Q2 2025 Cummins Inc Earnings Call

August 5, 2025

Session will follow the formal presentation.

If you would like to join the queue. Please press star one on your telephone keypad, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded I would now like to turn the call over to Nick <unk> Executive director of Investor Relations. Thank you you may begin.

Thank you.

Good morning, everyone and welcome to our teleconference today to discuss Cummins results for the second quarter of 2025.

Participating with me today are Jennifer Rumsey, our chair and Chief Executive Officer, and Mark Smith, Our Chief Financial Officer will 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 security and exchange.

Jennifer Rumsey: In addition to stability in our aftermarket and industrial businesses, tariffs are undoubtedly having an impact on Cummins, our suppliers, customers, and end users, creating uncertainty over freight activity linked to the movement of goods and increasing costs. We did experience increasing tariff costs in the second quarter. However, as anticipated, we did not see the full impact of the current policies. As supply chains work through existing inventory, we've been active in our efforts to mitigate tariff exposures and negotiate agreements with customers that position us to enter fourth quarter near full recovery. Additionally, although we primarily produce engines and gensets in the markets where we sell them, we are further mitigating our efforts by continuing to evaluate and implement dual sourcing where possible and economically viable for our supply base and component manufacturing.

In addition to stability in our aftermarket and industrial businesses, tariffs are undoubtedly having an impact on Cummins, our suppliers, customers, and end users, creating uncertainty over freight activity linked to the movement of goods and increasing costs. We did experience increasing tariff costs in the second quarter. However, as anticipated, we did not see the full impact of the current policies. As supply chains work through existing inventory, we've been active in our efforts to mitigate tariff exposures and negotiate agreements with customers that position us to enter fourth quarter near full recovery. Additionally, although we primarily produce engines and gensets in the markets where we sell them, we are further mitigating our efforts by continuing to evaluate and implement dual sourcing where possible and economically viable for our supply base and component manufacturing.

<unk> Act of $19 34, such statements express our forecasts expectations hopes beliefs and intentions on strategies regarding the future 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 statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the risk factors section of our most recently fired filed annual report on Form 10-K, and any subsequently filed quarterly reports on Form 10-Q.

Operator: Greetings. Welcome to Cummins Inc's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If you would like to join the queue, please press star one on your telephone keypad. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now like to turn the call over to Nick Aarons, executive director of investor relations. Thank you. You may begin.

Greetings, welcome to Cummins Inc.'s second quarter 2025 earnings conference call.

Question and answer session will follow the formal presentation.

During the course of this call we will be discussing certain non-GAAP financial measures and we will refer you to our website for a 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 <unk> Dot.

if you would like to join the queue, please, press star 1 on your telephone keypad,

Jennifer Rumsey: As we navigate these uncertainties, we will continue to maintain discipline by managing our costs while continuing to invest to meet our critical priorities so that we are well positioned as markets recover. In summary, we had a strong Q2 performance that demonstrates the earnings potential of Cummins at a time when demand in North America and China truck market sits at weak levels. While we expect demand in North America truck markets to decline significantly in the Q3 from Q2 levels, we remain well positioned with an experienced leadership team that has demonstrated capability in managing through periods of uncertainty, and we will maintain our focus on our customers, employees, and shareholders. I'm confident that we will further raise our performance when markets recover and look forward to reinstating guidance when some of the uncertainty has subsided. Now let me turn it over to Mark.

As we navigate these uncertainties, we will continue to maintain discipline by managing our costs while continuing to invest to meet our critical priorities so that we are well positioned as markets recover. In summary, we had a strong Q2 performance that demonstrates the earnings potential of Cummins at a time when demand in North America and China truck market sits at weak levels. While we expect demand in North America truck markets to decline significantly in the Q3 from Q2 levels, we remain well positioned with an experienced leadership team that has demonstrated capability in managing through periods of uncertainty, and we will maintain our focus on our customers, employees, and shareholders. I'm confident that we will further raise our performance when markets recover and look forward to reinstating guidance when some of the uncertainty has subsided. Now let me turn it over to Mark.

Nick Aarons: Thank you. Good morning, everyone, and welcome to our teleconference today to discuss Cummins' results for the second quarter of 2025. Participating with me today are Jennifer Rumsey, our chair and chief executive officer, and Mark Smith, our chief financial officer. We will 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 Security and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded, I will now like to turn the call over to Nick erens executive director of investor relations. Thank you. You may begin.

Calm.

With that out of the way I will turn you over to our chair and CEO, Jennifer Rumsey to kick us off.

Thank you. Good morning everyone, and Welcome to our teleconference today to discuss Cummins results for the second quarter of 2025.

Thank you Nick good morning, everyone.

Delivered impressive results in the second quarter led by record performance in our distribution and power system segment that more than offset continued softening in the North America truck market.

Participating participating with me today are Jennifer Ramsey, our chair and chief executive officer and Mark Smith, our Chief Financial Officer, we will be available to answer questions at the end of the tell of the conference.

The record financial performance from these two segments, along with strong operational execution across our entire company led to EBITDA, increasing 310 basis points year over year, Despite North America, heavy and medium duty truck volumes declining 30% from a year ago.

Before we start, please note that some of the information that you will hear will be given today will consist of 4 looking statements within the meaning of the Security and Exchange Act of 1934.

Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future.

Mark Smith: Thank you, Jen, and good morning, everyone. The highlight of the second quarter is our strong profitability delivered in the face of global uncertainty. Our revenues were $8.6 billion, down 2% from a year ago. Sales in North America decreased 6% while international revenues increased 5%. EBITDA was $1.6 billion, or 18.4% of sales for the quarter, compared to $1.3 billion or 15.3% of sales a year ago. The higher EBITDA percentage was driven by higher power generation demand, strong operational efficiencies, positive pricing, and lower compensation expenses, which were partially offset by lower North America truck volumes, and the unfavorable impact of tariffs on all of our operating segments. Now, we'll go into more detail by line item. Gross margin for the quarter was $2.3 billion, or 26.4% of sales, compared to $2.2 billion, or 24.9% last year.

I am incredibly proud of our employees' continued focus on meeting customer commitments and delivering on our priorities.

Nick Aarons: More information regarding such risks and uncertainties is available in the forward-looking disclosure statement, in the slide deck, and our filings with the Security and Exchange Commission, particularly the risk factors section of our most recently 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 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.com. With that out of the way, I will turn you over to our chair and CEO, Jennifer Rumsey, to kick us off.

Our actual future results could differ materially from those projected in in such forward-looking statements because of a number of risks and uncertainties.

And I'm confident that our efforts will allow us to continue to operate from a position of strength.

Now I'll move on to some highlights from our second quarter, then I will discuss our sales and end market trends by region. Finally, I will provide an update on how uncertainties in our current environment may impact our end markets for the remainder of the year.

More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission. Particularly, the risk factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q.

Mark will then take you through more details of our second quarter financial performance.

In the second quarter, we continued to make progress in the execution of our destination zero strategy with the introduction of a new product and our power systems segment.

During the course of this call, we will be discussing certain non-gaap Financial measures and we will refer you to our website for reconciliation of those measures to gaap financial measures.

Expanding on the success of our acclaimed <unk> serious generator set we launched a new 17 liter engine platform generator that produces up to one megawatt of power.

Our press release, 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 commons.com.

Jennifer Rumsey: Thank you, Nick. Good morning, everyone. We delivered impressive results in the second quarter, led by record performance in our distribution and power systems segments that more than offset continued softening in the North America truck market. The record financial performance from these two segments, along with strong operational execution across our entire company, led to EBITDA increasing 310 basis points year over year, despite North America heavy and medium-duty truck volumes declining 30% from a year ago. I am incredibly proud of our employees' continued focus on meeting customer commitments and delivering our priorities, and I'm confident that our efforts will allow us to continue to operate from a position of strength. Now I will move on to some highlights from our second quarter. Then I will discuss our sales and end market trends by region.

With that. Out of the way, I will turn you over to our chair and CEO, Jennifer Ramsey to kick us off.

The F 17 centers Gen set was developed to produce a larger power output within a compact footprint to meet the growing power demands an urban environment.

We're compact design and high performance is critical.

Mark Smith: The improved margins were driven by favorable pricing and operational improvements, and especially in power systems and distribution. Selling, administrative, and research expenses were $1.1 billion, or 13.1% of sales, compared to $1.2 billion, or 13.7% of sales. Lower compensation costs, primarily variable compensation, benefited both gross margin and operating expenses and the financial performance of all operating segments year over year. Joint venture income of $118 million increased $15 million from the previous year, primarily driven by higher China volumes within our engine business as demand improved compared to a weak 2024. Other income increased to $49 million, positive, compared to negative $3 million from the prior year, driven by the positive impacts of foreign currency valuation, and gains on investments related to company-owned life insurance.

The improved margins were driven by favorable pricing and operational improvements, and especially in power systems and distribution. Selling, administrative, and research expenses were $1.1 billion, or 13.1% of sales, compared to $1.2 billion, or 13.7% of sales. Lower compensation costs, primarily variable compensation, benefited both gross margin and operating expenses and the financial performance of all operating segments year over year. Joint venture income of $118 million increased $15 million from the previous year, primarily driven by higher China volumes within our engine business as demand improved compared to a weak 2024. Other income increased to $49 million, positive, compared to negative $3 million from the prior year, driven by the positive impacts of foreign currency valuation, and gains on investments related to company-owned life insurance.

The results in the second quarter led by record performance in our distribution and Power Systems. Segments that more than offset continued softening in the North America truck Market.

A new Gen set is designed to support a wide range of critical market segments, such as commercial properties health care facilities and water treatment plant.

The record financial performance from these 2 segments, along with strong operational execution across our entire company.

In July we also announced a 10% increase in our quarterly dividend from $1 82 to $2 per share the 16th consecutive year in which we have increased the dividend.

Led to ebit Da increasing, 310 basis points year-over-year, despite North America heavy and medium duty truck. Volumes declining. 30% from a year ago

During the quarter, we returned $251 million to shareholders in the form of dividends consistent with our long term plan to return approximately 50% of operating cash flow to shareholders.

I am incredibly proud of our employees continued focus on meeting customer commitments and delivering our priorities.

And I'm confident that our efforts will allow us to continue to operate from a position of strength.

Now ill comment on the overall company performance for the second quarter of 2025 and cover some of our key markets.

Jennifer Rumsey: Finally, I will provide an update on how uncertainties in our current environment may impact our end markets for the remainder of the year. Mark will then take you through more details of our second quarter financial performance. In the second quarter, we continued to make progress in the execution of our Destination Zero strategy with the introduction of a new product in our power systems segment. Expanding on the success of our acclaimed Centum Series generator sets, we launched a new 17-liter engine platform generator that produces up to one megawatt of power. The S17 Centum Gen set was developed to produce a larger power output within a compact footprint to meet the growing power demands in urban environments where compact design and high performance are critical.

Now, I will move on to some highlights from the our second quarter. Then I will discuss our sales and end market trends by region.

Revenues for the second quarter were $8 6 billion, a decrease of 2% compared to the second quarter of 2024.

Finally, I will provide an update on how uncertainties in our current environment, may impact our end markets for the remainder of the year.

Mark will then take you through more details of our second quarter financial performance.

EBITDA was $1 6 billion or 18, 4% compared to $1 3 billion or 15, 3% a year ago and.

Gross margin improved 150 basis points from a year ago.

In the second quarter, we continue to make progress in the execution of our destination, zero strategy with the introduction of a new product, and our power system segments.

This improvement in profitability was driven by the benefits of higher power generation demand operational efficiencies pricing and lower compensation expenses.

Expanding on the success of our claimed sentiment series generator sets.

Mark Smith: Interest expense was $87 million, a decrease of $22 million from prior year, primarily driven by lower weighted average interest rates partially offset by higher debt balances. The all-in effective tax rate in the first quarter was 24.2%, including $3 million or $0.02 per diluted share of favorable discrete tax items. All-in net earnings for the quarter were $890 million or $6.43 per diluted share compared to $726 million or $5.26 per diluted share a year ago. Operating cash flow was an inflow of $785 million compared to an outflow of $851 million a year ago, with the difference mainly driven by the $1.9 billion required by the previously disclosed settlement agreements with the regulatory agencies which flowed out in Q2 last year. Excluding the settlement, operating cash flow was an inflow of $1.1 billion a year ago.

Interest expense was $87 million, a decrease of $22 million from prior year, primarily driven by lower weighted average interest rates partially offset by higher debt balances. The all-in effective tax rate in the first quarter was 24.2%, including $3 million or $0.02 per diluted share of favorable discrete tax items. All-in net earnings for the quarter were $890 million or $6.43 per diluted share compared to $726 million or $5.26 per diluted share a year ago. Operating cash flow was an inflow of $785 million compared to an outflow of $851 million a year ago, with the difference mainly driven by the $1.9 billion required by the previously disclosed settlement agreements with the regulatory agencies which flowed out in Q2 last year. Excluding the settlement, operating cash flow was an inflow of $1.1 billion a year ago.

We launched the new 17 L engine platform generator that produces up to 1 megawatt of power.

Which more than offset lower North America truck volumes and the unfavorable net impact from tariffs.

We see a marked contrast in demand between longer cycle sectors, such as power generation, which also continues to benefit from some well established secular themes and.

The s17 sentiment was developed to produce a larger power output. Within a compact footprint to meet The Growing Power demands in urban environments.

Jennifer Rumsey: The new Gen set is designed to support a wide range of critical market segments such as commercial properties, healthcare facilities, and water treatment plants. In July, we also announced a 10% increase in our quarterly dividend from $1.82 to $2 per share, the 16th consecutive year in which we have increased the dividend. During the quarter, we returned $251 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders. Now, let's comment on the overall company performance for the second quarter of 2025 and cover some of our key markets. Revenues for the second quarter were $8.6 billion, a decrease of 2% compared to the second quarter of 2024. EBITDA was $1.6 billion, or 18.4%, compared to $1.3 billion, or 15.3% a year ago, and gross margin improved 150 basis points from a year ago.

We're compact design and high performance is critical.

And declining confidence in some of our more economically sensitive shorter cycle markets in North America.

The New Gen set is designed to support a wide range of critical market segments such as commercial properties, Healthcare facilities and water treatment plants.

Particularly traffic pickup in consumer related markets.

We anticipate this contrast will become more pronounced in the second half of the year.

In July, we also announced a 10% increase in our quarterly dividend from $1.82 to $2.00 per share, the 16th consecutive year in which we have increased the dividend.

Our second quarter revenues in North America decreased 6% compared to 2024.

Industry production of heavy duty trucks in the second quarter was 57000 units down 27% from 2024 levels.

During the quarter, we returned 251 million to shareholders in the form of dividends to consistent, with our long-term, plan to return, a proximately, 50% of operating cash flow to shareholders.

While our heavy duty unit sales were 22000 down 29% from a year ago.

Now a comment on the overall company performance for the second quarter of 2025 and cover, some of our key markets.

Industry production of medium duty trucks was 28000 units in the second quarter of 2025, a decrease of 36%.

Revenues for the second quarter were 8.6 billion dollars. A decrease of 2% compared to second quarter of 2024.

Mark Smith: I will now comment on segment performance, provide some comments for the remainder of 2025. For the engine segment, first quarter revenues were $2.9 billion, a decrease of 8% from a year ago. EBITDA was 13.8%, a decrease from 14.1% a year ago as weaker North American truck volumes were partially offset by pricing related to the launch of updated products in light duty markets, operational efficiencies, and higher joint venture income in China. Components revenue was $2.7 billion, a decrease of 9% from a year ago. EBITDA was 14.7% compared to 13.6% of sales a year ago as lower product coverage costs, operational efficiencies, and pricing more than offset lower on-highway demand in North America. In the distribution segment, revenues increased 7% from a year ago to $3 billion.

I will now comment on segment performance, provide some comments for the remainder of 2025. For the engine segment, first quarter revenues were $2.9 billion, a decrease of 8% from a year ago. EBITDA was 13.8%, a decrease from 14.1% a year ago as weaker North American truck volumes were partially offset by pricing related to the launch of updated products in light duty markets, operational efficiencies, and higher joint venture income in China. Components revenue was $2.7 billion, a decrease of 9% from a year ago. EBITDA was 14.7% compared to 13.6% of sales a year ago as lower product coverage costs, operational efficiencies, and pricing more than offset lower on-highway demand in North America. In the distribution segment, revenues increased 7% from a year ago to $3 billion.

While our unit sales were 25000 down 35% from 2024.

We shipped 34000 engine Atlantis for use in the Ram pickups in the second quarter of 2025 down 18% from 2024 level.

Ebitda was 1.6 billion dollars or 18.4% compared to 1.3 billion dollars or 15.3% a year ago?

