Q2 2023 Cummins Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Cummins incorporated second quarter 2023 earnings Conference call.
Host for today's call is Kris.
VP of Investor Relations.
At this time all participants are in a listen only mode. If you would like to ask a question throughout the conference. Please press Star then the number one on your telephone keypad later, we will conduct a question and answer session.
I would now like to turn the call over to your host Chris you may begin.
Great. Thank you very much good morning, everyone and welcome to our teleconference. Today to discuss Cummins results for the second quarter of 2023.
Participating with me today are Jennifer Ramsey, our chair and Chief Executive Officer, and Mark Smith, Our Chief Financial Officer will all be available to answer questions at the end of the teleconference.
Before we start please note that some of the information that you will hear or be given today will consist of forward looking statements within the meaning of the Securities Exchange Act of 1034.
Such statements express our forecasts expectations hopes beliefs and intentions on strategies regarding the future are.
Our actual future results could differ materially from those projected in such forward looking statements because of a number of risks and uncertainties.
More information regarding such risks and uncertainties is available in the forward looking disclosure statements in the slide deck and our filings with the Securities and Exchange Commission, particularly the risk factors section of our most recent filed annual report on Form 10-K, and any subsequently filed quarterly reports on Form 10-Q.
During the course of this call we will be discussing certain non-GAAP financial measures and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at Cummins Dot com.
With that out of the way I will turn you over to our chair and CEO , Jennifer Ramsey to kick us off.
Thank you Chris good morning.
Start with a summary of our second quarter financial results, then I will discuss our sales and end market trends by region I will finish with a discussion of our outlook for 2023.
Then take you through more details about our second quarter financial performance and our forecast for the year.
Before getting into the details on our performance I want to take a moment to highlight a few major events in the second quarter that demonstrate the continued execution of our strategy.
On April 3rd United States, President, Joe Biden visited company facilities in Fridley, Minnesota Detour accelerate by comments first U S manufacturing location for electrical lasers are.
A key technology to produce no carbon hydrogen.
<unk> is initially dedicating 89000 square feet of the existing Cummins power generation facility and friendly to Electrolyze to production with the opportunity to expand to meet the growing demand.
<unk> also reached a further milestone of electric laser order backlog totaling over $500 billion at the end of the quarter.
The further facility will help address that growing demand along with other capacity being added globally.
Lastly, progress continues to be made on the separation of the filtration business.
May 26.
Lets filtration technologies incorporated began trading on the New York stock exchange under the ticker symbol <unk> in connection with its initial public offering.
Upon the completion of the IPO comments retained approximately 85% of Atlas outstanding shares the Atmos IPO generated $299 million of net proceeds and atmos added $650 million of debt.
Cummins realizes the benefits of the IPO proceeds and the debt issuance is atmos will hold the debt at separation.
Now I will comment on the overall company performance for the second quarter of 2023 and cover some of our key markets, starting with North America before moving onto our largest international markets.
Demand for our products continued to be strong across many of our key markets and region, resulting in record revenues in the second quarter of 2023.
Revenues for the quarter were $8 6 billion, an increase of 31% compared to the second quarter of 2022, driven by the addition of meritor strong demand and improved pricing.
EBITDA was $1 $3 billion, or 15, 1% compared to $1 1 billion or 16% a year ago.
Second quarter 2023 results include $23 million of costs related to the separation of the filtration business.
This compares to second quarter 2022 results, which include $47 million in recovery of amounts reserve related to the indefinite suspension of operations in Russia.
All set by $29 million of costs related to the separation of the filtration business.
Excluding those items EBITA percentage of 15, 4% in the second quarter of 2023 represented a slight decline from the 15, 7%. We delivered in 2022, principally due to the addition of meritor activity, which currently has a lower gross margin percentage than our other businesses.
And increased SG&A and development expenses, EBITDA and gross margin dollars improved compared to the second quarter of 2022 as the benefits of higher volumes pricing and the acquisition of meritor exceeded the supply chain cost increases.
The strong EBITDA performance of the business in the first half drove an increase in selling and administrative expenses versus the prior year as we recorded higher accruals related to our variable compensation plans during the quarter.
Research and development expenses also increased in the second quarter as we continue to invest in the products and technologies that will create advantages for the future, particularly in the engine components and accelerates segments.
As we noted previously <unk> results are included in our overall guidance for 2023 in the second quarter Meritor operating performance and financial results showed improvement with sales of $1 $2 billion.
EBITDA of 12, 2% the.
