By Boris Ladwig, The Repubic
bladwig@therepublic.com
First of three parts
In the early part of the millennium, some of Cummins Inc.'s business units resembled an overloaded heavy-duty truck with a failing engine: bloated and unwieldy.
Chairman and Chief Executive Officer Tim Solso shocked shareholders in early 2001 when he hinted at exiting the North American heavy-duty business if the unit could not produce a profit - though the statement was meant to relay the situation's severity more than it described an actual business strategy.
That summer, the company suffered embarrassment when it had to cut 500 jobs and cancel a joint venture project for which it had received a $35 million loan guarantee from the state.
A $102 million loss in 2001 was followed by consecutive first-quarter losses in 2002 and 2003, the latter fueled partially by customers staying away from more expensive and, they said, untested new heavy-duty engines that were required by new emissions standards.
In 2002, the venerable Columbus company fell to 311th in the Fortune 500, eclipsing 300 for the first time - after having ranked as high as 121 in 1994.
In October 2002, shares fell as low as $21 (about $9 adjusted for splits).
Analysts might have thought the Columbus behemoth was headed for the scrap (or acquisition) heap.
Fix-it attitude
But at that point, Cummins' leaders already were in restructuring mode:
Joe Loughrey, now president and chief operating officer, made tough and unpopular choices in the engine business, including moving assembly out of the flagship Columbus Engine Plant.
Then-Chief Financial Officer Tom Linebarger was sent to Minnesota to oversee the revamping of the lackluster Power Generation unit.
Cummins formed new business groups, such as the distribution unit and components business to remove duplication and foster cooperation.
The company also relied heavily on Six Sigma, a cost-reduction and product-improvement initiative that removes guesswork from decisions by focusing on evidence and data.
The efforts have led to three straight years of record profits and earnings, improved flexibility and greater product diversity, removing, for example, the company's reliance on the North American heavy-duty truck market.
Fortune, in its most recent list, ranked Cummins 221st. The engine maker also ranked 38th in terms of total return to shareholders with an annual rate of 28 percent between 2001 and 2006.
Success = challenge
The successes also have produced challenges that differ markedly from those encountered a few years ago: Today, the company worries less about where to cut costs and much more about where to invest to take advantage of a slew of opportunities in virtually every business group and in virtually every geographic market.
By 2010, the company is projected to produce sales of about $16 billion.
"It's conceivable that we could be a $20 billion company," Solso, the CEO, said Friday in a pre-annual meeting briefing with The Republic.
That would make the company more than three times as big as it was in 2002.
Coming tomorrow: How the company expects to get bigger.