Jennifer Rumsey: This improvement in profitability was driven by the benefits of higher power generation demand, operational efficiencies, pricing, and lower compensation expenses, which more than offset lower North America truck volumes and the unfavorable net impact from tariffs. We see a marked contrast in demand between longer cycle sectors such as power generation, which also continues to benefit from some well-established specular themes, and declining confidence in some of our more economically sensitive, shorter cycle markets in North America, particularly truck, pickup, and consumer-related markets. We anticipate this contrast will become more pronounced in the second half of the year. Our second quarter revenues in North America decreased 6% compared to 2024. Industry production of heavy-duty trucks in the second quarter was 57,000 units, down 27% from 2024 levels, while our heavy-duty unit sales were 22,000, down 29% from a year ago.

And gross margin improved, 150 basis points from a year ago.

Revenues for North America power generation equipment increased by 25% driven primarily by continued strong demand in data centers and mission critical applications.

This Improvement in profitability was driven by the benefits of higher power generation demand.

Which more than offset lower, North America truck volumes and the unfavorable net impact from tariffs.

Our international revenues increased by 5% in the second quarter of 2025 compared to a year ago.

Second quarter revenues in China, including joint Ventures were $1 8 billion, an increase of 9% as accelerating data center demand and higher domestic truck demand driven by government stimulus more than offset lower export demand.

We see a marked contrast in demand between longer-cycle sectors, such as power generation, which also continues to benefit from some well-established secular themes.

and declining confidence in some of our more economically sensitive shorter cycle markets in North America,

Particularly truck pickup and consumer related markets.

Industry demand for medium and heavy duty trucks in China with 304000 units an increase of 13% from last year.

We anticipate this contract will become more pronounced in the second half of the year.

Our sales and units, including joint ventures were 43000, an increase of 31%.

Our second quarter revenues in North America decreased 6% compared to Q2 2024.

Mark Smith: EBITDA was a record $445 million and improved as a percent of sales to 14.6% compared to 11.1% of sales a year ago, driven by higher power generation, strong parts demand, and overall improvements in gross margin in the Power Systems segment. Revenues were $1.9 billion, an increase of 19% from a year ago. EBITDA dollars were also a record at $433 million, rising from 18.9% to 22.8% of sales, driven by strong volume, particularly in data center applications and other mission-critical applications, favorable pricing, and a continued focus on productivity and other operational improvements. Accelera revenues decreased 5% to $105 million as increased e-mobility sales, mainly to bus customers, partially offset lower electrolyzer installations.

EBITDA was a record $445 million and improved as a percent of sales to 14.6% compared to 11.1% of sales a year ago, driven by higher power generation, strong parts demand, and overall improvements in gross margin in the Power Systems segment. Revenues were $1.9 billion, an increase of 19% from a year ago. EBITDA dollars were also a record at $433 million, rising from 18.9% to 22.8% of sales, driven by strong volume, particularly in data center applications and other mission-critical applications, favorable pricing, and a continued focus on productivity and other operational improvements. Accelera revenues decreased 5% to $105 million as increased e-mobility sales, mainly to bus customers, partially offset lower electrolyzer installations.

The increase in China market size is primarily due to higher than expected domestic demand driven by NSS for scrapping incentives.

Industry production of heavy duty, trucks. In the second quarter was 57,000 units, down 27% from 2024 levels.

Industry demand for excavators in China in the second quarter was 59000 units an increase of 11% from 2024 level.

Jennifer Rumsey: Industry production of medium-duty trucks was 28,000 units in the second quarter of 2025, a decrease of 36%, while our unit sales were 25,000, down 35% from 2024. We shipped 34,000 engines to Stellantis for use in the Ram pickups in the second quarter of 2025, down 18% from 2024 levels. Revenues for North America power generation equipment increased by 25%, driven primarily by continued strong demand in data centers and mission-critical applications. Our international revenues increased by 5% in the second quarter of 2025 compared to a year ago. Second quarter revenues in China, including joint ventures, were $1.8 billion, an increase of 9%, as accelerating data center demand and higher domestic truck demand, driven by government stimulus, more than offset lower export demand. Industry demand for medium and heavy-duty trucks in China was 304,000 units, an increase of 13% from last year.

While our heavy duty unit sales were 22,000 down 29% from a year ago.

Our units sold were 11000, an increase of 13%.

industry production of medium duty trucks was 28,000 units in the second quarter of 2025, a decrease of 36%

An increase in the China market size is primarily due to domestic cyclical replacement demand rural development and farmland renovation demand.

while our unit sales were 25,000 and down 35% from 2024.

Sales of power generation equipment in China increased 32% in the second quarter due to accelerating data center demand.

We ship 34,000 engines to stellantis for use in the ram pickups in the second quarter of 2025 down, 18% from 2024 levels.

Second quarter revenues in India, including joint ventures were $699 million, a decrease of 1% from the second quarter a year ago.

Revenues for North America power generation equipment, increased by 25% driven primarily by continued, strong demand and data centers and Mission critical applications.

Industry truck production increased 1% from 2020 for.

Our International revenues increase by 5% in the second quarter of 2025 compared to a year ago.

Power generation revenues increased 31% in the second quarter, driven by increases in GE drive and data center demand.

Second quarter. Revenues in China including joint ventures were 1.8 billion dollars and increase of 9%.

To summarize we achieved impressive results in the second quarter with record financial performance in our power system systems and distribution segments.

Mark Smith: Our EBITDA loss was $100 million compared to an EBITDA loss of $117 million a year ago, reflecting a lower cost base resulting from the actions we took in the fourth quarter of 2024. In summary, we delivered strong profitability for the second quarter as a result of improved operational execution across our business that more than offset weaker demand in North America truck markets. For the third quarter we expect North America truck demand to sharply decline from second quarter levels as recent truck orders are at multi-year lows driven by uncertainty due to trade tariffs, product regulation, and caution about the prospects for freight. Since our last earnings call we've seen a steady stream of updates from our OEM customers extending the number of production down days through the third quarter.

Our EBITDA loss was $100 million compared to an EBITDA loss of $117 million a year ago, reflecting a lower cost base resulting from the actions we took in the fourth quarter of 2024. In summary, we delivered strong profitability for the second quarter as a result of improved operational execution across our business that more than offset weaker demand in North America truck markets. For the third quarter we expect North America truck demand to sharply decline from second quarter levels as recent truck orders are at multi-year lows driven by uncertainty due to trade tariffs, product regulation, and caution about the prospects for freight. Since our last earnings call we've seen a steady stream of updates from our OEM customers extending the number of production down days through the third quarter.

As accelerating data center demand and higher domestic truck, demand driven by government stimulus more than offset, lower export demand.

As we look ahead to the third quarter, we expect North America, heavy and medium duty truck volumes to decline, 25% to 30% from second quarter levels as.

Jennifer Rumsey: Our sales in units, including joint ventures, were 43,000, an increase of 31%. The increase in China market size was primarily due to higher than expected domestic demand, driven by NS4 scrapping incentives. Industry demand for excavators in China in the second quarter was 59,000 units, an increase of 11% from 2024 levels. Our units sold were 11,000, an increase of 13%. An increase in the China market size is primarily due to domestic cyclical replacement demand, rural development, and farmland renovation demand. Sales of power generation equipment in China increased 32% in the second quarter due to accelerating data center demand. Second quarter revenues in India, including joint ventures, were $699 million, a decrease of 1% from the second quarter a year ago. Industry truck production increased 1% from 2024. Power generation revenues increased 31% in the second quarter, driven by increases in G drives and data center demand.

Industry demand for medium and heavy-duty trucks in China was 304,000 units. An increase of 13% from last year,

As we are seeing truck orders recently reached multiyear lows and Oems have initiated reduced work weeks through the next three months.

Our sales and units, including joint ventures were 43,000 and the increase of 31%.

The duration of this reduced demand in North America truck markets will largely depend on the trajectory of the broader economy, the evolution of trade and tariff policies and.

The increase in China Market size was primarily due to higher than expected domestic demand driven by ns4 scrapping incentives.

Industry demand for excavators in China. In the second quarter with 59,000 units, an increase of 11% from 2024 levels.

And the pace at which regulatory clarity emerges.

Despite the challenges in the North America truck market, we have the benefit of operating a diversified global business.

Our units sold were 11,000 and increases 13%.

And expect continued strength in our power generation market. In addition to stability in our aftermarket and industrial businesses.

An increase in the China market size is primarily due to domestic cyclical replacement demand, rural development, and farmland renovation demand.

Mark Smith: We view current order levels as unsustainably low, but immediate catalysts for recovery are not yet clear. We have not yet felt the full impact from tariffs, and there is still uncertainty about duration and ongoing levels, which was highlighted again last week with the flurry of new announcements. It remains to be seen what this will impact this will have on business confidence and the demand for capital goods beyond trucks. We've worked hard to mitigate the impact of tariffs, and while negative to profitability in Q2, we should enter Q4 close to a price-cost neutral position with regard to tariffs. As you saw in our Q2 results, Cummins is in a strong position to navigate through this uncertainty with our industry-leading portfolio of products and our global network. We are well placed to support our customers.

We view current order levels as unsustainably low, but immediate catalysts for recovery are not yet clear. We have not yet felt the full impact from tariffs, and there is still uncertainty about duration and ongoing levels, which was highlighted again last week with the flurry of new announcements. It remains to be seen what this will impact this will have on business confidence and the demand for capital goods beyond trucks. We've worked hard to mitigate the impact of tariffs, and while negative to profitability in Q2, we should enter Q4 close to a price-cost neutral position with regard to tariffs. As you saw in our Q2 results, Cummins is in a strong position to navigate through this uncertainty with our industry-leading portfolio of products and our global network. We are well placed to support our customers.

Tariffs are undoubtedly having an impact on comments, our suppliers customers and end users, creating uncertainty over freight activity linked to the movement of goods and increasing costs.

Sales of power generation equipment. In China, increased 32% in the second quarter due to accelerating data center demand.

We did experience increasing tariff costs in the second quarter. However, as anticipated we did not see the full impact of the current policies and supply chain work through existing inventory we.

Second quarter, revenues in India, including joint ventures. Were 699 million? A decrease of 1% from the second quarter a year ago?

Industry truck production increased 1% from 202024.

Power generation revenues, increased 31% in the second quarter driven by increases in G, drive and data center demand.

Jennifer Rumsey: To summarize, we achieved impressive results in the second quarter with record financial performance in our power systems and distribution segments. As we look ahead to the third quarter, we expect North America heavy and medium-duty truck volumes to decline 25% to 30% from second quarter levels, as we have seen truck orders recently reach multi-year lows and OEMs have initiated reduced work weeks through the next three months. The duration of this reduced demand in North America truck markets will largely depend on the trajectory of the broader economy, the evolution of trade and tariff policies, and the pace at which regulatory clarity emerges. Despite the challenges in the North America truck markets, we have the benefit of operating a diversified global business and expect continued strength in our power generations market, in addition to stability in our aftermarket and industrial businesses.

Been active in our efforts to mitigate tariff exposures and negotiate agreements with customers that position us to in our fourth quarter near full recovery.

Additionally, although we primarily produce engines and gen sets in the markets, where we sell them. We are further mitigating our efforts by continuing to evaluate and implement dual sourcing where possible and economically viable for our supply base and component manufacturing.

To summarize. We achieved impressive results in the second quarter with record financial performance and our power system systems and distribution segments.

As we look ahead to the third quarter, we expect North America heavy and medium duty truck volume to decline, 25 to 30% from second quarter levels.

As we navigate these uncertainties, we will continue to maintain disciplined by managing our costs, while continuing to invest to meet our critical priorities. So that we are well positioned as markets recover.

Mark Smith: While we expect the coming months to be much more challenging primarily for the engine and components segment, we are staying focused on our strategic priorities and while also taking actions in the short term to reduce costs and lower inventory. We look forward to reinstating our outlook when the economic picture becomes clearer, and we are confident that as markets recover, we will continue to raise our performance as we have clearly done in the first half of this year. Thanks for joining us today. Now let me turn it back over to Nick.

While we expect the coming months to be much more challenging primarily for the engine and components segment, we are staying focused on our strategic priorities and while also taking actions in the short term to reduce costs and lower inventory. We look forward to reinstating our outlook when the economic picture becomes clearer, and we are confident that as markets recover, we will continue to raise our performance as we have clearly done in the first half of this year. Thanks for joining us today. Now let me turn it back over to Nick.

As we have seen truck orders recently reached multi-year lows and oems have initiated reduced work weeks through the next 3 months.

In summary, we had a strong second quarter performance that demonstrates the earnings potential of common at a time when demand in North America, and China truck market since the week level.

The duration of this reduced demand in the North American truck markets will largely depend on the trajectory of the broader economy and the evolution of trade and tariff policies.

And the pace at which regulatory Clarity emerges.

While we expect demand in North America truck markets to decline significantly in the third quarter from second quarter levels, we remain well positioned with an experienced leadership team that has demonstrated capability in managing through periods of uncertainty.

Despite the challenges in the North America truck markets, we have the benefit of operating a diversified Global business.

Jennifer Rumsey: Tariffs are undoubtedly having an impact on Cummins, our suppliers, customers, and end users, creating uncertainty over freight activity linked to the movement of goods and increasing costs. We did experience increasing tariff costs in the second quarter. However, as anticipated, we did not see the full impact of the current policies as supply chains work through existing inventory. We've been active in our efforts to mitigate tariff exposures and negotiate agreements with customers that position us to enter the fourth quarter near full recovery. Additionally, although we primarily produce engines and Gen sets in the markets where we sell them, we are further mitigating our efforts by continuing to evaluate and implement dual sourcing, where possible and economically viable, for our supply base and component manufacturing.

And expect continued strength in our power Generations Market in addition to stability in our aftermarket and Industrial businesses.

Nicholas Arens: 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 are ready for our first question. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, we do ask that you please limit yourself to one question and one follow-up question. Our first questions come from the line of Stephen Volkman with Jefferies.

Nick Arens: 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 are ready for our first question.

And we will maintain our focus on our customers employees and shareholders.

I am confident that we will further raise our performance when markets recover and look forward to reinstating guidance with some of the uncertainty has subsided.

Tariffs are undoubtedly having an impact on Commons, our suppliers customers, and end users creating uncertainty over Freight activity, linked to the movement of goods and increasing costs.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, we do ask that you please limit yourself to one question and one follow-up question. Our first questions come from the line of Stephen Volkman with Jefferies.

Now, let me turn it over to Mark.

We did experience increasing tariff costs in the second quarter. However, as anticipated, we did not see the full impact of the current policies.

Thank you Jim and good morning, everyone.

As Supply chains, work through existing inventory.

Highlights of the second quarter was our strong profitability delivered in the face of global uncertainty our revenues were $8 6 billion down.

We've been active in our efforts to mitigate terrific, exposures and negotiate agreements with customers.

That position us to enter fourth quarter near full recovery.

Down 2% from a year ago.

Sales in North America decreased 6%, while international revenues increased 5%.

EBITDA was $1 $6 billion or 18, 4% sales for the quarter compared to $1 $3 billion or 15, 3% of sales a year ago.

Nicholas Arens: Please proceed with your questions. Great. Good morning everybody. Thank you for taking the question.

Please proceed with your questions.

Stephen Volkmann: Great. Good morning everybody. Thank you for taking the question. Seems like you have a little bit of feast and a little bit of.

Jennifer Rumsey: As we navigate these uncertainties, we will continue to maintain discipline by managing our costs while continuing to invest to meet our critical priorities so that we are well positioned as markets recover. In summary, we had a strong second quarter performance that demonstrates the earnings potential of Cummins at a time when demand in North America and China truck markets sits at weak levels. While we expect demand in North America truck markets to decline significantly in the third quarter from second quarter levels, we remain well positioned with an experienced leadership team that has demonstrated capability in managing through periods of uncertainty, and we will maintain our focus on our customers, employees, and shareholders. I'm confident that we will further raise our performance when markets recover and look forward to reinstating guidance when some of the uncertainty has subsided. Now, let me turn it over to Mark.

To evaluate and Implement dual sourcing where possible and economically viable for our supply base and component Manufacturing.

Mark Smith: Seems like you have a little bit of feast and a little bit of.

Nicholas Arens: Famine here, so I'll focus on the feast, if that's all right. Power Systems. Let's talk about Power Systems. Big margin there, obviously much higher than I think we expected. I know you've been doing a lot.

Famine here, so I'll focus on the feast, if that's all right. Power Systems. Let's talk about Power Systems. Big margin there, obviously much higher than I think we expected. I know you've been doing a lot.

The higher EBIT.

<unk> was driven by higher power generation demand strong operational efficiencies positive pricing and lower compensation expenses, which were partially offset by lower North America truck volumes and the unfavorable impact of tariffs on all of our operating segments now.

