid financials. Last year, Cummins' revenue grew 11%, and net income increased 8.6% to $1.65 billion, or $9.02 per share, according to S&P Capital IQ.
It's been a solid performer over time as well. Its five-year compound annual growth rate in revenue comes in at 12.2%, and it has generated 31% CAGR in net income over the same time frame.
I also like to see companies with strong balance sheets. Cummins has $2.39 billion, or $13.22 per share, in cash, and $1.70 billion in debt; its long-term debt-to-capital ratio is a mere 16.2%.
For investors who like a little extra income, Cummins is also a dividend payer: Its forward dividend yield is 2.10%.
Driving into a greener future
Cummins' share price may not be in the fast lane right now, but it's a solid, stable company with an admirable way of viewing how it runs its business, and it's well positioned to drive its customers into the future with its continued innovations in cleaner, greener engines. I'm proud to back up the proverbial truck and add more shares of Cummins to the Prosocial Portfolio.