The improvement in the profitability from the first quarter EBITDA margin of nine 4% was driven by pricing to cover inflation operational improvements and cost reduction activities, which more than offset material cost increases that we expect to persist through the second half of the year.
Our second quarter revenues in North America grew 31% to $5 $3 billion driven by the addition of meritor and strong demand in our core markets.
Industry production of medium duty trucks was 37000 units in the second quarter of 2023, an increase of 11% from 2022 levels. While our unit sales were 34000 up 27% from 2022.
We shipped 38000 engines.
Just the Atlantis for use in the Ram pickups in the second quarter of 2023 flat with the 2022 level.
Engine sales to construction customers in North America increased by 8% driven primarily by positive net pricing.
Revenues in North America power generation increased by 16% is industrial and data center demand improved and supply chain constraints ease modestly.
Our international revenues increased by 32% in the second quarter of 2023 compared to a year ago with the addition of meritor and a strong demand across most of our.
Second quarter revenues in China, including joint ventures were $1 $7 billion, an increase of 37% as markets began to recover compared to a very weak second quarter of 2022, which was impaired by COVID-19 shutdowns in Shanghai and other regions.
Industry demand for medium and heavy duty trucks in China was 279000 units an increase of 61% from last year.
Our sales and units, including joint ventures were <unk> 41, an increase of 63% due to increased penetration within our joint venture partners and new products launched to meet the NSX standard.
The light duty market in China was up 21% from 2022 levels at 460000 units, while our unit sold including joint Ventures were 20000, an increase of 23%.
Industry demand for excavators in the second quarter was 51000 units a decrease of 23% from 2022 levels. The decrease in the market size is due to weaker activity in construction.
Our units sold were 8000 units an increase of 5% driven by improved share with new and expanded customer relationships for both domestic and export usage.
Sales of power generation equipment in China decreased 8% in the second quarter, primarily driven by a decline in the data center market.
Second quarter revenues in India, including joint ventures were $724 million, an increase of 22% for the second quarter of a year ago.
Industry truck production increased by 2%, while our shipments increased 1%.
Power generation revenues increased by 75% in the second quarter, driven by strong economic activity and customer demand ahead of the July one emissions regulation change.
Now, let me provide our outlook for 2023, including some comments on individual regions and end markets.
Based on our current forecast we are maintaining our full year 2023 revenue guidance of up 15% to 20% versus last year.
It does still expected to be in the range of 15 to 15, 7%, we now expect stronger revenue and profitability in both our power systems and distribution segments than we did three months ago offset by increased costs and the accessory business.
Supply chain constraints continue to limit our industry's collective ability to produce and while end customer demand remains strong currently are.
Our current guidance forecast lower industry truck production in the fourth quarter.
In the North America medium duty truck market, we are projecting the market size to be 135000 to 150000 units up 5% to 15% from 2022.
Similar to heavy duty supply chain constraints continue to limit our ability to produce and fully meet meet end customer demand. However, through the rebalancing across our global plants efforts to improve the supply base.
We have been able to increase our production, resulting in the improved outlook.
The improvement in the medium duty outlook was offset by decreases in our forecast for two other markets North American construction is now expected to be down 10% to flat versus our previous guidance of flat to up 10%.
Secondly, Brazil truck is expected to be down 30% to 40% a decline from our prior guidance of down 10% to 20% as the market adjusts to eurosceptics equivalent emission standards.
Consistent with our prior guidance our engine shipments for pickup trucks in North America are expected to be 140000 to 150000 in 2023 volume levels in line with 2022.
In China, We project total revenue, including joint ventures to increase approximately 15% in 2023, driven by share growth better volumes and content increases.
We project, a 15% to 25% improvement in the heavy and medium duty truck demand and a 10% to 20% improvement in our light duty truck demand coming off the low market levels in 2022 consistent with prior guidance.
Despite the slow pace of recovery in the China truck market. We have continued to see strong performance for our products, including the 15 liter natural gas engine, which we launched in 2021.
Due to the fuel cost differential of approximately 20% of the heavy duty market is expected to be natural gas powered by the end of 2023 in the short time since we launched our new natural gas product in China. Our share has been ramping up with strong customer reception and heavy duty market and we look forward to launching the 15 liter natural gas engines.
North America in 2024.
We expect China construction volumes to be flat to down 10% in line with prior guidance consistent with a tepid economy and weaker overall activity.
In India, We project total revenue, including joint ventures to be up approximately 6% in 2023, an improvement from our previous forecast of up 1% propelled by stronger power generation and on highway sales.