As we navigate these uncertainties, we will continue to maintain discipline by managing our costs, while continuing to invest to meet our critical priorities.

So that we are well positioned as markets recover.

Mark Smith: Of work on this over the past.

Of work on this over the past.

Nicholas Arens: Few years, Jen, but at the end of the day, I'm curious if you think that is sort of the right margin level that we should be thinking.

Few years, Jen, but at the end of the day, I'm curious if you think that is sort of the right margin level that we should be thinking.

In summary we had a strong second quarter performance, that demonstrates the earnings potential of Commons at a time. When demand and North America and China truck markets sits that weak levels,

Now I will go into more detail by line item.

Mark Smith: About as we start modeling forward.

About as we start modeling forward.

Gross margin for the quarter was $2 $3 billion or 26, 4% of sales compared to $2 $2 billion or 24, 9% last year.

Nicholas Arens: Is that sustainable or was there anything in there that we should be aware of?

Is that sustainable or was there anything in there that we should be aware of?

Jennifer Rumsey: Yeah, thanks Steve for the question, and really pleased with the performance of the power systems business. As you noted, we started a couple years ago on a journey to really improve operational performance, and really coupled with the strong and growing demand in the power generation market has really benefited that business. So we've made many of the steps, and really better leveraging the capacity that we have and trying to improve throughput and operational performance. And frankly, the team has outperformed in terms of the efforts for that, and that has led to the really strong margin improvement that you've seen over the last couple years. We're continuing to focus on areas where we can improve operational efficiency and performance. We're continuing our investment in doubling the capacity in that business, which we expect to be fully online by the beginning of next year.

While we expect demand in North America truck markets to decline significantly in the third quarter from second quarter levels. We remain well, positioned with an experienced leadership team that has demonstrated capability in managing through periods of uncertainty.

Proved margins were driven by favorable pricing and operational improvements, especially in power systems and distribution.

And we will maintain our focus on our customers employees and shareholders.

Selling administrative and research expenses were $1 $1 billion of <unk>.

I'm confident that we will further raise our performance when markets recover and look forward to reinstating Guidance with some of the uncertainty has subsided.

Mark Smith: Thank you, Jen, and good morning, everyone. The highlight of the second quarter is our strong profitability delivered in the face of global uncertainty. Our revenues were $8.6 billion, down 2% from a year ago. Sales in North America decreased 6%, while international revenues increased 5%. EBITDA was $1.6 billion, or 18.4% of sales for the quarter, compared to $1.3 billion, or 15.3% of sales a year ago. The higher EBITDA percentage was driven by higher power generation demand, strong operational efficiencies, positive pricing, and lower compensation expenses, which were partially offset by lower North America truck volumes and the unfavorable impact of tariffs on all of our operating segments. Now, I'll go into more detail by line item. Gross margin for the quarter was $2.3 billion, or 26.4% of sales, compared to $2.2 billion, or 24.9% last year.

<unk>, 1% of sales compared to $1 $2 billion or 13, 7% of sales.

Now, let me turn it over to mark.

Lower compensation costs, primarily variable compensation.

Both gross margin and operating expenses and the financial performance of all operating segments year over year.

Thank you, Jen and good morning everyone. The highlight of the second quarter was our strong profitability delivered in the face of global uncertainty. Our revenues were 8.6 billion dollars down 2% from a year ago.

Joint venture income of a $118 million increased $15 million from the previous year, primarily driven by higher China volumes within our engine business as demand improved compared to a weak 2024.

Sales in North America, decreased 6% while International revenues increased 5%.

Ebitda was 1.6 billion or 18.4% of sales for the quarter compared to 1.3 billion or 15.3% of sales a year ago.

Other income increased to $49 million positive compared to a negative $3 million from the prior year driven by the positive impact of foreign currency valuation.

Jennifer Rumsey: So I think the pace of improvement has probably stabilized, but we will certainly continue to work on operational efficiencies, delivering value to our customers, being able to price for that, and drive that mentality across all of our businesses.

So I think the pace of improvement has probably stabilized, but we will certainly continue to work on operational efficiencies, delivering value to our customers, being able to price for that, and drive that mentality across all of our businesses.

The higher ebit. D percentage was driven by higher power, generation demand.

James on investments related to company owned life insurance.

Interest expense was $87 million, a decrease of $22 million from prior year, primarily driven by lower weighted average interest rates, partially offset by higher debt balances.

Strong operational efficiencies, positive pricing, and lower compensation expenses were partially offset by lower North America truck volumes and the unfavorable impact of tariffs on all of our operating segments.

Nicholas Arens: Okay, great.

Stephen Volkmann: Okay, great.

Now, we'll go into more detail by line item.

Mark Smith: Just to say, there's nothing, nothing unique in there other than demand strong for both generators and parts. But there's no one-timers in there or anything like that.

The all in effective tax rate in the first quarter was 24, 2%, including $3 million or two cents per diluted share of favorable discrete tax items.

Mark Smith: The improved margins were driven by favorable pricing and operational improvements, especially in power systems and distribution. Selling administrative and research expenses were $1.1 billion, or 13.1% of sales, compared to $1.2 billion, or 13.7% of sales. Lower compensation costs, primarily variable compensation, benefited both gross margin and operating expenses and the financial performance of all operating segments year over year. Joint venture income of $118 million increased $15 million from the previous year, primarily driven by higher China volumes within our engine business as demand improved compared to a weak 2024. Other income increased to $49 million, positive compared to negative $3 million from the prior year, driven by the positive impacts of foreign currency valuation and gains on investments related to company-owned life insurance.

Gross margin for the quarter was 2.3 billion or 26.4% of sales. Compared to 2.2 billion dollars or 24.9% last year.

Nicholas Arens: Understood. Then I assume you must have pretty good backlog in that segment. Maybe you can comment on that. Do you have pricing flexibility in that backlog if you need it? Can you reprice this stuff if necessary before delivery?

Stephen Volkmann: Understood. Then I assume you must have pretty good backlog in that segment. Maybe you can comment on that. Do you have pricing flexibility in that backlog if you need it? Can you reprice this stuff if necessary before delivery?

All in net earnings for the quarter were $890 million or $6 43.

The improved margins were driven by favorable pricing and operational improvements, especially in Power Systems and distribution.

The diluted share compared to $726 million or $5 26 per diluted share a year ago.

Jennifer Rumsey: Yeah, we have backlog out about two years in that business, and so continue to see strong demand, strong backlog. We've been working with customers where we have backlog on the tariff recovery and made some progress there. Typically, you know, we're not repricing beyond that in existing orders that we've taken. We price in aftermarket as the market moves, and as I said, working on tariff recovery across all of our businesses.

Selling administrative and research expenses were $1.1 billion, or 13.1% of sales, compared to $1.2 billion, or 13.7% of sales.

Operating cash flow was an inflow of $785 million.

Compared to an outflow of $851 million a year ago with the difference mainly driven by the $1 9 billion.

Lower compensation costs, primarily variable compensation benefited, both gross margin and operating expenses and the financial performance of all operating, segments year-over-year.

Quiet by the previously disclosed settlement agreements with the REIT regulatory agencies, which flowed out in Q2 last year.

Excluding the settlement operating cash flow was an inflow of $1 $1 billion a year ago.

Nicholas Arens: Thank you. Our next questions come from the line of Angel Castillo with Morgan Stanley. Please proceed with your questions. Hi, good morning. Thanks for taking my question and congrats on another strong quarter here. I wanted to ask a little bit of a bigger picture, sticking to the kind of power systems dynamic. Back at your investor day last year, you quantified that total data center business was $1.4 billion, I think in sales and that you were kind of 23% of I think $6 billion global market for data centers, I think at the time. You also kind of noted that that would be a $2 billion sales for you in 2026 and maybe a $9 billion market. I know it's difficult to quantify and it's crazy, 2026 starting next year, but I guess could you just comment on that?

Operator: Thank you. Our next questions come from the line of Angel Castillo with Morgan Stanley. Please proceed with your questions.

I will now comment on segment performance.

And increased 15 million from the previous year, primarily driven by higher China. Volumes within our engine business as demand improved compared to a week 2024.

Angel Castillo: Hi, good morning. Thanks for taking my question and congrats on another strong quarter here. I wanted to ask a little bit of a bigger picture, sticking to the kind of power systems dynamic. Back at your investor day last year, you quantified that total data center business was $1.4 billion, I think in sales and that you were kind of 23% of I think $6 billion global market for data centers, I think at the time. You also kind of noted that that would be a $2 billion sales for you in 2026 and maybe a $9 billion market. I know it's difficult to quantify and it's crazy, 2026 starting next year, but I guess could you just comment on that?

I'll provide some comments for the remainder of 2025.

The engine segment first quarter revenues were $2 9 billion, a decrease of 8% from a year ago.

Mark Smith: Interest expense was $87 million, a decrease of $22 million from prior year, primarily driven by lower weighted average interest rates, partially offset by higher debt balances. The all-ineffective tax rate in the first quarter was 24.2%, including $3 million or 2 cents per diluted share of favorable discrete tax items. All-in net earnings for the quarter were $890 million or $6.43 per diluted share, compared to $726 million or $5.26 per diluted share a year ago. Operating cash flow was an inflow of $785 million, compared to an outflow of $851 million a year ago, with the difference mainly driven by the $1.9 billion required by the previously disclosed settlement agreements with the regulatory agencies, which flowed out in Q2 last year. Excluding the settlement, operating cash flow was an inflow of $1.1 billion a year ago.

Other income increased to $49 million, compared to negative $3 million from the prior year. This increase was driven by the positive impacts of foreign currency valuation and gains on investments related to company-owned life insurance.

EBITDA was 13, 8% a decrease from 14, 1% a year ago, because we couldnt North American volumes were partially offset by pricing related to the launch data products in light duty markets operational efficiencies and higher joint venture income.

Interest expense was 87 million. A decrease of 22 million from prior year, primarily driven by lower weighted, average interest rates

Partially offset by higher debt, balances.

China.

Components revenue was $2 7 billion, a decrease of 9% from a year ago.

The all ineffective tax rate in the first quarter was 24.2% including 3 million or 2 cents per diluted share of favorable discrete tax items.

Nicholas Arens: How are you seeing your business growth and demand and market share ultimately evolve toward that kind of $2 billion top line, or kind of where are we in terms of the size of your business within data centers?

How are you seeing your business growth and demand and market share ultimately evolve toward that kind of $2 billion top line, or kind of where are we in terms of the size of your business within data centers?

EBITDA was 14, 7% compared to 13, 6% of sales a year ago as lower product coverage costs operational efficiencies and pricing more than offset lower on highway demand in North America.

All in net, earnings for the quarter, were 890 million or 6.43. The diluted share compared to 726 million, or 5.26 per diluted share a year ago.

Jennifer Rumsey: Thanks for the question. So we are continuing to be very well positioned. We think the combination of our products and we've launched the Centum series, we've continued to add some products, but the larger ones of those are quite popular in data centers. Coupled with our distribution business provides Cummins an advantage. So we're a strong player in a growing backup power provider to data centers. We feel like we continue to maintain that position and take advantage of new products and capacity investment. Expect this year to be pretty stable in the second half with typical seasonality. But as I said, we'll have some additional capacity coming on as we go into 2026.

In the distribution segment revenues increased 7% from a year ago to $3 billion.

EBITDA was a record $445 million and improved as a percentage of sales to $14 six compared to 11, 1% of sales a year ago, driven by higher power generation strong parts demand and overall improvements in gross margin.

Operating cash flow was an inflow of 785 million compared to an outflow of 851 million. A year ago, with the difference mainly driven, by the 1.9 billion required by the previously, disclosed settlement agreements with the rate Regulatory Agencies which flowed out

Q2 last year.

Mark Smith: I will now comment on segment performance and provide some comments for the remainder of 2025. For the engine segment, first quarter revenues were $2.9 billion, a decrease of 8% from a year ago. EBITDA was 13.8%, a decrease from 14.1% a year ago, as weaker North American truck volumes were partially offset by pricing related to the launch of updated products in light-duty markets, operational efficiencies, and higher joint venture income in China. Components revenue was $2.7 billion, a decrease of 9% from a year ago. EBITDA was 14.7% compared to 13.6% of sales a year ago, as lower product coverage costs, operational efficiencies, and pricing more than offset lower on-highway demand in North America. In the distribution segment, revenues increased 7% from a year ago to $3 billion.

Excluding the settlement operating cash flow was an inflow of 1.1 billion dollars a year ago.

In the power systems segment revenues were $1 $9 billion, an increase of 19% from a year ago.

I will now comment on segment performance.

EBIT dollars were also a record at $443 million.

Rising from 810, 9% to 22, 8% of sales driven by strong volume, particularly in data center applications.

And provide some comments for the remainder of 2025 for the engine segment, first quarter revenues were 2.9 billion. A decrease of 8% from a year ago

Nicholas Arens: That's helpful, I guess. Is it fair to assume then that $2 billion is still kind of the way to think about 2026?

Angel Castillo: That's helpful, I guess. Is it fair to assume then that $2 billion is still kind of the way to think about 2026?

And the mission critical applications.

Jennifer Rumsey: Yes.

<unk> pricing and our continued focus on productivity and other operational improvements.

Mark Smith: There's been no change in enthusiasm for demand.

Accelerated revenues decreased 5%.

And truck volumes were partially offset by pricing related to the launch of updated products. In light, duty markets, operational. Efficiencies and higher joint venture income in China.

Nicholas Arens: Thank you. Our next question has come from the line of Jamie Cook with Truist Securities. Please proceed with your questions.

Operator: Thank you. Our next question has come from the line of Jamie Cook with Truist Securities. Please proceed with your questions.

$105 million is increased E mobility sales, mainly to bus customers, partially offset lower electrolyze installations.

Components Revenue was 2.7 billion, a decrease of 9% from a year ago.

Jennifer Rumsey: Hi, good morning. I guess what struck me about the quarter is your margin performance. You know, even with, you know, North America truck going through a correction. So I guess the two areas that stuck out to me besides power systems was your distribution margins, which I'm assuming is getting the benefit of power. You know, are margins moving structurally higher there just because of the benefit that you get through from the power system business? And then also on the component side, you were able to improve your margins despite sales declines. I think you noted lower product coverage. Is there any way you could quantify that? Just trying to think about the implications for margins in the back half. And then I guess my second question, Jen, just relates to sort of, you know what I mean, the cycle.

Jamie Cook: Hi, good morning. I guess what struck me about the quarter is your margin performance. You know, even with, you know, North America truck going through a correction. So I guess the two areas that stuck out to me besides power systems was your distribution margins, which I'm assuming is getting the benefit of power. You know, are margins moving structurally higher there just because of the benefit that you get through from the power system business? And then also on the component side, you were able to improve your margins despite sales declines. I think you noted lower product coverage. Is there any way you could quantify that? Just trying to think about the implications for margins in the back half. And then I guess my second question, Jen, just relates to sort of, you know what I mean, the cycle.

Our EBITDA loss was $100 million.

Compared to an EBITDA loss of $117 million, a year ago, reflecting a lower cost base, resulting from the actions we took in the fourth quarter of 2024.

Ebitda was 14.7% compared to 13.6% of sales a year ago, as lower product coverage, costs, operational efficiencies and pricing. More than enough set lower on Highway demand in North America.

In summary, we delivered strong profitability to the second quarter.

Mark Smith: EBITDA was a record $445 million and improved as a percent of sales to 14.6% compared to 11.1% of sales a year ago, driven by higher power generation, strong parts demand, and overall improvements in gross margin. In the power systems segment, revenues were $1.9 billion, an increase of 19% from a year ago. EBITDA dollars were also a record at $433 million, rising from 18.9% to 22.8% of sales, driven by strong volume, particularly in data center applications and other mission-critical applications, favorable pricing, and a continued focus on productivity and other operational improvements. Accelera revenues decreased 5% to $105 million, as increased e-mobility sales, mainly to bus customers, partially offset lower electrolyzer installations. Our EBITDA loss was $100 million compared to an EBITDA loss of $117 million a year ago, reflecting a lower cost base resulting from the actions we took in the fourth quarter of 2024.

in the distribution segment, revenues increased 7% from a year ago to 3 billion

Result of improved operational execution across our business.

But more than offset weaker demand in North America truck markets.

For the first for the third quarter, we expect North America truck demand.

To sharply declined from second quarter levels as our recent truck orders are at multiyear lows driven by uncertainty due to trade tariffs regulation and caution about the prospects for freight.

Ebitda was a record 445 million and improved as a percentage of sales to 14.6 compared to 11.1% of sales, a year ago, driven by higher power generation, strong Parts, demand and overall improvements in gross margin.

