The big manufacturer’s power generation division is a quiet giant in Fridley.
A Fridley-based manufacturer is betting that cleaner-and-greener is the route to global growth and profitability.
From Kenya to Wilmington, Del., Cummins Power Generation provides generators that can run on diesel fuel, natural gas and even gas from agricultural waste or sewage treatment plants.
Tony Satterthwaite, a veteran Cummins engineer who is the six-year CEO of Cummins Power Generation, said the latest generation of the company’s diesel generators is so efficient that “what comes out the back end is almost as clean as the air going in the front end.’’
“Since the late 1990s … a core part of the company’s mission is demanding that everything Cummins does leads to a cleaner and safer environment,” Satterthwaite said this month. “That also has proved to be a business advantage.’’
Power Generation, which employs about 2,000 people, has grown faster than the economy over the last decade. And Satterthwaite has forecast the business will grow a respectable 6 to 12 percent annually through 2018, with profit margins of 11.5 to 14 percent before interest and taxes. The division last quarter reported declining sales due to lower revenue in India, North America and Asia, for a variety of short-term reasons.
With $3.2 billion in 2013 sales, Cummins is larger than some of our Minnesota-based flagship manufacturers, including Graco, Donaldson and Toro. However, it has been a quiet subsidiary of the Indiana-based parent company, Cummins Inc., which posted revenue of $17.3 billion in 2013. Satterthwaite recently decided to make noise about Cummins’ increasingly quiet-and-clean generators.
Cummins acquired the former Onan Corp. of Fridley more than 20 years ago. Since 2011, it has expanded Fridley manufacturing, partly by moving office workers to a refurbished office building in Shoreview. In all, Cummins has invested about $150 million in Twin Cities operations over the last few years.
“Fridley remains a great location for us,” Satterthwaite said. “Access to a skilled workforce, a good central U.S. location for faster delivery to our North American distributors, as well as good access to our North American supply base. The Fridley plant primarily serves the North American market. For Cummins Power Generation in total, about [two-thirds] of our sales are outside North America.”
Satterthwaite attributes the success of Cummins Power Generation, which has competitors including Caterpillar and foreign manufacturers, to excellent products made by a capable and diverse workforce that’s paid good wages and benefits.
Cummins Inc., which posted record profits and sales in the first quarter on the strengths of its truck engine, parts and distribution businesses, quit fighting environmental regulations years ago. Top management determined that it will meet or exceed pollution guidelines, and lead in efficiency and alternative fuels, such as gasses from sewage-treatment plants and landfills.
The strategy has paid off as Cummins shares have traded at all-time highs in recent weeks and closed Friday at $149.72.
Last week, CEO Tom Linebarger of Cummins Inc. outlined the company’s most ambitious plan yet for “environmental sustainability” including specific goals for reducing fuel and water use and cutting waste through recycling and reuse. Cummins intends to reduce energy use and greenhouse gas emissions by 25 percent and 27 percent, respectively, by 2016. It plans to cut water use by 33 percent, and increase its recycling rate from 89 percent to 95 percent and 100 percent by 2020.
Cummins’ “remanufacturing” program, for example, takes used equipment, overhauls engines and electrical equipment to increase efficiency and power, while preserving tons of metal, for less cost than buying new.
One celebrated product, the new Cummins-Peterbilt “SuperTruck,” averaged a 75 percent increase in fuel economy, a 43 percent reduction in emissions, while achieving nearly 11 miles per gallon under real-world conditions. That joint project, subsidized by the U.S. Department of Energy, got a recent thumbs-up from President Obama.
Zacks Equity Research lauded Cummins’ better-than-expected first-quarter results and solid 2014 outlook, thanks partly to good sales in North America. However, with the stock price at recent highs, Zacks has only a soft “buy” on the company due to weak market conditions in India and Asia. That has hurt demand for power generation and mining equipment.
Satterthwaite, 54, a personable civil engineer and Stanford MBA, was paid about $1.5 million last year as a top Cummins division chief.
One of Cummins’ key customers is the government, including the U.S. military, which demands cleaner-and-greener technology. Fuel is expensive, particularly to haul to distant outposts.
Satterthwaite says diversity is another business advantage. Cummins has been named one of DiversityInc’s top 50 companies for years, based on studies of its workforce composition and retention; mentoring-and-promotion; use of diverse suppliers; and CEO commitment. Cummins raked No. 15 on the top 50 in the 2014 survey.