We expect industry demand for trucks to be flat to up 5% for the year.
We project, our major global high horsepower markets to remain strong in 2023 sales of mining engines are expected to be flat to up 10% an improvement from our previous guidance of down 5% to up 5% Rev.
Revenues in global power generation markets are now expected to increase 15% to 20% from our previous guidance of a 10% to 15% increase driven by nonresidential construction and improvement in the data center markets.
For accelerated we expect full year sales to be $350 million to $400 million consistent with our previous guidance.
As noted in my highlights the electrolyte as our market continues to gain momentum with our near term focus on expanding capacity to meet the growing demand.
As we scale up to serve the electro laser opportunity continued to develop our products and support our customers in the field costs are running higher than originally projected for the year.
As a result, we have revised our EBIT guidance for accelerated to an expected loss of $420 million to $440 million for 2023 versus our prior.
Prior guidance of $370 million to $390 million.
Within components come as expects revenues contributed by the merits of our business for 2023 to be $4 7 billion to $4 9 billion and EBITDA is expected to be in the range of 10, 3% to 11% of sales consistent with prior guidance.
In summary, coming off a very strong first half, where we produced record revenues and record EBITDA, while delivering for our customers. We are maintaining our guidance of sales up 15% to 20% and EBITDA 15 to 15, 7%.
Demand in most of our core markets is strong while we continue to closely monitor global economic indicators should economic momentum slow comments will remain in a strong position to keep investing in future growth, bringing new technologies to customers and returning cash to our shareholders.
Our guidance for the full year implies weaker revenue in the second half of the year, while demand remained strong in several markets a weaker outlook in China versus the first half.
An expected decrease in the North American heavy duty truck production in the fourth quarter and the previously mentioned North America construction in Brazil truck decrease or some of the factors driving the lower second half run rate.
In view of the lowered forecasted revenues in the second half of the year, we expect to manage our operating expenses below the second quarter levels.
During the quarter, we returned $223 million to shareholders in the form of dividends consistent with our long term plan to return approximately 50% of operating cash flow to our shareholders.
Shortly after quarter end, we announced a 7% increase in the quarterly dividend from $1 57 to $1 68 per share the 14th consecutive year in which we have increased the dividend.
Strong execution from the first quarter of 2023 continued into the second resulting in record sales and strong profitability. Despite the ongoing challenges in our operating environment.
Thank you Jen and good morning, everyone.
Second quarter revenues were a record $8 6 billion.
Sales in North America increased 31%.
Sales increased 32%.
Organic sales growth rate was 12% driven by improved pricing and strong end market demand for our products globally with.
With a balance of 19% increase in sales driven by the addition of modal.
Overall.
EBIT those.
$3 billion or 15, 1% of sales for the quarter.
<unk> $23 million of costs associated with the planned separation.
Yes.
EBITDA in the second quarter of 2022 was $1 1 billion or 16% of sales, including a onetime $47 million benefit.
Related to the adjustment of ours.
Reserves as we suspended our operations in Russia, and $29 million of costs associated with the planned separation of box.
Excluding the Atlas operation cost.
From Russia year ago, EBIT dollars in the second quarter. This year was 15, 4% compared to 15, 7% a year ago.
Lower EBITDA.
It was driven primarily by the diluted impact of merit to higher variable compensation costs, which should largely in our SG&A line and in higher development spending.
To provide clarity on operational performance and comparison to guidance I'm, excluding the costs associated with the planned separation of Atlas.
The impacts from Russia, and my following comments.
Now, let's look in more detail by line item.
Gross margin for the quarter was $2 $2 billion or 24, 9% sales compared to $1 7 billion or 25, 6% last year.
As a percentage of sales gross margin decreased by 17 70 basis points.
As the benefits of higher volumes and improved pricing.
The dilutive impact of the Meritor acquisition and higher variable compensation expenses.
I will now the Moto Cummins marital business continued to show improvement in the second quarter.
<unk> in line with our expectations for the full year.
In fact, most of our businesses delivered gross margin expansion in the second quarter.
Selling admin and one on <unk>.
<unk> expenses were $1 $2 billion of 14, 3% of sales compared to $892 million or 13, 5% last year.
The increase in expenses was driven by the addition of Metro medical net of realized synergies.
Variable compensation.
Development cost as we continue to invest in the new products and capabilities to support future profitable growth.
Income from our joint ventures was $133 million.
$38 million from a year ago due to slow recovery in demand in China.