Jennifer Rumsey: Like in North America, obviously we're seeing a big correction in 2025. Lack of pre-buy. Based on what you're hearing from your customers, how are you thinking about North America in 2026 and 2020?

Like in North America, obviously we're seeing a big correction in 2025. Lack of pre-buy. Based on what you're hearing from your customers, how are you thinking about North America in 2026 and 2020?

Since our last earnings call, we've seen a steady stream of updates from our OEM customers extending the number of production down days through the third quarter.

in the power system, segments revenues were 1.9 billion dollars, an increase of 19% from a year ago

We view current order levels is unsustainably low, but immediate catalysts for recovery are not yet clear.

Mark Smith: Morning, Jamie. I'll start on the margin question. So on distribution, yes, the benefits of power, the benefits of strong parts business, and then we've got positive pricing in the distribution business as well. So all of those have combined to make for very positive results in distribution overall. Yes, it's not reasonable to expect, on significant continuing declines in truck volumes, that we can maintain margins in the short run. We expect obviously, margins to improve over the long run in engines and components. But you're right, we called out the product coverage numbers because that was a tougher quarter a year ago and a much cleaner quarter just within the components for the company. Overall, there really wasn't much difference in the product coverage numbers. But in the components segment, that was probably worth something like half a point. That was not a one-time.

We have not yet felt.

The full impact from tariffs and there is still uncertainty about duration and ongoing levels, which was highlighted again last week with the flurry of new announcements.

Ebit dollars were also a record at 433 million rising from 18.9% to 22.8% of sales driven by strong volume. Particularly in a data center applications and miss and miss other Mission critical applications. Favorable pricing and a continued focus on productivity and other operational improvements.

Remains to be seen what this will impact this will have on business confidence on the demand for capital goods beyond trucks.

We've worked hard to mitigate the impact of tariffs and while negative to profitability in the second quarter, we should enter the fourth quarter close to our price cost neutral position.

accelera revenues decreased 5% to 105 million as increased, e-mobility sales, mainly to bus customers partially offset, lower electrolyzer installations,

With regard to tariffs.

As you saw in our second quarter results come into us in a strong position to navigate through this uncertainty with our industry, leading portfolio of products and our global network, we will place to support our customers.

Mark Smith: In summary, we delivered strong profitability for the second quarter as a result of improved operational execution across our business that more than offset weaker demand in North America truck markets. For the third quarter, we expect North America truck demand to sharply decline from second quarter levels, as recent truck orders are at multi-year lows driven by uncertainty due to trade tariffs, product regulation, and caution about the prospects for freight. Since our last earnings call, we've seen a steady stream of updates from our OEM customers, extending the number of production down days through the third quarter. We view current order levels as unsustainably low, but immediate catalysts for recovery are not yet clear. We have not yet felt the full impact from tariffs, and there is still uncertainty about duration and ongoing levels, which was highlighted again last week with the flurry of new announcements.

Our ebita loss was $100 million compared to an ebit, D loss of 117 million. A year ago, reflecting a lower cost base. Resulting from the actions. We took in the fourth quarter of 2024

In summary, we delivered strong profitability to the second quarter as a result of improved operational execution across our business.

While we expect the coming months to be much more challenging primarily for the engine and components segment. We are staying focused on our strategic priorities. While also taking actions in the short term to reduce costs and lower inventory well.

That more than offset. We could demand in North America truck, markets.

For the first for the third quarter, we expect North America truck demand.

Mark Smith: It was more the absence of a problem from a year ago than something that's special that happened in this quarter. But just to be clear, given the rates of decline here in the third quarter from second quarter in engines and components, we should expect that there's going to be a negative impact on the profitability of those two segments.

It was more the absence of a problem from a year ago than something that's special that happened in this quarter. But just to be clear, given the rates of decline here in the third quarter from second quarter in engines and components, we should expect that there's going to be a negative impact on the profitability of those two segments.

We look forward to reinstating our outlook when the economic.

The picture becomes clearer.

Sharply decline from second quarter levels as a recent truck orders are at multi-year lows driven by uncertainty due to trade tariffs product regulation, and caution about the prospects for Freight.

Confident as markets recover we will continue to raise our performance as we are clearly down in the first half of this year. Thanks for joining US today now let me turn it back over to Nick.

Since our last earnings call, we've seen a steady stream of updates from our OEM customers, extending the number of production down days through the third quarter.

Jennifer Rumsey: Okay, thank you. And then, Jen, just on the cycle. You know, Jamie, it's, you know, there's a number of typical factors, and then some atypical factors that we see influencing the truck cycle. So spot rates continue to be low. Economic demand isn't really growing for customers. Interest rates are still higher. And while the age of the fleet on average has gone up some, you know, we still are seeing that kind of cyclical, normal cyclical down in the truck market, which then, on top of it, this uncertainty around tariff policy, the impact that's going to have on the price of trucks, and regulatory uncertainty, which means customers are really just holding, waiting to see what happens, get more stability and clarity on orders. And in Q2, build rates held up okay.

Jamie Cook: Okay, thank you. And then, Jen, just on the cycle.

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.

Jennifer Rumsey: You know, Jamie, it's, you know, there's a number of typical factors, and then some atypical factors that we see influencing the truck cycle. So spot rates continue to be low. Economic demand isn't really growing for customers. Interest rates are still higher. And while the age of the fleet on average has gone up some, you know, we still are seeing that kind of cyclical, normal cyclical down in the truck market, which then, on top of it, this uncertainty around tariff policy, the impact that's going to have on the price of trucks, and regulatory uncertainty, which means customers are really just holding, waiting to see what happens, get more stability and clarity on orders. And in Q2, build rates held up okay.

We view current order levels as unsustainably low, but immediate catalysts for recovery are not yet clear.

Yeah.

Mark Smith: It remains to be seen what this will impact on business confidence and the demand for capital goods beyond trucks. We've worked hard to mitigate the impact of tariffs, and while negative to profitability in the second quarter, we should enter the fourth quarter close to a price-cost neutral position with regard to tariffs. As you saw in our second quarter results, Cummins is in a strong position to navigate through this uncertainty. With our industry-leading portfolio of products and our global network, we are well placed to support our customers. While we expect the coming months to be much more challenging, primarily for the engine and components segment, we are staying focused on our strategic priorities whilst also taking actions in the short term to reduce costs and lower inventory.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment that may be necessary to pick up your handset before pressing the star keys as a reminder.

We have not yet fully felt the full impact from tariffs, and there is still uncertainty about duration and ongoing levels, which was highlighted again last week with the flurry of new announcements.

It remains to be seen what this will impact, this will have on business confidence and the demand for capital goods Beyond trucks.

We do ask that you please limit yourself to one question and one follow up question.

We've worked hard to mitigate the impact of tariffs and while negative to profitability in the second quarter, we should enter the fourth quarter, close to a price cost neutral position.

With regard to terrorists.

Our first questions come from the line of Stephen Volkmann with Jefferies. Please proceed with your questions.

Okay.

Great. Good morning, everybody. Thank you for taking my question. It seems like you have a little bit of season, a little bit of famine here. So I'll focus on the <unk>, yes, that's all right.

As you saw in our second quarter results, comment is in a strong position to navigate through this uncertainty, with our industry-leading, portfolio of products and our Global Network. We are well placed to support our customers.

Jennifer Rumsey: We saw some softening, but as Mark noted, we're seeing a lot more down days and our customers and us restructuring in our plants in anticipation of a much weaker Q3. How long will it last? It's a little bit hard to predict. The optimistic Jen would say we get more tariff clarity and stability in Q3 and more certainty on regulation. We still believe today that we'll have 27 NOx regulation, and if we do, then that will likely drive demand back up. But it's uncertain right now. We're working closely with the EPA to try to push for clarity and help them understand levers that they may have to reduce the total cost impact of that. In particular, longer emissions warranty. But it's really hard for me to predict. So the pessimist says it drags out longer.

We saw some softening, but as Mark noted, we're seeing a lot more down days and our customers and us restructuring in our plants in anticipation of a much weaker Q3. How long will it last? It's a little bit hard to predict. The optimistic Jen would say we get more tariff clarity and stability in Q3 and more certainty on regulation. We still believe today that we'll have 27 NOx regulation, and if we do, then that will likely drive demand back up. But it's uncertain right now. We're working closely with the EPA to try to push for clarity and help them understand levers that they may have to reduce the total cost impact of that. In particular, longer emissions warranty. But it's really hard for me to predict. So the pessimist says it drags out longer.

Power systems.

Let's talk about power systems.

Big margin there, obviously much higher than I think we expected I know you've been doing a lot of work on this over the past few years John but.

Mark Smith: We look forward to reinstating our outlook when the economic picture becomes clearer, and we are confident that as markets recover, we will continue to raise our performance as we have clearly done in the first half of this year. Thanks for joining us today, and now let me turn it back over to Nick.

While we expect the coming months to be much more challenging primarily for the engine and component segment, we are staying focused on our strategic priorities, whilst also taking actions in the short term to reduce costs and lower inventory.

We look forward to reinstating our Outlook when the economic conditions improve.

At the end of the day.

I'm curious if you think that is sort of the right margin level that we should be thinking about as we start modeling forward is that sustainable or was there anything in there that we should be aware of.

Nick Aarons: 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 are ready for our first question.

Uh, picture becomes clearer. And we we are confident that as markets recover we will continue to raise our performance as we have clearly done in the first half of this year. Thanks for joining us today. Now let me turn it back over to Nick.

Yes, Thanks, Steve for the question and really pleased with the performance of the power systems business. As you noted we started a couple years ago on a journey to really improve.

Thank you. Mark out of consideration to others on the call. I would ask that you limit yourself to 1 question and a related follow-up. If you have an additional question, please rejoin the queue

Operational performance.

operator. We are ready for our first question.

And really coupled with a strong and growing demand in the power generation market has really benefited that business. So we've made many of the steps and really better leveraging the capacity that we have in trying to improve throughput and operational performance and frankly the team has outperformed.

Jennifer Rumsey: That's part of why we're not giving guidance, is it's just really difficult to predict.

That's part of why we're not giving guidance, is it's just really difficult to predict.

Mark Smith: The pessimist sat next to her would just point out that more years than not Q4 is not particularly stronger than the Q3. We're hoping for that. That would definitely help all industry participants, but we need to see a significant change in the momentum. The momentum for orders to us for engine systems is down, obviously. Clearly down.

Terms of the efforts for that and that has led to.

Really strong margin improvement that you've seen over the last couple of years.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line. As in the question queue, you may press star 2. If you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset, before pressing the star Keys as a reminder, we do ask that you please limit yourself to 1 question and 1 follow-up question.

We're continuing to focus on.

Steven Wolfman: Great. Good morning, everybody. Thank you for taking the question. Seems like you have a little bit of a feast and a little bit of famine here, so I'll focus on the feast, if that's all right. Power systems. Let's talk about power systems. Big margin there, obviously much higher than I think we expected. I know you've been doing a lot of work on this over the past few years, Jen, but at the end of the day, I'm curious if you think that is sort of the right margin level that we should be thinking about as we start modeling forward. Is that sustainable, or was there anything in there that we should be aware of?

Questions come from the line of Steven Bulman with Jeffrey's please proceed with your questions.

Areas, where we can improve operational efficiency and performance, we're continuing our investment in doubling the capacity.

In that business, which we expect to be fully online by the beginning of next year.

Nicholas Arens: Thank you. Our next questions come from the line of Rob Wertheimer with Melius Research. Please proceed with your questions.

Operator: Thank you. Our next questions come from the line of Rob Wertheimer with Melius Research. Please proceed with your questions.

So I think the pace of improvement has probably stabilized, but we will certainly continue to work on operational efficiencies and delivering value to our customers and being able to price for that.

Great. Uh, good morning everybody. Thank you. Uh, for taking the question, seems like you have a little bit of a feast and a little bit of famine here. So I'll focus on the feast, if that's all right. Um, Power Systems.

Mark Smith: We lost Rob.

Nicholas Arens: Rob, could you please check if you're muted? I beg your pardon?

Operator: Rob, could you please check if you're muted?

Rob Wertheimer: I beg your pardon?

Drive that that mentality across all of our businesses.

Mark Smith: Sorry.

Sorry.

Nicholas Arens: You guys just touched on the engine margins.

You guys just touched on the engine margins.

Okay.

Mark Smith: Mark, I take.

And maybe with it.

Mark, I take.

Nicholas Arens: I understand your comments on where things.

I understand your comments on where things.

Just to say there is nothing nothing unique in there other than demand was strong for both generate as I am parts, but theres no one timers in there or anything like that.

Mark Smith: Have to go given volumes, but this.

Have to go given volumes, but this.

Jennifer Rumsey: Yeah, thanks, Steve, for the question. And really pleased with the performance of the power systems business. As you noted, we started a couple of years ago on a journey to really improve operational performance, and really coupled with the strong and growing demand in the power generation market has really benefited that business. So we've made many of the steps in really better leveraging the capacity that we have and trying to improve throughput and operational performance. And frankly, the team has outperformed in terms of the efforts for that, and that has led to the really strong margin improvement that you've seen over the last couple of years. We're continuing to focus on areas where we can improve operational efficiency and performance. We're continuing our investment and doubling the capacity in that business, which we expect to be fully online by the beginning of next year.

Nicholas Arens: Quarter was pretty good and last quarter was great. I wondered if you might comment.

Quarter was pretty good and last quarter was great. I wondered if you might comment.

Uh, let's talk about Power Systems, um, big margin there obviously much higher than I think we expected. I know you've been doing a lot of work uh, on this over the past few years Jen. But um, at the end of the day, uh, I'm curious if you think that is sort of the right margin level that we should be thinking about, uh, as we start modeling forward. Is that sustainable, or was there anything in there that we should be aware of?

Mark Smith: On price that might influence that or anything else given a shallow margin decline on lower revenues and engines. Jen just touched on EPA 27.

On price that might influence that or anything else given a shallow margin decline on lower revenues and engines. Jen just touched on EPA 27.

Okay understood and then I assume you must have pretty good backlog in that segment. Maybe you can comment on that but do you have pricing flexibility in that backlog. If you need to continue to reprice this stuff if necessary before delivery.

Nicholas Arens: I wonder if you have any guess?

I wonder if you have any guess?

Mark Smith: As to when we have at least.

As to when we have at least.

Nicholas Arens: Clarity on what the resolution will be.

Clarity on what the resolution will be.

Mark Smith: Thank you. Yep. So a couple of factors on the engine margin we called out in prior quarters because it's been a running theme as we've launched new models in the light duty segment, we have raised prices. Product quality has been very stable and positive. Then China, I don't want to get people overexcited on China, but stepped up a little bit from weaker levels. Now the engine business benefits a lot from the joint venture earnings in China, which are a little bit higher. So all those factors and then when we say strong parts, that's flowing through the engine business and power systems generally. So all those were factors, but the pricing primarily on new engines was around light duty.

Yes, we have.

Backlog out about two years in that business and so you'll continue to see strong demand strong backlog log and we've been working with customers, where we have backlog on the tariff.

Recovery.

And made some progress there so.

Yeah, thank thanks. Steve uh for the question and uh really pleased with the performance of the Power Systems business. As you noted, we started a couple years ago on a journey to really improve um, operational performance and and and really coupled with the strong and growing demand. And the power generation Market has really benefited that business. So we we've made many of the steps and really better leveraging, the capacity that we have and trying to improve, uh, throughput and operational performance. And frankly, the team is has outperformed in terms of the efforts for that, and that has led to

Typically we're not reprice data beyond that and existing orders that we've taken with pricing and aftermarket as the market moves and as I said working on tariff recovery across all of our businesses.

The really strong margin Improvement that that you've seen over the last couple years.

We're continuing to focus on.

Thank you. Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your questions.

Jennifer Rumsey: So I think the pace of improvement has probably stabilized, but we will certainly continue to work on operational efficiencies and delivering value to our customers and being able to price for that and drive that mentality across all of our businesses.

Areas where we can improve operational, efficiency, and performance. We're continuing our investment and doubling the capacity, uh, in that business, which we expect to be fully online by the beginning of next year.

Um, so

Hi, there good morning, Thanks for taking my question and congrats on another strong quarter here.

Wanted to ask a little bit of a bigger picture sticking to the kind of power systems dynamic back at your Investor Day last year, you cant quantify that total data center I think business was $1 4 billion I think in sales.

Jennifer Rumsey: I'll just add, you know, we have had the focus on operational efficiency, you know, come in through a couple of years. We have a lot of supply disruption and high demand. We've had a focus on really just improving the fundamentals of how our business operates and how all our plants operate. And then we did do some targeted restructuring last year to optimize how our business operates and took advantage of the softening that we started to see last year to do that. So you're seeing some benefit of that across the company as well.

Steven Wolfman: Okay, great. And maybe.

I think the pace of improvement has probably stabilized but we will certainly continue to work on operational efficiencies and and deliver value to our customers and be able to to price for that and you know, drive that that mentality across all of our businesses.

Mark Smith: And Steve, just to say, there's nothing unique in there other than demand strong for both generators and parts, but there's no one-timers in there or anything like that.

And then you were kind of 23% of six.

$6 billion global market for data centers.

I think at the time, you also kind of noted that that would be a $2 billion sale.

okay, great and and and Steve just to say there's nothing nothing unique in their other than demand, strong for both, both generators and parts, but there's no

Steven Wolfman: Right, understood. And then I assume you must have pretty good backlog in that segment. Maybe you can comment on that. But do you have pricing flexibility in that backlog if you need it? Can you reprice this stuff if necessary before delivery?

Sales for you in 2026, and maybe a $9 billion market I know.

1 time as in there or anything like that.

Difficult to quantify.

It's a 2020.

630 next year, but I guess could you just comment on that how are you seeing your business growth and demand and market share.

Jennifer Rumsey: Yeah, we have a backlog out about two years in that business, and so continue to see strong demand, strong backlog. And we've been working with customers where we have backlog on the tariff recovery and made some progress there. So typically, you know we're not repricing beyond that, and existing orders that we've taken, we price in aftermarket as the market moves. And as I said, working on tariff recovery across all of our businesses.

Ultimately evolve towards that kind of $2 billion.

Right, understood. I assume you must have a pretty good backlog in that segment. Maybe you can comment on that. Do you have pricing flexibility in that backlog? If you need it, can you re-price this stuff if necessary before delivery?

Mark Smith: Okay, thank you, Jennifer.

Rob Wertheimer: Okay, thank you, Jennifer.

yeah, we have, uh,

Top line and kind of where are we in terms of the size of your business within data centers.

Nicholas Arens: Thank you, Mark. You're welcome. Thank you. Our next questions come from the line of Tim Thein with Raymond James. Please proceed with your questions. Thank you and good morning. The first question was on the power gen business, and I guess more domestically this kind of speed to power theme is gaining a lot of momentum and traction in terms of operators that want to get up, get power access quickly. And just given the long lead times for industrial gas turbines, it seems like you're starting to see and hear a little bit more of operators that are looking to leverage recips as a way to kind of gain off grid primary power. And I'm just curious if that's something that Cummins has seen or is in expecting to see. Maybe just a comment on that.

Thank you, Mark.

Mark Smith: You're welcome.

Operator: Thank you. Our next questions come from the line of Tim Thein with Raymond James. Please proceed with your questions.

Yes. Thanks for the question. So we are continuing to be very well positioned and we think the combination of our products.

Tim Thein: Thank you and good morning. The first question was on the power gen business, and I guess more domestically this kind of speed to power theme is gaining a lot of momentum and traction in terms of operators that want to get up, get power access quickly. And just given the long lead times for industrial gas turbines, it seems like you're starting to see and hear a little bit more of operators that are looking to leverage recips as a way to kind of gain off grid primary power. And I'm just curious if that's something that Cummins has seen or is in expecting to see. Maybe just a comment on that.

uh, backlog out about 2 years in that business, and so continue to see strong, demand, strong backlog, and we've been working with customers where we have backlog on the, the Tariff,

We've launched the central theories has continued to add some products, but the larger larger ones of those are quite popular in data centers, coupled with our distribution.

Business provides cummins and advantage of our strong player and a growing backup power provider to data centers.

Recovery, um, and and made some progress there. So, uh, typically, you know, we're not repricing beyond that and existing orders that we've taken we price in in aftermarket as the market moves. And as I said, working on tariff recovery across all of our businesses,

Operator: Thank you. Our next questions come from the line of Angel Castillo with Morgan Stanley. Please proceed with your questions.

We feel like we continue to maintain that position and take advantage of new products and capacity investment.

Angel Castillo: Hi, good morning. Thanks for taking my question and congrats on another strong quarter here. I wanted to ask a little bit of a bigger picture, sticking to the kind of power systems dynamic. Back at your investor day, last year, you quantified that total data center, I think business was $1.4 billion, I think in sales, and that you were kind of 23% of a, I think, $6 billion global market for data centers. You know, I think at the time you also kind of noted that that would be a $2 billion sales for you in 2026 and maybe a $9 billion market. I know it's difficult to quantify, you know, and it's crazy at 2026, starting next year, but I guess could you just comment on that?

Thank you. Our next question is come from the line of Angel Castillo with Morgan Stanley. Please proceed with your questions.

Expect this year to.

Be pretty stable in the second half with typical seasonality, but as I said, we will have some additional capacity coming on line as we go into 2026.

That's helpful and I guess is it fair to assume then $2 billion is still kind of the way to think about 'twenty 'twenty six.

Jennifer Rumsey: Yeah, I mean, I think, you know, the trend certainly is need for more power, challenges of getting that power. Today we are still primarily positioned in backup power. Certainly, strategically, we're looking at, you know, where we want to position ourselves for the future is that demand for power continues to exist, but it's not really meaningfully impacting our business today or in the near future.

Yes.

Okay Spring no change in.

Infused he hasnt for demand.

Thank you. Our next question will come from the line of Jamie Cook with <unk> Securities. Please proceed with your questions.

Angel Castillo: How are you seeing your business growth and demand and market share ultimately evolve toward that kind of $2 billion top line? And kind of where are we in terms of the size of your business within data centers?

Hi, Good morning, I guess, what struck me about the quarter is your margin performance, even with North America truck going through a correction. So I guess the two areas that.

Nicholas Arens: Okay, all right, understood. And then just on distribution, I can remember years ago when double digits was talked about as kind of the aspirational target there. I'm just curious, is the power gen business obviously has been growing for some time. Are there more just as the power demands increase and maybe the, you know, the data centers are consuming more and more power, is that bringing along more services and more kind of, you know, ancillary type revenues with those installations such that that business carries higher margins or would that all be kind of reflected in power systems margins? I'm just curious, you know, as the parts part of distribution as a percentage has continued to decline, which I would think would be dilutive to the margin. So maybe just a comment on that would be helpful. Thank you.

Tim Thein: Okay, all right, understood. And then just on distribution, I can remember years ago when double digits was talked about as kind of the aspirational target there. I'm just curious, is the power gen business obviously has been growing for some time. Are there more just as the power demands increase and maybe the, you know, the data centers are consuming more and more power, is that bringing along more services and more kind of, you know, ancillary type revenues with those installations such that that business carries higher margins or would that all be kind of reflected in power systems margins? I'm just curious, you know, as the parts part of distribution as a percentage has continued to decline, which I would think would be dilutive to the margin. So maybe just a comment on that would be helpful. Thank you.

Stuck out to me Besides power systems was new distribution margins, which I'm, assuming is getting the benefit of power.

Jennifer Rumsey: Yeah, thanks for the question. So, you know, we are continuing to be very well positioned. We think the combination of our products, and we've launched the Centum series, we've continued to add some products, but the larger ones of those are quite popular in data centers. Coupled with our distribution business provides Cummins an advantage, so we're a strong player in a growing backup power provider to data centers. We feel like we continue to maintain that position and take advantage of new products and capacity investment. Expect this year to be pretty stable in the second half with typical seasonality, but as I said, we'll have some additional capacity coming online as we go into 2026.

All right, good morning. Thanks for taking my question, and congrats on another strong quarter here. I, I wanted to ask a little bit of a bigger picture sticking to the kind of Power Systems Dynamic back at your investor day. Um, last year, you, you quantify that total data center. I think business was 1.4 billion, um, I think in sales and, and that you were kind of 23% of the, I think 6 billion dollar Global Market for data centers. You know, I think at the time you also kind of noted that that would be a 2 billion dollar, um, sales for you in 2026 and maybe a 9 billion dollar market. I know it's difficult to quantify, um, you know, and it's crazy a 2026 starting next year, but I guess could you just comment on that? How are you seeing your business growth and, and demand, and market share? Um, you know, ultimately evolved toward that kind of 2 billion dollar Topline and or, you know, kind of where are we? In terms of the size of your business, um, within data centers,

Our margins moving structurally higher there just because of the benefit that you get through from the power system business and then also on the component side, you were able to improve your margins. Despite despite sales declines I think you noted lower product coverage is there any way you could quantify that just trying to think about the implications for margins in the back half and then I.

Yeah, thanks for the question. So you know, we are continuing to be very well positioned and we think the combination of our products and we've we've launched the sentum series, we've continued to add some products. But the larger larger ones of those are quite popular in data centers coupled with our distribution.

Yes, My second question.

Jan just relates to sort of you know what I mean, the cycle like in North America, Obviously, we're seeing a big correction.

Provider to Data Centers. Um,

In 2025 lack of pre buy.

We feel like we continue to maintain that position and take advantage of new products and capacity investment.

Based on what you're hearing from your customers. How are you thinking about North America in 2026 and 2027.

Expect this year to to to be pretty stable in the second half with typical seasonality. But as I said, we'll have some additional capacity coming on mine as we go into 2026.

Angel Castillo: That's helpful. And I guess, is it fair to assume then that $2 billion is still kind of the way to think about 2026?

Okay.

Jamie I'll start on the margin question. So on distribution, yes, the benefits of power.

Jennifer Rumsey: Yes.

Kind of the way to think about 2026.

Mark Smith: I think yes, you're right. Any of those services and other things would show in distribution, not in power systems. But I think what lies beneath the surface a little bit, Tim, is just a more broad-based improvement in our international operations. I do also remember vividly those double-digit margin targets when we set them. There's been dramatic improvements in areas like Africa where we had high growth aspirations that quite frankly had some risk management issues, and execution issues early on. Those are long behind us. So I think we've really more broadly improved the operational effectiveness and profitability focus outside North America in addition to improving North America. So I think it's a more broad-based approach phenomenon that's really driven the results.

Benefits.

Mark Smith: Yeah, I think no change in enthusiasm for demand. Yeah.

Yeah strong parts business and then we've got positive pricing in the distribution business as well so all of those have combined.

Yes.

Yeah, between no change in.

Enthusiasm for demand. Yeah.

Operator: Thank you. Our next questions come from the line of Jamie Cook with Truist Securities. Please proceed with your questions.

To make for very positive results in distribution overall, yes and component it is not reasonable to expect on <unk>.

Angel Castillo: Hi, good morning. I guess what struck me about the quarter is your margin performance, you know, even with North America truck going through a correction. So I guess the two areas that stuck out to me besides power systems was your distribution margins, which I'm assuming getting the benefit of power. You know, are margins moving structurally higher there just because of the benefit that you get from the power system business? And then also on the component side, you were able to improve your margins despite sales declines. I think you noted lower product coverage. Is there any way you could quantify that? Just trying to think about the implications for margins in the back half. And then I guess my second question, Jen, just relates to sort of, you know what I mean, the cycle.

Thank you. Our next question has come from the line of Jamie Cook with Truist Securities. Please proceed with your questions.

Significant continuing declines in truck volumes.

We can maintain margins in the short run we expect obviously margins to improve over the long run and engines and components, but you are right we called out the.

Coverage numbers.

Because that was a tougher quarter.

A year ago, and a much cleaner quarter just within the components for the company overall, there really wasn't much difference in the product coverage numbers.

We're in the components segment that was probably worth something like half a point.

Jennifer Rumsey: Typically, in the power generation market, if we're doing backup power, then there's minimal aftermarket parts demand. But the distribution business can do additional content on the installation and benefit from that work with the customer.

So that was not a one time it was more the absence of a problem from a year ago than something that's special special that happened in this quarter, but just to be clear given the rates of decline in the third quarter from second quarter and engines and components.

Angel Castillo: Like in North America, obviously we're seeing a big correction in 2025, lack of pre-buy. You know, based on what you're hearing from your customers, how are you thinking about North America in 2026 and 2027? Thanks.

We should expect that theres going to be a negative impact on the profitability of those two segments.

Nicholas Arens: Thank you. Our next questions come from the line of David Rasso with Evercore ISI. Please proceed with your questions. Hi. Thank you. I know you don't want to give guidance, but I am curious, just directly to ask the EBITDA margin for Engine in Q3, Q4, how are you thinking about that relative to, you know, we've been above 13% now for a while, haven't been below 12%, 11% since I think late 2021. And you mentioned the JV income maybe a little bit better as an offset. It's obviously more impactful the lower the consolidated revenues are just because people are going to look at sort of at least a thought process of a bottoming truck in the next few quarters when it comes to margins and then sort of go from there on how to think about 2026 earnings.

Operator: Thank you. Our next questions come from the line of David Rasso with Evercore ISI. Please proceed with your questions.

Mark Smith: Morning, Jamie. I'll start on the margin question. So on distribution, yes, the benefits of power, the benefits of, yeah, strong parts business, and then we've got positive pricing in the distribution business as well. So all of those have combined to make for very positive results in distribution overall. Yes, in components, it's not reasonable to expect on significant continuing declines in truck volumes that we can maintain margins in the short run. We expect obviously margins to improve over the long run in engines and components. But you're right, we called out the product coverage numbers because that was a tougher quarter a year ago and a much cleaner quarter just within the components. For the company overall, there really wasn't much difference in the product coverage numbers, but for in the component segment, that was probably worth something like half a point.

Good morning. Um I guess what struck me about the quarter is your margin performance, you know, even with you know, North America truck going through a correction. So I guess the 2 areas that uh, stuck out to me, besides Power Systems was your distribution margins, which I'm assuming is getting the benefit of power, um, you know, our margins moving structurally higher there, just because of the benefit that you get through from the power system business. And then also on the component side, you were able to improve your margins to Pi, despite sales declines, I think you noted lower product coverage, is there any way you could quantify that? Um, just trying to think about, you know, the implications for margins in the back half and then I guess my second question. Uh, Jen just relates to sort of, you know what I mean? The cycle. Like in North America, obviously we're seeing a big correction um in 2025 lack of prey, you know, based on what you're hearing from your customers, how are you thinking about, you know, North America in 2026 in, in 2027, thanks.

Okay. Thank you and then John just on the cycle.

David Raso: Hi. Thank you. I know you don't want to give guidance, but I am curious, just directly to ask the EBITDA margin for Engine in Q3, Q4, how are you thinking about that relative to, you know, we've been above 13% now for a while, haven't been below 12%, 11% since I think late 2021. And you mentioned the JV income maybe a little bit better as an offset. It's obviously more impactful the lower the consolidated revenues are just because people are going to look at sort of at least a thought process of a bottoming truck in the next few quarters when it comes to margins and then sort of go from there on how to think about 2026 earnings.

Yeah on the cycle, Jamie it's it's.

Yeah, morning Jamie, I'll start on the margin question so on distribution. Yes, the benefits of power.

There's a number of typical factors and then some atypical factors that we see influencing the truck cycle. So.

Spot rates continue to be low.

The benefits of yeah, strong Parts business and then we we've got positive pricing in the distribution business as well. So all of those have combined.

Economic demand isn't really grown for customers' interest rates are still higher.

And while the age of the fleet on average has gone up some.

We still are seeing that kind of cyclical normal cyclical down in the truck market, which then had it.

On top of that this uncertainty around tariff.

Tariff policy the impact thats going to have on price of truck and regulatory uncertainty, which means customers are really just holding.

Uh, to make for very positive results in distribution overall. Yes. In compound. It's not reasonable to expect on significant continuing decline in truck volumes that we can maintain margins in the short run. We expect obviously margins to improve over the long run in engines and components but you're right. We called out the

Nicholas Arens: Can you give us any quantification of how to think about the EBITDA margins in engines in the Q3 or H2 2024, 2025? Thank you.

Can you give us any quantification of how to think about the EBITDA margins in engines in the Q3 or H2 2024, 2025? Thank you.

Waiting to see what happens get more stability and clarity on orders.

And in Q2 build rates held up okay. We saw some softening that as Mark noted, we're seeing a lot more down days and our customers and us restructuring.

Mark Smith: Yes, we spend a lot of time staring at that, as you can imagine. And what I would say is, I don't see a lot of momentum. China's improved off a very rough bottom, but we're going to come under pressure here in the second half. What I'd say is, while the margins are going to go down, clearly there's nothing structural about that. We're just, the volumes are going to go down significantly. I think if we looked on a full year basis, we might see there's no reason to see why. The decrementals are very different on a full year basis from prior cycles. But clearly, for engines and components, they're going to come under significant pressure.

Mark Smith: That was not a one-time, it was more the absence of a problem from a year ago than something that's special that happened in this quarter. But just to be clear, given the rates of decline here in the third quarter from second quarter in engines and components, yeah, we should expect that there's going to be a negative impact on the profitability of those two segments.

product coverage numbers, uh, because that was a tougher quarter a year ago and a much cleaner quarter just within the components for the company. Overall, there really wasn't much difference in the product coverage numbers, but for in the components segment, that was probably worth something like half a point.