Other income was $24 million.
An improvement of $42 million from a year ago.
Second quarter last year, we incurred $48 million.
Mark to market losses on investments that underpin our non qualified benefit plums and those did not repeat this year, which largely explains the change in other income.
Interest expense increased by $65 million due to financing costs.
Related to the acquisition of medical.
And also rising interest rates.
All in effective tax rate in the second quarter was 22, 3%, including $3 million.
<unk> per diluted share.
Favorable discrete tax items.
All in net earnings for the quarter was $720 million or $5.05 per diluted share compared to $702 million or $4 94, since a year ago.
All in operating cash flow was an inflow of $483 million or $116 million lower than the second quarter last year, primarily due to higher working capital associated with the higher sales.
I will now comment on segment performance and our guidance for 2023.
Remind us 2023 and guide guidance includes the impact of Miracle.
Assume that the operations of Atmos will be included in our consolidated results for the full year.
Segment results and guidance exclude the costs.
Related to the separation with the filtration business.
Components revenue was $3 4 billion, an increase of 76%.
EBIT Doug.
Decrease from 18, 2% to 14, 7% with EBIT dollars growing from $355 million to $504 million.
No.
The big driver of the growth in EBIT dollars on the decline in the percent was the addition of the medical business.
<unk>.
Which added $1 $2 billion in sales and $152 million or 12, 2% of sales EBIT, though.
For the components segment, we expect 2023 revenues to increase between 32 and 37%.
EBITDA margins in the range of 14, 1% to 14, 8% in line with our previous guidance.
Within components Merit toll revenues are expected to be between four seven and $4 9 billion.
And EBITDA in the range of 10, 3% to 11.
Consistent with our previous guidance.
For the engine segment second quarter revenues were $3 billion, an increase of 8% from a year ago.
EBITDA was 14, 2% compared to 15, 2% in 2022 due to higher development spending and higher variable compensation costs linked to the stronger overall performance of comps year over year.
In 2023, we project revenues for the engine business will increase 2% to 7%.
Uh huh.
We expect it to be in the range of 13, 8% to 14, 5% unchanged from our prior guidance.
In the distribution segment revenues increased 15% from a year ago to a record $2 $6 billion.
EBIT increased as a percent of sales to 11, 5% compared to 11, 2% a year ago.
We now expect 2023 distribution revenues to be up 10% to 15%.
EBITDA in the range of 11, 7% to 12 point.
4%.
Net sales.
Sales, increasing 5% from our prior outlook and margins 40 basis points extending the track record of margin expansion in this business.
In the power systems segment revenues were a record $1 $5 billion, an increase of 21% and EBITDA increased by 58%.
Driven by higher power generation volumes and improved pricing.
We have an intense focus on improving the results of the power systems business and this has yielded clear margin expansion over the past year and.
And we see much more potential for earnings growth going forwards.
To drive further improvement as we seek to transform the long term earnings power of this business.
In 2023, we expect revenues for power systems to be up 13%, an increase of 3% from our previous outlook.
EBITDA is now projected to be 14, 3% to 15% an increase of 60 basis points from our last forecast.
Total revenues more than doubled to $85 million driven by higher demand for battery electric systems in the North American School bus market.
Our EBITDA loss was $114 million.
We continue to invest in the infrastructure and capabilities.
In 2023, we anticipate revenues to be in the range of $350 million to $400 million.
Unchanged from our previous outlook and loss is now expected to be in the range of $420 million to $440 million.
An increase of $50 million in those losses, because we increased the level of resources dedicated to successfully ramp up and meet growing electrolyze it demand.
Delivering strong incremental margins in our core business driving improvements in the performance of marital reducing inventory levels.
And investing in the products and technologies position us to lead in lower carbon technologies.
Our guidance does imply lower revenues in the second half of the year and we will manage our operating expenses below seven second quarter levels Accordingly.
For your interest today, we delivered solid second quarter continue to make good progress in executing our strategy.
Now, let me turn it back over to Chris.
Thank you Mark out of consideration to others on the call I would ask that you limit yourself to one question and a related follow up if you have an additional question. Please rejoin the queue.
Operator, we're ready for our first question.
At this time, we will conduct a question and answer session.
I'd like to ask a question. Please press Star then the number one on your telephone keypad and you will be placed in the queue.
We are now ready to begin our <unk>.
First question comes from Jamie Cook of Credit Suisse. Your line is open.
Hi, good morning.