And our plant in anticipation of a much weaker.

Q3, how long will last.

Is a little bit hard to predict the optimists the optimistic.

Jen would say, we get more tariff clarity and stability in Q3 and.

That was not a 1 time, it was more the absence of a problem from a year ago than something that's special, special that happened in this quarter. But just to be clear, given the rates of decline here in the third quarter from second quarter and engines and components.

Jennifer Rumsey: Okay, thank you. And then Jen, just on the cycle. Yeah, on the cycle, you know, Jamie, it's, you know, there's a number of typical factors and then some atypical factors that we see influencing the truck cycle. So rates continue to be low, you know, economic demand isn't really growing for customers, interest rates are still higher, and while the age of the fleet on average has gone up some, you know, we still are seeing that kind of cyclical, normal cyclical down in the truck market, which then had it on top of it, this uncertainty around tariff policy, the impact that's going to have on price of trucks and regulatory uncertainty, which means customers are really just holding, waiting to see what happens, get more stability and clarity on orders. And in Q2, build rates held up okay.

Yeah, we should expect that. There's going to be a negative impact on the profitability of those 2 segments.

More certainty on regulation, we still believe today that we will have 27, Nox regulation and if we do then that will likely drive.

Okay, thank you. And then Jen just on the cycle.

Yeah, on the cycle. You know, Jamie it's it's um,

<unk> back up.

But it's uncertain right now we're working closely with EPA is to try to push for clarity.

Mark Smith: Just to give a bit more technical, not to be negative, just to give the fact we already know how many engines we produce in heavy and medium duty truck in July. We can see the order build rate for August. It's going to be very depressed. As Jen said, down 25% to 30%. That's not surprising given how low the orders are. I think as we look forward though, we're confident that we, you know, margins will rebound quickly as the volume comes through. The other complexity that we're dealing with is that the lack of clarity on the emissions regulations means we've got to retain flexibility on the engineering side. We said at our last analyst day, over time we expect engineering to come down as a percent of sales in engines and components.

Just to give a bit more technical, not to be negative, just to give the fact we already know how many engines we produce in heavy and medium duty truck in July. We can see the order build rate for August. It's going to be very depressed. As Jen said, down 25% to 30%. That's not surprising given how low the orders are. I think as we look forward though, we're confident that we, you know, margins will rebound quickly as the volume comes through. The other complexity that we're dealing with is that the lack of clarity on the emissions regulations means we've got to retain flexibility on the engineering side. We said at our last analyst day, over time we expect engineering to come down as a percent of sales in engines and components.

I'll help them understand levers that they may have to reduce the total cost impact of that in particular longer emissions warranty, but it's really hard for me to predict so the pessimist says it drags out longer and Thats part of why we're not giving guidance as it's just really difficult to predict and the pessimist next door.

You know, there's a number of typical factors and then some atypical factors that that we see influencing the truck truck cycle. So

Spot rates continue to be low. You know. Um economic demand isn't really growing for customers interest rates are still higher. Uh and well the age of the fleet on average has gone up some

Pointed out.

More use the not Q4 is not particularly strong into Q3, so we hoping for that.

You know, we still are seeing that kind of cyclical normal cyclical down and the truck Market, which then, uh, had it on on, on top of it, this uncertainty around.

That would definitely help all industry participants, but we need to see a significant change in the momentum the momentum for orders tools.

For engine systems is down obviously clearly do.

Tariff policy. The impact that's going to have on price of trucks and Regulatory uncertainty which means customers are really just holding um, waiting to see what happens. Get more stability and Clarity on orders.

uh, and

Jennifer Rumsey: We saw some softening, but as Mark noted, we're seeing a lot more down days and our customers and us restructuring in our plants in anticipation of a much weaker Q3. How long will it last is a little bit hard to predict. The optimistic Jen would say we get more tariff clarity and stability in Q3 and more certainty on regulation. We still believe today that we'll have 27 Knox regulation, and if we do, then that will likely drive demand back up. But it's uncertain right now. We're working closely with EPAs to try to push for clarity and help them understand levers that they may have to reduce the total cost impact of that, in particular, longer emissions warranty. But it's really hard for me to predict.

Thank you our next questions come from the line of Rob Wertheimer with Melius Research. Please proceed with your questions.

Mark Smith: We're not able to execute that side of it yet because of this lingering uncertainty. So, clear reduction, but nothing structural. No significant changes to market pricing, which ultimately could have an impact structurally. So, we're going to go down, and then we're going to rebound in those two businesses, and hopefully that's quicker rather than later. History says we don't have that many quarters of down. We're a few quarters in already, but we're waiting for more momentum on the order side. Yes, going to be tough. Definitely a tough second half.

We're not able to execute that side of it yet because of this lingering uncertainty. So, clear reduction, but nothing structural. No significant changes to market pricing, which ultimately could have an impact structurally. So, we're going to go down, and then we're going to rebound in those two businesses, and hopefully that's quicker rather than later. History says we don't have that many quarters of down. We're a few quarters in already, but we're waiting for more momentum on the order side. Yes, going to be tough. Definitely a tough second half.

In Q2 build rates held up. Okay, we saw some softening, but, as Mark Mark noted, we're seeing a lot more down days and our customers and US restructuring.

We lost Rob Rob.

Um and our plants uh in anticipation of a much weaker.

Rob could you please check if yourself muted.

Q3, how long will it last?

Beg your pardon.

I'm sorry.

You guys just touched on the engine margins Mark I'd say.

And your comments on where things have to go given given volumes, but this quarter was pretty good last quarter was great and I wondered if you might comment on price that might influence that or anything else given.

Uh is a little bit hard to protect The Optimist. The optimistic Jen would say we get more tariffs Clarity and stability and Q3. And

More certainty on regulation, we still believe today that we'll have 27 Knox regulation. And if we do, then that will likely Drive

Shallow margin decline on lower revenues and engines and Jim just touched on <unk> hundred 27, I Wonder if you have any guess as to what we have at least clarity on what the resolution will be thank you.

Demand back up. Um, but it's uncertain right now. We're working closely with EPA to try to push for clarity and

Nicholas Arens: The incremental margins again, I know you're avoiding quantifying, but just so we can frame this a little bit, is the idea the decremental margins in EBITDA for engines for Q3 at 35ish, 40% kind of range? We're just trying to get some sense.

David Raso: The incremental margins again, I know you're avoiding quantifying, but just so we can frame this a little bit, is the idea the decremental margins in EBITDA for engines for Q3 at 35ish, 40% kind of range? We're just trying to get some sense.

Yes, so a couple of factors on the engine margin wed.

Jennifer Rumsey: So the pessimist says it drags out longer, and that's part of why we're not giving guidance, as it's just really difficult to predict.

Called out in <unk>.

Near quarters, because it's been a running theme.

Mark Smith: And the pessimist sat next to us will just point out that more years than not, Q4 is not particularly stronger than Q3. So we're hoping for that. That would definitely help all industry participants, but we need to see a significant change in the momentum. The momentum for orders to us for engine systems is down, obviously clearly down.

As we've launched new models in the light duty segment, we have raised prices.

Help them understand lovers that they may have to reduce the total cost impact of that. In particular longer emissions warranty, but it's really hard for me to predict. So the pessimist says it drags out longer and that's part of why we're not giving guidance. This is just really difficult to predict and the pessimist sat next to us. Um, we'll just point out that

Product quality has been very.

More years than not Q4 is not particularly strong within Q3, so we hoping for that.

Stable positive and then China I don't want to get people over excited on China.

Help all industry, participants.

A little bit from.

Weaker levels now the engine business.

But we need to see a significant change in the momentum, the momentum for orders to us.

Benefits.

Uh, for Engine Systems is down, obviously clearly down.

Nicholas Arens: But it's going to be.

Operator: Thank you. Our next questions come from the line of Rob Wertheimer with Amelius Research. Please proceed with your questions.

Not from the joint venture earnings in China, which are a little bit higher so all those factors and then when we say strong parts that's flowing through the engine business in power systems generally so all of those were.

But it's going to be.

Mark Smith: a cyclical business, and it will rebound. Just to reinforce, it's going to be tough. But then when the volumes come back, which they inevitably will. Quite when we can't say, we'd expect performance to rebound as well. So hopefully July is the trough. You know, we started with a spreadsheet. Imagine a spreadsheet in front of you. I'm still old, and I use spreadsheets where we've got customer down days by brand, by location. And when we sat here three months ago, it was modest for the third quarter, and now it's kind of a sea of red. But we'll come through this period. But the margins will come under pressure. We're not going to hide from that. But there's nothing structural change, and that's what I want investors us to leave.

a cyclical business, and it will rebound. Just to reinforce, it's going to be tough. But then when the volumes come back, which they inevitably will. Quite when we can't say, we'd expect performance to rebound as well. So hopefully July is the trough. You know, we started with a spreadsheet. Imagine a spreadsheet in front of you. I'm still old, and I use spreadsheets where we've got customer down days by brand, by location. And when we sat here three months ago, it was modest for the third quarter, and now it's kind of a sea of red. But we'll come through this period. But the margins will come under pressure. We're not going to hide from that. But there's nothing structural change, and that's what I want investors us to leave.

Thank you. Our next question is come from the line of Rob, wormer with Milius research, please proceed with your questions.

Mark Smith: Rob, we lost Rob.

Factors that the pricing primarily on new engines was around light duty.

Operator: Rob, could you please check if you're self-muted?

Mark Smith: I beg your pardon. Sorry for that. You guys just touched on the engine margins, and Mark, I take, I understand your comment on where things have to go given volumes, but this quarter was pretty good. The last quarter was great, and I wondered if you might comment on price that might influence that or anything else given, you know, a shallow margin decline on lower revenues and engines. And Jen just touched on EPA 27. I wonder if you have any guess as to when we have at least clarity on what the resolution will be. Thank you. Yeah, so a couple of factors on the engine margin. We called out in prior quarters because it's been a running theme. As we've launched new models in the light-duty segment, we have raised prices. Product quality has been very stable and positive.

Well, we lost Rob. Could you please check if yourself muted?

I'll just add we have not.

The focus the focus on operational efficiency come in through a couple of years, we have a lot of supply disruption in high demand we've had Ah.

<unk> focus on really just improving the fundamentals of how our business operates and how our plants operate and then we did do some targeted restructuring last year.

Two.

Optimize how our business operates.

Took advantage of.

The softening that we started to see last year to do that so you are seeing some benefit of that across the company as well.

I beg your pardon, um, sorry sir. Uh you guys just touched on the engine margins. And and Mark, I take I understand your comments on on where, where things have to go given given volume is but this quarter was pretty good and last quarter was great and I wondered if my comment on price that might influence that, or anything else given, you know, a shallow margin decline on on Lower revenues and engines and Jen just touched on EPA 27. I wonder if you have any guesses as to when we have at least Clarity on on what the resolution will be. Thank you.

Mark Smith: If there was something structural, we would tell you, but it's going to be volume based and it's going to be tough. The good news is we've got two businesses that are performing at record levels where demand is high. That's what we look for and stronger than they've done in prior cycles. We expect broadly demand for those businesses to remain stable for the remainder of the year. I hope that helps a bit. I know it's tough. The reason why we haven't given guidance is, as you can see, we withdrew guidance. It was nothing to do with our performance in the second quarter. But the number of variables out there essentially remain the same from three months ago. Yes, we've got more visibility into Q3 and it's much worse than we would have imagined at the start of the year.

If there was something structural, we would tell you, but it's going to be volume based and it's going to be tough. The good news is we've got two businesses that are performing at record levels where demand is high. That's what we look for and stronger than they've done in prior cycles. We expect broadly demand for those businesses to remain stable for the remainder of the year. I hope that helps a bit. I know it's tough. The reason why we haven't given guidance is, as you can see, we withdrew guidance. It was nothing to do with our performance in the second quarter. But the number of variables out there essentially remain the same from three months ago. Yes, we've got more visibility into Q3 and it's much worse than we would have imagined at the start of the year.

Okay. Thank you Jennifer I'm talking about.

Youre welcome.

Yep. So a couple of factors on on the engine margin and we've called out and prior quarters because it's been a running theme.

Thank you our next questions come from the line of Tim Thein with Raymond James. Please proceed with your question.

uh, as we've launched new models, in the light duty segment, we have raised prices

Thank you and good morning.

First question was on the power Gen business and.

Mark Smith: And then China, I don't want to get people overexcited on China, but stepped up a little bit from weaker levels. Now the engine business benefits a lot from the joint venture earnings in China, which are a little bit higher. So all those factors, and then when we say strong parts, that's flowing through the engine business and power systems generally. So all those were factors, but the pricing primarily on new engines was around light duty.

product quality has been very, uh,

And I guess more domestically this kind of speed the power theme is gaining a lot of.

Stable and positive. And then China. I don't want to get people over-excited about China, but it stepped up a little bit from...

Momentum and traction in terms of the operators that want to get out.

Weaker levels. Now the engine business

Uh benefits.

Good power.

Access quickly.

Just given the long lead times.

Industrial gas turbines.

It seems like Youre, starting to see and hear a little bit more of operators that are looking to leverage research as a way to kind of gain off grid primary power and I'm. Just curious if that's something that Cummins has seen or expecting.

A lot from the joint venture earnings in China which are a little bit higher so all those factors and then when we say strong parts that's flowing through the engine business and Power Systems generally. So all those

Mark Smith: It's worse than we would have imagined three months ago. But we hope this is the bottoming period, and then we're moving on, and hopefully the industry set up for a better 2026, and we are well positioned with strong position in the markets, good relationships with excellent customers. So we look forward to that. But yeah, this is going to be one of those tougher periods.

It's worse than we would have imagined three months ago. But we hope this is the bottoming period, and then we're moving on, and hopefully the industry set up for a better 2026, and we are well positioned with strong position in the markets, good relationships with excellent customers. So we look forward to that. But yeah, this is going to be one of those tougher periods.

Were factors. But the pricing primarily with on new engines, was around light duty.

Jennifer Rumsey: I'll just add, you know, we have had a focus on operational efficiency, you know, coming through a couple of years. We had a lot of supply disruption and high demand. We've had a focus on really just improving the fundamentals of how our business operates and how our plants operate. And then we did do some targeted restructuring last year to optimize how our business operates and took advantage of the softening that we started to see last year to do that. So you're seeing some benefit of that across the company as well.

I'll just add, you know, we have had a

Expecting to see maybe just a comment on that.

Yes, I mean, I think the trend certainly is need for more power challenges of getting that power today, we are still primarily positioned in backup.

Nicholas Arens: Thank you. Our next questions come from the line of Kyle Menges with Citi. Please proceed with your questions. Thank you. I was hoping, Mark, if you could just touch on your thoughts on capital allocation quickly and how you're thinking about leverage at current levels, appetite for share buybacks, and then I'm thinking you guys should be beneficiaries from the big beautiful bill and favorable cash taxes, and just have you tried to quantify that impact and thoughts on where you might deploy that excess cash to? Yes.

Operator: Thank you. Our next questions come from the line of Kyle Menges with Citi. Please proceed with your questions.

Power certainly strategically we're looking at where we want to position ourselves for the future is that that demand for power continues to exist, but it's not.

Kyle Menges: Thank you. I was hoping, Mark, if you could just touch on your thoughts on capital allocation quickly and how you're thinking about leverage at current levels, appetite for share buybacks, and then I'm thinking you guys should be beneficiaries from the big beautiful bill and favorable cash taxes, and just have you tried to quantify that impact and thoughts on where you might deploy that excess cash to? Yes.

Are they meaningfully impacting our business today.

Mark Smith: Okay, thank you, Jennifer. Thank you, Mark. You're welcome.

The the focus, the focus on operational efficiency, you know, come in through a couple years, we have a lot of Supply disruption and high demand. We've had uh, a focus on really just improving the fundamentals of how our business operates and how our plants operate. And then we did, do some targeted restructuring last year to to uh optimize how our business operates and took advantage of the the softening that we started to see last year to do that. So you're seeing some benefit of that across the company as well.

Or in the near future.

Okay, Alright, understood and then just on distribution.

Okay. Thank you. Jonathan, thank you, Mark.

Operator: Thank you. Our next questions come from the line of Tim Thine with Raymond James. Please proceed with your questions.

You're welcome.

I can remember years ago, when double digits was talked about as kind of the aspirational target there.

Angel Castillo: Oh, thank you, and good morning. The first question was on the power gen business, and I guess more domestically, this kind of speed-to-power theme is gaining a lot of momentum and traction in terms of operators that want to get up, you know, get power access quickly. And I just given the long lead times for industrial gas turbines, it seems like you're starting to see and hear a little bit more of operators that are looking to leverage resips as a way to kind of gain off-grid primary power. And I'm just curious if that's something that Cummins has seen or is expecting to see, maybe just a comment on that.

Thank you. Our next questions come from the line of Tim, signed with Raymond James. Please proceed with your questions.

I'm just curious as the power Gen business, obviously has been growing for some time.

They're more just as that as the power demands increase and maybe the data centers are.

Mark Smith: So you know, we've had a pretty long track record of returning capital shareholders. We set kind of this long-term benchmark of at least 50% and we've been living up to that. Even during a period where we made a major acquisition, you saw we had a healthy increase in the dividend here. We've been working hard to improve our leverage metrics and I feel good about where they are now. So really the pace of capital allocation is really based on economy prospects for the business. When we do capital allocation, we're also looking at making sure we're doing that in the most effective way that we can. So, yes, incrementally, we should be looking for more of that going forwards. As a base case. Yes. If the taxes are the beautiful part, then the tariffs are definitely not right.

We're consuming more and more power is that bringing along more services and more kind of.

Ancillary type revenues with those installations, such that that business carries higher margins or would that all be.

Oh, thank you and and good morning. Uh, the first question was on the, the power Jen business. And uh and and I guess more domestically, this this kind of speed to power theme is gaining a lot of momentum, and traction. And in terms of of operators, that that want to get up, you know, get power, uh, access quickly and just given the long lead times for for an industrial gas turbines.

Collected in power systems margins I'm just curious.

The.

The parts part of distribution as a percentage has continued to decline, which I would think would be.

Dilutive to the margin so maybe just to comment on that would be helpful. Thank you. So I think I think.

Jennifer Rumsey: Yeah, I mean, I think, you know, the trend certainly is need for more power, challenges in getting that power. Today, we are still primarily positioned in backup power. Certainly, strategically, we're looking at, you know, where we want to position ourselves for the future as that demand for power continues to exist, but it's not really meaningfully impacting our business today or in the near future.

It, it seems like you're starting to see and hear a little bit more of operators that are looking to leverage recepts, as a way of to kind of gain off-grid primary power. And I'm just curious if that's something that, that Cummins has seen or is in expecting to see. Maybe, maybe just a comment on that.

Yes, you are right any of those services and other things would show in distribution not in power systems.

yeah, I mean, I think you know the the

What lies beneath the surface a little bit Tim is just a more broad based improvement in our international.

Need for more power challenges are getting that power. Today, we are still primarily positioned and back up.

Operations I do also remember vividly those double digit margin targets when we set them.

Mark Smith: The challenge is that the tariff costs have created great uncertainty. I'll just say a little bit about tariffs since I haven't been asked about that yet, that the cost of the tariffs to Cummins, and I'll quantify the tax benefits in a moment, are multiples of the tax benefit. The pull forward of tax benefits that are allowed under accelerated depreciation. While we've done a pretty good job in mitigating tariffs, it's placing a significant burden on the industries and all the participants that we play on. So all that weighs into all this calculus of liquidity capital allocation. To answer you specifically on the tax bill, I mean, we've got some choices to make and what elections we want to make through the various dynamics of tax legislation. You could reasonably expect $125 to 250 million of cash benefit, but we haven't.

The challenge is that the tariff costs have created great uncertainty. I'll just say a little bit about tariffs since I haven't been asked about that yet, that the cost of the tariffs to Cummins, and I'll quantify the tax benefits in a moment, are multiples of the tax benefit. The pull forward of tax benefits that are allowed under accelerated depreciation. While we've done a pretty good job in mitigating tariffs, it's placing a significant burden on the industries and all the participants that we play on. So all that weighs into all this calculus of liquidity capital allocation. To answer you specifically on the tax bill, I mean, we've got some choices to make and what elections we want to make through the various dynamics of tax legislation. You could reasonably expect $125 to 250 million of cash benefit, but we haven't.

There has been dramatic improvements in area like Africa, where we had high growth aspirations it quite frankly.

Power. Uh, certainly strategically. We're looking at, you know, where we want to position ourselves for the future, is that that demand for power continues to exist. But it's not and, and really meaningfully impacting our business today

Angel Castillo: Okay, all right, understood. And then just on distribution, I can remember years ago when double digits was talked about as kind of the aspirational target there. I'm just curious, as the power gen business obviously has been growing for some time, are there more, just as the power demands increase and maybe the, you know, as the data centers are consuming more and more power, is that bringing along more services and more kind of, you know, ancillary type revenues with those installations such that that business carries higher margins? Or would that all be kind of reflected in power systems margins? I'm just curious, you know, as the parts part of distribution as a percentage has continued to decline, which I would think would be dilutive to the margins. So maybe just a comment on that would be helpful. Thank you.

Or in the near future.

At some risk management issues and execution issues early on.

Okay, all right. Understood then then just on distribution, I

Those are long behind us so I think we've really.

More broadly improve the operational effectiveness.

<unk> ability focus.

I can remember years ago, when, when double digits was, was talked about as kind of the aspirational target there. Um, I'm just curious as, as the power gen business obviously has been growing for some time.

Outside North America. In addition to improving North America. So I think it's a mall or a small broad based.

Are there more? This is the, as the power demands increase and maybe the, you know, the data centers.

Phenomena, that's really driven the results.

But typically in the power generation market if were doing backup power then there's minimal aftermarket parts demand, but the distribution business can do additional content on the installation of benefits from that work with the customer.

Or consuming more and more power, is that bringing along more services and more kind of, you know, ancillary type revenues with those installations such that that business carries higher margins? Or would that all be kind of reflected in Power Systems margins? I’m just curious, you know, as the.

Thank you. Our next question is come from the line of David Raso with Evercore ISI. Please proceed with your questions.

um the the parts part of distribution as percentage has continued to decline, which I would think would be

Mark Smith: I think, yes, you're right. Any of those services and other things would show in distribution, not in power systems. But I think what lies beneath the surface a little bit, Tim, is just a more broad-based improvement in our international operations. I do also remember vividly those double-digit margin targets when we set them. There's been dramatic improvements in an area like Africa where we had high growth aspirations that quite frankly, you know, had some risk management issues and execution issues early on. Those are long behind us. So I think we've really more broadly improved the operational effectiveness and profitability focus outside North America, in addition to improving North America. So I think it's a more broad-based phenomena that's really driven the results.

Hi, Thank you I know you don't want to give guidance, but I am curious just directly to ask.

So maybe it's a comment on, that would be helpful. Thank you. I think I think

Mark Smith: We'll finalize our choices in Q3 in taxes. Inherently some strange trade-offs where cash benefits today can be negative for long-term tax rates, and then we are quite a relatively complex global business, so we've got to think all of that through. So I would say on the margin, could that be like 5% to 8% of our operating cash flow for the year? Yes. Does it fundamentally change any of our business plans for this year? No. We've invested a lot in North America to meet the upcoming emissions regulations, and quite frankly we're looking for some clarity to be able to deploy that capital effectively with our new products going forward. So we're not rushing to spend more capital here; we're hoping for clarity on utilizing the capital invested.

We'll finalize our choices in Q3 in taxes. Inherently some strange trade-offs where cash benefits today can be negative for long-term tax rates, and then we are quite a relatively complex global business, so we've got to think all of that through. So I would say on the margin, could that be like 5% to 8% of our operating cash flow for the year? Yes. Does it fundamentally change any of our business plans for this year? No. We've invested a lot in North America to meet the upcoming emissions regulations, and quite frankly we're looking for some clarity to be able to deploy that capital effectively with our new products going forward. So we're not rushing to spend more capital here; we're hoping for clarity on utilizing the capital invested.

The EBITDA margin for engine and third quarter fourth quarter. How are you thinking about that relative to you know we've been above 13% now for a while havent been below $12 11.

Percent since late 2021.

Uh, yes, you're right. Any of those services and other things would show in distribution, not in Power Systems. But I think, what, What Lies Beneath the surface a little bit, Tim, it's just a more broad-based improvement in our International.

And you mentioned the JV income, maybe a little bit better as an offset it is obviously more impactful to lower the consolidated revenues are just because people are going to look at sort of a thought process of a bottoming truck.

Operations, I do also remember vividly, those double-digit margin targets when we set them.

There's been dramatic improvements in area like Africa, where we had high growth aspirations at quite frankly.

In the next few quarters when it comes to margins and then sort of go from there on how to think about 26 earnings can you give us any quantification.

You know, had some risk management issues and execution issues early on.

Those along behind us. So I think we've really

How to think about the EBITDA margins in engines in the third quarter back half of 'twenty four 'twenty five thank you.

more broadly, improved the operational effectiveness and

Profitability Focus.

Yes, we spend a lot of times as you can imagine.

Outside North America, in addition to improving North America. So I think it's it's a more braced more broad-based.

Mark Smith: So sorry for the long little bit of whining there, but just to reinforce the complexity that we're facing.

So sorry for the long little bit of whining there, but just to reinforce the complexity that we're facing.

Jennifer Rumsey: But typically, in the power generation market, if we're doing backup power, then there's minimal aftermarket parts demand, but the distribution business can do additional content on the installation and benefit from that work with the customer.

<unk>.

What I would say is I don't see a lot of momentum China's improved off a very.

Phenomena that's really driven the results.

but typically, and and

Report them, but we're going to come under pressure here in the second half what I'd say is whilst the margins are going to go down clearly there's nothing structural about that were just the volumes are going to go down significantly I think if we looked on a full year basis.

Nicholas Arens: That's helpful, and then just, it sounds like you're fully expecting to completely offset tariff impacts and pass through to the customer. You commented a little bit on how the industry is handling it. But maybe you could just expand on just what you're seeing and hearing from the customers and markets and how they're handling that pass through of the tariff costs. And then, is the plan still to roll out the EPA 27 compliant engine in 2026 and you know that'll be additional pricing on that. So just, you know, I guess would love to hear your thoughts how you're thinking about that and the industry's ability to handle even more pricing. Thank you.

Kyle Menges: That's helpful, and then just, it sounds like you're fully expecting to completely offset tariff impacts and pass through to the customer. You commented a little bit on how the industry is handling it. But maybe you could just expand on just what you're seeing and hearing from the customers and markets and how they're handling that pass through of the tariff costs. And then, is the plan still to roll out the EPA 27 compliant engine in 2026 and you know that'll be additional pricing on that. So just, you know, I guess would love to hear your thoughts how you're thinking about that and the industry's ability to handle even more pricing. Thank you.

And generation Market. If we're doing backup power, then there's minimal aftermarket parts demand but the distribution business can do additional content on the installation and benefits from from that work with the customer.

Operator: Thank you. Our next questions come from the line of David Raso with Evercore ISI. Please proceed with your questions.

Might see Theres no reason to see why the Decrementals.

Steven Wolfman: Hi, thank you. I know you don't want to give guidance, but I am curious just directly to ask, the EBITDA margin for engine in third quarter, fourth quarter, how are you thinking about that relative to, you know, we've been above 13% now for a while, haven't been below 12, 11% since, you know, I think late 2021. And you mentioned the JV income may be a little bit better as an offset. It's obviously more impactful the lower the consolidated revenues are, just because people are going to look at sort of at least a thought process of a bottoming truck in the next few quarters when it comes to margins and then sort of go from there on how to think about '26 earnings.

Thank you. Our next questions, come from the line of David Rosso with evercore, isi, please proceed with your questions.

Very different on a full year basis from prior cycles, but clearly for engines and components, they're going to come under significant pressure and just.

Hi, thank you. I know you don't want to give guidance but I am curious just directly to Ask.

Just to give a bit more technical not to be negative just to give it back.

We already know how many engines, we produced in heavy and medium duty truck in July we can see the order build rate for August.

It's going to be very depressed as Jen said down 25% to 30%.

Mark Smith: Tariffs were negative to profitability for Cummins in Q2. We had; we did not fully recover. We're approximately $22 million negative net in the quarter. We've been working hard to mitigate the costs through, you know, managing when we're buying materials, where we're buying it from, resourcing where we can. We've done a lot. As you can imagine, making choices about supply chain is hard, but when the international tariff dynamic keeps changing, so it's hard to make any decisions to shift when you're not sure that we've reached a period of stability. About $22 million negative. As we said three months ago, we didn't expect the full impact until H2.

Not surprising given how low the orders, but I think as we look forward.

We're confident.

The ibaa margin for engine in third quarter, fourth quarter. How are you thinking about that relative to, you know, we've been above 13% now for a while, haven't been below 12.11% since you know, I think late 2021. Um, and you mentioned the JV income maybe a little bit better as an offset. It's obviously more impactful the lower the Consolidated revenues are just because people are going to look at sort of a, at least a thought process of a bottoming truck.

That we.

Margins will rebound quickly as the volume comes through.

Steven Wolfman: Can you give us any quantification of how to think about the EBITDA margins and engines in the third quarter, back half of '24? Thank you.

The yoga complexity that we're dealing with is the lack of clarity on the emissions regulations means we've got to.

In the next few quarters. When it comes to margins and then sort of go from there on how they think about 26 earnings.

Can you give us any quantification?

Retain flexibility on the engineering side.

And we said at our last analyst day over time, we expect engineering to come down as a percent of sales in engines and components.

Mark Smith: Yeah, we spent a lot of time staring at that, as you can imagine. And what I would say is I don't see a lot of momentum. China's improved off a very rough bottom, but we're going to come under pressure here in the second half. What I'd say is, whilst the margins are going to go down, clearly, there's nothing structural about that. We're just, the volumes are going to go down significantly. I think if we looked on a full-year basis, we might see, there's no reason to see why the decrementals are very different on a full-year basis from prior cycles. But clearly, for engines and components, they're going to come under significant pressure. And just to give a bit more technical, not to be negative, just to give the background, we already know how many engines we produce in heavy and medium-duty truck in July.

Of how to think about the ibaa margins and engines in the third quarter or back half of 24. Uh 25. Thank you.

We're not able to execute that.

Side of it yet.

Because of.

Yep, we spent a lot of time staring at that as you can imagine. And um what I would say is, I don't see a lot of momentum, China's improved off a very

This lingering uncertainty so clear reduction, but nothing structural no significant changes to market pricing, which up.

Always could have an impact structurally so we're going to go down and then we're going to rebound in those two businesses and hopefully quicker rather than later history says, we don't have that many quarters of down.

Nicholas Arens: That's the case.

That's the case.

Mark Smith: So both the costs of Cummins and the degree of recoveries will be increasing in subsequent quarters. We expect to enter Q4 on a much closer to price-cost neutral on tariffs starting in the fourth quarter. But there's a gap in Q2, will be a gap in Q3. Q4 will get close. But it's hard to underestimate the amount of resources and time that this is consumed amongst all industry participants. It is, I do believe we don't know exactly what the end user prices are, but we do know that everybody's suffering with this. It doesn't help at a time when trucker orders in particular had already been slowing. But that's maybe more than you wanted. I'll move on quickly from a very.

So both the costs of Cummins and the degree of recoveries will be increasing in subsequent quarters. We expect to enter Q4 on a much closer to price-cost neutral on tariffs starting in the fourth quarter. But there's a gap in Q2, will be a gap in Q3. Q4 will get close. But it's hard to underestimate the amount of resources and time that this is consumed amongst all industry participants. It is, I do believe we don't know exactly what the end user prices are, but we do know that everybody's suffering with this. It doesn't help at a time when trucker orders in particular had already been slowing. But that's maybe more than you wanted. I'll move on quickly from a very.

Uh, rough bottom, but we're going to come under pressure here in the second half. What I'd say is, whilst the margins are going to go down, clearly there's nothing structural about that. We're just the volumes are going to go down significantly. I think if we looked on a full year basis.

A few quarters and already but we're waiting for a momentum on the order side, yes, we're going to be tough.

Until the second half.

The incremental margins. So again, I don't I know youre, avoiding quantifying, but just so we can frame this a little bit.

We might see, there's no reason to see why the decrement was a very different on a full year basis from prior Cycles. But clearly for engines and components, they're going to come under significant pressure and just just to give a bit more technical not to be negative. Just to give the fact

Mark Smith: We can see the order build rate for August. It's going to be very depressed, as Jen said, down 25 to 30%. That's not surprising given how low the orders are. But I think as we look forward, we're confident that we, you know, margins will rebound quickly as the volume comes through. The other complexity that we're dealing with is that a lack of clarity on the emissions regulations means we've got to retain flexibility on the engineering side. And we said at our last analyst day, over time, we expect engineering to come down as a percent of sales in engines and components. We're not able to execute that side of it yet because of this lingering uncertainty. So clear reduction, but nothing structural, no significant changes to market pricing, which always could have an impact structurally.

The idea of the decremental margins and the EBITDA for.

<unk> engines.

For the third quarter, it's at 35 ish.

We already know what how many engines, we produce in heavy and medium duty truck in July, we can see the order Bill rate for August, it's going to be very depressed. As Jen said down, 25 to 30%.