Yes, two questions. One you know the engine margin I'm, just trying to understand that were a little weaker than I thought I understand there's some compensation and investment in there, but your JV income was really high as well in margins in the back half versus the first half are lower so can you just help us understand what's going on the engine margins.
And how to think about like what's required investment over the longer term and does that continue to weigh on the merch margin and then my second question.
Jan just bigger picture I know I know you don't want to guide to 2024 or 2024, but I know you're very close with your customers or would you look out in 2024, given some of the industry forecasts that are out there which markets or more.
Commerce markets that you are getting a little more cautious that we could see declines. Thank you.
Okay I'll go with the first question Jamie. Thank you, yes. So in the engine business there are really three.
Three themes to the numbers one we've raised the investment level in engineering.
Really to support all the additional business that we want to meet future emissions and drive profitable growth.
Two this is the business more recently, it's continued to face them.
<unk> inflation on material costs.
Pricing positive, but we also continued.
To experience some increase in material costs.
And then for the second half of the year really.
We're expecting China JV earnings to weaken which is typical of a new <unk>.
The second half than the first half and then yes as you mentioned the incentive compensation.
We will describe it as an issue it is a factor.
Results across the company and that our performance is exceeding our internal plan.
And we true up our accruals in the second quarter, which happens from time to time and also compares to a quarter a year ago. When we were lowering the business issues are really the increased investment and then the lower JV earnings in the second half of the year.
And on your second question, Jamie in terms of what we're seeing in the market.
The performance of our products continues to be very positive and strong and.
What I would say is my conversations in recent months.
Has have continued to have conversations with customers in particular on the medium duty space.
And even in the electro laser space, there's a lot of demand and interest income as products.
I noted that we've we've made some shifts in our global plans to increase capacity and medium duty for North America to meet that.
And so there is still really strong demand in that market.
Cyclical business, where it used to be in a cyclical.
I think this is going to likely be a more gentle cycle across markets than what we've typically seen but we do see some indications.
Certain markets, a little bit softening in aftermarket.
Unanticipated down days.
Our guidance implies heavy duty.
A little bit lower in the fourth quarter in particular construction, a little bit lower in China really not not.
Growing significantly seasonally soft or softer in the second half versus first half. So so I still feel quite good about market outlook on how it's performing and yes. We think Q2 is going to be our revenue peak and where our guide reflects Adam we're taking actions to make sure we're prioritizing.
Spending just SG&A.
Down for the second half of the year.
Yes.
Thank you.
Thanks, Jamie.
Your next question comes from Jerry Revich with Goldman Sachs. Your line is open.
Yes, hi, good morning, everyone.
Thank you Jennifer.
I'm wondering if you could just talk about the interest.
Are you seeing from your customers in alternative fuel technologies over the course of the quarter, we had the positive EPA.
Essentially for a landfill gas given them.
Changes in the rent structure I'm wondering if you could just talk about what youre seeing from your customers on interest in the 15 liter engine in North America, specifically for that product.
Any other car.
So you would add on internal combustion hydrogen or other.
Pieces.
Based on <unk>.
The visibility on the regulatory side.
Yeah, great. Thanks Gerry.
I think there is growing interest in what I call. Some of these bridge technologies alternate fuels and engines with natural gas product, we're seeing growth in non in China, we're going to launch that here, we expect to see.
And looking at hydrogen engines, where we are.
We're developing those and trying to figure out which markets they will play a role.
It's it's slow going because of the infrastructure Buildout that's required and so we're really focused on investing to have the right products, but at the right time.
And so youre still going to see a lot of demand for diesel in the next few years.
But just because of the number of production days in the quarter.
Yes, Matt for the remainder of the year and then part of it is just history tells us if there is.
Assuming erosion in confidence, which we haven't seen in customer orders just to be clear is there is we tend to have.
Our biggest fade into the December holiday period, and a slow ramp up so we just we built that into our guidance at the start of the year.
Simple as that.
That's continued to improve quarter over quarter, and we think now is the time to start managing our operating cost.
I'm expecting that we're going to see some downturn and then continue to look at places as you've seen us.
Do some structural things to improve the business and our focus this year has really been within the power systems business, where where we're doing that.
Okay and it sounds like part of your second half outlook is a bit weaker trend in China. How are you thinking about the potential for stimulus there and whether theres any chance for upside still left that might come out of that.
Yeah.
At this point, we're continuing to assume Theres no stimulus there was in meeting a meeting a few weeks ago I.
I think the government recognizes that they want to try to improve the economy, they want to do it and Oh.
Fiscally responsible stable way and so we're not assuming stimulus China is playing out pretty much as we anticipated some improvement off of the very low 2022, and typical seasonality between first half and second half that if theyre stimulus that comes in that impacts demand that would impact our outlook.
Well.
But I would say.
So even the most likely source of upside to our guidance right now.
Got it. Thank you very much worried about it just looking for more and there isn't much sign of it right.
Right makes sense. Thanks.
Your next question comes from Matt Alcott with TD Cowen Your line is open.
Good morning. Thank you I was wondering if you guys still expect EBITDA neutral for itself by 2027 or are there any emerging new structural costs and investments needed that could change the timeline.
Yes, we are still with the strategy we have in place right now where we continue to work towards the EBITDA neutral in 2027, and a big piece of that is this electrical as the revenue growth as you saw with the comments on backlog.
We're continuing to be confident in the outlook there.
Increased investment this year is really focused on making sure we've got the product and the supply chain right to enable us to do that.
Okay.
Jennifer just one more question here on the construction side the outlook for the kind of leather.
Part of the year.
<unk>.
Data centers are strong in public sector nonresidential construction is strong can you talk about some of the end markets driving somewhat tempered outlook for construction North America.
Yes so.
Our outlook for U S construction down to flat right.
Alright, so data and data centers it would show up for us in power generation and data center market is definitely strong there's parts of the market where construction.
Infrastructure investment and construction remain strong in those other segments of that market with a rising interest rate.
And that we're seeing we're seeing things.
Part of it is just a timing issue, but what's the.
Replenishment of the fleet.
Lot of ordering of engines for construction equipment. So it doesn't necessarily mean it's.
It's just the demand dano has kind of leveled out right now and again, we'll see we'll see where that huh.
Does any any of the Datacom data center construction.
The market does any of it show up in the <unk>.
In construction for you guys or it's all.
Most of your exposure to just thoughts in our power systems.
And our power systems segment.
Yes, it's not a huge factor for us I mean, the data center factor for US is that they buy these very large gen sets for backup power.
And that drive significant revenue for our power systems. The actual construction itself its hard for us to track.
Exactly where the.
Selling to the Oems.
Sometimes yes.
Okay.
That makes sense. Thank you. Thank you so much.
Thank you thanks, Matt.
Your next question comes from Noah Kaye with Oppenheimer. Your line is open.
Alright, thanks for taking the question.
Just wanted to expand if I could on accelerator and the.
The increased investment spend this year of about $50 million I think you mentioned a couple of times, it's really to get Electrolyze or.
Production I am product right.
As an operating expense rate. So is this mainly engineering resources, maybe you can give us a little color on what you felt you needed to spend on.
To get ready for this ramp and maybe you can even put it in the context of.
Some of the industry and policy changes that you've seen come through obviously, some significant ones over the last year the industry and policy changes drive that optimism in the outlook on the growing demand that the aircraft. They said, it's not capital expenses of.
The plant is much of it is as it is the operating cost in engineering.
And then.
Uh huh.
Customer support elsewhere.
Scaling up that product are running higher than we had.
<unk> had previously forecast.
Okay, so customer support as well as product engineering alright.
That's helpful.
But just to make sure. We understand there is there is no change to the revenue guidance. The current book of business, which I think is more weighted towards EV is that delivering kind of the expected margin contribution.
As we hear mixed indicators.
Indicators on EV adoption, particularly in North America.
We'd love to sort of understand where that side of the business is tracking versus your expectations.
Right. So on the EV side I would demand today is mostly concentrated in the bus markets I would say our margins have definitely been improving the <unk>.
Some of that leadership team has done good.
Good work on improving the margins, even with relatively modest, albeit increasing demand at this point in time.
Yes, so we're really looking for those next waves of demand, but the margins have been improving on.
On the electric demand keeps going up the issue is not demand, it's just making sure that we're ready there aren't that many electrolyze.
But now with payers over multiple times in the long run yes, Here's a couple of things that we watch on how the market develops.
Electro laser side as those investments, but the actual details of how that government money flows of money flows are still being defined so that is a bit of a timing impact on some of that.
In the electrified powertrain.
On exactly how that infrastructure is going to build out so theres regulation.
Okay.
Great. Thanks, very much that concludes our teleconference for today. Thank you all for participating and your continued interest and as always the Investor relations team will be available for questions. After the call and have a good day.
This concludes today's Cummins incorporated second quarter earnings Conference call. Thank you everyone for your participation have a wonderful rest of your day.
[music].