40% kind of range, we're just trying to get some sense of how theyre going to be.

We're going to be pretty heavy.

That's not surprising given how low the orders are. But I think as we look forward, we're confident.

I'm not trying to hide from it they're going to be pretty heavy visa. These.

These are some of the largest declines we've seen if you look at the orders in the past three or four months.

That we, you know, margins will rebound quickly as the volume comes through.

They are amongst the weakest three or four month periods. We've had in the last 20 years, that's going to show up in our numbers.

Jennifer Rumsey: Uncomfortable topic here and on the product launches. So the regulations are still in place today. We're continuing to work towards launching, and we have our new platforms, of course, the Helm engine platforms launching as a part of the 27 regulations. We are no longer launching the X15 earlier in the year. So at the end of next year we'll be launching those new platforms to comply with the 27 regulation and continue to keep the team focused on that. Just as a reminder, those engines are all made in the US, and we're investing billion in our engine plant primarily because of the new platforms which we believe will really position us with the most efficient, highest power density, best products in the market.

Uncomfortable topic here

The other complexity that we're dealing with is that a lack of clarity on the emissions regulations means we've got to.

Jennifer Rumsey: and on the product launches. So the regulations are still in place today. We're continuing to work towards launching, and we have our new platforms, of course, the Helm engine platforms launching as a part of the 27 regulations. We are no longer launching the X15 earlier in the year. So at the end of next year we'll be launching those new platforms to comply with the 27 regulation and continue to keep the team focused on that. Just as a reminder, those engines are all made in the US, and we're investing billion in our engine plant primarily because of the new platforms which we believe will really position us with the most efficient, highest power density, best products in the market.

Retain flexibility on the engineering side.

But it is going to be.

It's a cyclical business and it will rebound.

Just to reinforce.

It's going to be tough, but then when the volumes come back, which they inevitably will when we cant say, we'd expect performance to rebound as well.

And we said that at our last analyst day, over time, we expect engineering to come down as a percent of sales in engines and components. We're not able to execute that.

Side of it yet.

Um, because

So hopefully.

July is the trough, we started with a spreadsheet imagine a spreadsheet in front of you still.

Mark Smith: So we're going to go down and then we're going to rebound in those two businesses. And hopefully, that's quicker rather than later. History says we don't have that many quarters of down. You know, we're a few quarters in already, but we're waiting for more momentum on the order side. But yes, it's going to be tough. Definitely a tough second half.

Still old spreadsheets.

Where we've got customer down days bye.

Brand by location and when we sat here.

Three months ago it was modest.

For the third quarter and now it's kind of a sea of Red.

But we'll come through this period, but the margins will come under pressure, we're not going to hide from that but there is nothing structural change and that's what I want investors to leave if there was something structural we would tell you that it's going to be volume based.

Nicholas Arens: Thank you. Our next questions come from the line of Tami Zakaria with JP Morgan. Please proceed with your questions.

Operator: Thank you. Our next questions come from the line of Tami Zakaria with JP Morgan. Please proceed with your questions.

Steven Wolfman: The incremental margins, again, I know you're avoiding quantifying, but just so we can frame this a little bit, is the idea of the decremental margins in EBITDA for engines for the third quarter, it's at 35-ish, 40% kind of range. We're just trying to get some sense of.

of this lingering uncertainty, so clear reduction, but nothing structural no significant changes to market pricing, which are always could have an impact structurally. So we're going to go down and then we're going to Rebound in those 2 businesses and hopefully that's quicker. Rather than later history says we don't have that many quarters of down. You know, we're a few quarters in already, uh, but we're waiting for more momentum on the order side. Yes, we're going to be tough to the second half.

Jennifer Rumsey: Hey, good morning. Thank you so much. Yet one more question on PACCAR's. Should we expect better cost absorption and improved incremental margin versus what we are seeing now when the remaining capacity goes live next year? The premise of the question is whether you're currently seeing some inefficiencies as you're building capacity and firing on all cylinders against robust demand, and so whether incremental margin could get even better once the new capacity is live and running at full rate. If you could comment on that.

Tami Zakaria: Hey, good morning. Thank you so much. Yet one more question on PACCAR's. Should we expect better cost absorption and improved incremental margin versus what we are seeing now when the remaining capacity goes live next year? The premise of the question is whether you're currently seeing some inefficiencies as you're building capacity and firing on all cylinders against robust demand, and so whether incremental margin could get even better once the new capacity is live and running at full rate. If you could comment on that.

And it's going to be tough the good news is we've got two businesses that are performing at record levels, where demand is high and that's what we look for.

The incremental margins again, I know you're avoiding quantifying, but just so we can frame this a little bit, is the idea of the decremental margins and EBITDA for engines.

For the third quarter, it's it's at 35.

Mark Smith: Yeah, they're going to be pretty heavy. I'm not trying to hide from it. They're going to be pretty heavy. These are some of the largest declines we've seen. If you look at the orders in the past three or four months, they're amongst the weakest three or four-month periods we've had in the last 20 years. That's going to show up in our numbers, but it's going to be, it's a cyclical business and it will rebound. And just to reinforce, it's going to be tough, but then when the volumes come back, which they inevitably will, quite when we can't say, we'd expect performance to rebound as well. So hopefully, July is the trough. You know, we started with a spreadsheet. Imagine a spreadsheet in front of you. I'm still old and I use spreadsheets where we've got customer down days by brand, by location.

And stronger than they have done in prior cycles.

And we expect broadly demand for those businesses to remain stable for the remainder of the year. So I hope that helps a bit I know it's tough the reason why we haven't given guidance is.

These are some of the largest declines we've seen. If you look at the orders in the past 3 or 4 months,

As you can see we withdrew guidance it was nothing to do with our performance in the second quarter, but the number of variables out there.

They're amongst the weakest 3 or 4 month periods. We've had in the last 20 years that's going to show up in our numbers.

But it's going to be.

Essentially remain the same from three months ago, Yes, we've got more visibility into Q3, and it's much worse than we would have imagined at the start of the year. It's worse than we would have imagined three months ago, but we hope this is the bottoming period.

Mark Smith: Perfectly reasonable question that makes the assumption that so many things are standing still.

it's a cyclical business and it will rebound and just to reinforce

Nicholas Arens: Right.

Right.

Mark Smith: I mean there's always a million and one things going on. But if you ask us, do we have aspirations for the power systems margins over time to go high? Yes, we do.

I mean there's always a million and one things going on. But if you ask us, do we have aspirations for the power systems margins over time to go high? Yes, we do.

It's going to be tough, but then when the volumes come back, which they inevitably will—quite when, we can't say—we'd expect performance to rebound as well.

We're moving on and hopefully hopefully the industry set up for a better 2026, and we are well positioned with a strong position in the markets good relationships with excellent customers.

Nicholas Arens: Right.

Right.

Mark Smith: Yes, when capacity's fully installed and the demand still there, usually that's better. There's a lot of variation. We don't just make one engine in one facility. A lot of differences by end market and region. Just to be clear, do we expect over time not. What's been nice to see is this consistency now of higher performance quarter on quarter? Yes. We still think there's plenty of things to work on to take us higher. We don't expect dramatic changes for the remainder of this year. Revenue should be relatively range bound. As we go forward. Yes, after absorbing investments, we'd hope to do better, all other things being equal.

So hopefully July is the trough. You know, we started with a spreadsheet. Imagine a spreadsheet in front of you. I'm still old, and I use spreadsheets.

where we got customer down days.

Mark Smith: And when we sat here three months ago, it was modest for the third quarter, and now it's kind of a sea of red. But we'll come through this period, but the margins will come under pressure. We're not going to hide from that, but there's nothing structural changing. That's what I want investors to leave. If it was something structural, we would tell you, but it's going to be volume-based and it's going to be tough. The good news is we've got two businesses that are performing at record levels where demand is high. That's what we look for, and stronger than they've done in prior cycles. And we expect broadly demand for those businesses to remain stable for the remainder of the year. So I hope that helps a bit. I know it's tough.

So we look forward to that but this is going to be one of those tougher periods.

By brand by location. And when we sat here,

Thank you our next questions come from the line of Kyle <unk> with Citi. Please proceed with your questions.

3 months ago, it was modest for the for the third quarter and now it's kind of a sea of red.

Thank you I was hoping mark if you could just touch on your thoughts on capital allocation quickly.

How are you thinking about leverage at current levels appetite for share buybacks.

Uh, but we'll come through this period but the margins will come under pressure. We're not going to hide from that but there's nothing structural changing. That's what I want investors to leave. If there was something structural we would tell you but it's going to be volume based.

And then.

Thank you you guys should be beneficiaries from the big Beautiful Bill.

And it's going to be tough. The good news is we've got 2 businesses that are performing at record levels where demand is high. That's what we look for.

Favorable cash taxes interest.

Jennifer Rumsey: Great, thank you. That's all I have.

Tami Zakaria: Great, thank you. That's all I have.

And stronger than they've done in Prior Cycles.

Have you tried to quantify that impact and thoughts on where you might deploy that excess cash too.

Mark Smith: Thank you.

Nicholas Arens: Thank you. Our next questions come from the line of Stephen Fisher with UBS. Please proceed with your questions. Thanks. Good morning. Just wanted to start on power gen. You mentioned that you have backlog out two years. I'm assuming that's for the largest engines. Just curious what the lead times are on some of those. And obviously you have the capacity coming online fully next year. How does that affect the lead times.

Operator: Thank you. Our next questions come from the line of Stephen Fisher with UBS. Please proceed with your questions.

Mark Smith: The reason why we haven't given guidance is, as you can see, we withdrew guidance. It was nothing to do with our performance in the second quarter, but the number of variables out there essentially remain the same from three months ago. Yes, we've got more visibility into Q3, and it's much worse than we would have imagined at the start of the year. It's worse than we would have imagined three months ago, but we hope this is the bottoming period, and then we're moving on. And hopefully, hopefully the industry is set up for a better 2026, and we are well positioned with a strong position in the markets, good relationships with excellent customers. So we look forward to that. But yeah, this is going to be one of those tougher periods.

Yes so.

Yeah.

Pretty long track record of returning capital to shareholders. We said kind of this long term benchmark at least 50% and we've been living up to that even during a period, where we made a major acquisition.

Steven Fisher: Thanks. Good morning. Just wanted to start on power gen. You mentioned that you have backlog out two years. I'm assuming that's for the largest engines. Just curious what the lead times are on some of those. And obviously you have the capacity coming online fully next year. How does that affect the lead times.

And we expect broadly demand for those businesses to remain stable for the the remainder of the year. So I hope that helps a bit. I know it's tough. The reason why we haven't given guidance is got as you can see, we withdrew guidance. There was nothing to do with our performance in the second quarter, but the number of variables out there.

You saw we had a healthy increase in the dividend to you we've been working hard to improve our <unk>.

Our leverage metrics and I feel good about where they are now.

Mark Smith: That you see there?

That you see there?

So really.

Essentially remain the same from 3 months ago. Yes we've got more visibility into Q3 and it's much worse than we would have imagined at the start of the year. It's worse than we would have imagined 3 months ago. But we hope this is the bottoming period.

The pace of capital allocation is really based on economy.

Jennifer Rumsey: Yes. So obviously as we're taking orders, we're considering the incremental capacity that we'll have coming on online next year. So we are taking orders out in the 2027 timeframe now from our customers. If we have any movement in terms of current order backlog and order demand, we reallocate those slots and work with our customers to do that. But if you want in particular the larger engine orders today, I'm happy to put you in the Q1 in 2027 for that.

Prospects for the business.

When we do capital allocation, we'll also looking at making sure we do in the most effective way that we can.

Uh, and then we're moving on and hopefully, hopefully the industry is set up for a better 2026. And we are well positioned with strong position in the markets, good relationships with excellent customers.

Um, so we look forward to that. But yeah, this is going to be one of those tougher periods.

Operator: Thank you. Our next questions come from the line of Kyle Mengus with City. Please proceed with your questions.

So yes incrementally we should be looking for more of that going forwards.

Base case.

Steven Wolfman: Thank you. I was hoping, Mark, if you could just touch on your thoughts on capital allocation quickly and how you're thinking about leverage at current levels, appetite for share buybacks. And then I'm thinking you guys should be beneficiaries from the big beautiful bill and favorable cash taxes. And just, you know, have you tried to quantify that impact and thoughts on where you might deploy that excess cash to?

Thank you. Our next questions, come from the line of Kyle omegas with the city please. Proceed with your questions.

Yes, if the taxes are the beautiful part than the tariffs are definitely not right and the challenges that the tariff costs have created great uncertainty I'll, just say a little bit about tariffs since I haven't been asked about that yet.

Nicholas Arens: Okay. Then, sorry to ask a follow up on the uncomfortable topic, but in terms of the Q4 tariffs, you know, you mentioned that you expect to kind of be price versus cost neutral there from customers. Is that sort of just contractually what you have embedded in these, in these new agreements or is there a negotiation that has to happen there? Just curious how that should play out.

Steven Fisher: Okay. Then, sorry to ask a follow up on the uncomfortable topic, but in terms of the Q4 tariffs, you know, you mentioned that you expect to kind of be price versus cost neutral there from customers. Is that sort of just contractually what you have embedded in these, in these new agreements or is there a negotiation that has to happen there? Just curious how that should play out.

The cost of the tariffs to Cummins and I'll quantify the tax benefits in a moment.

Multiples.

Thank you. Uh, I was hoping Mark, if you could just touch on your your your thoughts on Capital allocation quickly. And um how you're thinking about leverage at current levels appetite for sure? BuyBacks. Uh, and then, uh, I'm thinking you guys should be beneficiaries from the big, beautiful Bill and uh favorable cash taxes. And just you know, have you

The tax benefit.

Full forward of tax benefits that are allowed under accelerated depreciation and whilst we've done a pretty good job in mitigating tariffs.

Mark Smith: Yeah, so you know, we've had a pretty long track record of returning capital shareholders. We set kind of this long-term benchmark of at least 50%, and we've been living up to that even during a period where we made a major acquisition. You saw we had a healthy increase in the dividend here. We've been working hard to improve our leverage metrics, and I feel good about where they are now. So really, the pace of capital allocation is really based on economy, yeah, prospects for the business. When we do capital allocation, we're also looking at, you know, making sure we're doing that in the most effective way that we can. So yes, incrementally, we should be looking for more of that going forwards as a base case. Yes, if the taxes are the beautiful part, then the tariffs are definitely not, right?

I tried to quantify that impact and share my thoughts on where you might deploy that excess cash.

Yeah. So um

It's placing a significant burden on the industries and all the participants that we played on so all that weighs into all of this calculus of liquidity capital allocation.

Jennifer Rumsey: It is not contractual. So in most cases we've been out actively negotiating with our customers on tariff recovery timeline.

To answer you specifically on the.

Nicholas Arens: Thank you. Our next questions come from the line of Noah Kaye with Oppenheimer and Company. Please proceed with your questions. Thanks.

Operator: Thank you. Our next questions come from the line of Noah Kaye with Oppenheimer and Company. Please proceed with your questions. Thanks.

Tax Bill I mean, we've got some choices to make and what elections, we want to make.

You know, we've had a pretty long track record of returning Capital shareholders. We set kind of this long-term Benchmark of at least 50% and we've been living up to that even during a period where we made a major acquisition, uh, you saw where the healthy increase in the de dividend here, we've been working hard to improve our

Through the various dynamics of tax legislation, you could reasonably expect a $125 million to $250 million of.

leverage metrics, and I feel good about where they are now. Um, so really

Mark Smith: Wanted to tie together a couple of.

Noah Kaye: Wanted to tie together a couple of.

Nicholas Arens: Points you mentioned earlier. I think Mark, you highlighted that maybe engineering spend intensity is being negatively impacted by the uncertainty around the regs. And then Jen, you mentioned some actual launch pushouts. So can you help us understand just operationally how your engineering and technology strategy are being affected at this moment?

Points you mentioned earlier. I think Mark, you highlighted that maybe engineering spend intensity is being negatively impacted by the uncertainty around the regs. And then Jen, you mentioned some actual launch pushouts. So can you help us understand just operationally how your engineering and technology strategy are being affected at this moment?

The pace of capital allocation is really based on economy.

Cash benefit, but we haven't we will finalize our choices.

Yeah, prospects for the business.

In the third quarter in Texas inherently some strange tradeoffs were cash benefits today can be negative for long term tax rates and then we have quite a relatively complex scope globally.

When we do Capital allocation will also looking at you know, making sure we're doing that. In the most effective way that we can.

So, yes, oh incrementally. We should be looking for more of that going forwards as a base case.

Mark Smith: And the challenge is that the tariff costs have created great uncertainty. I had to say a little bit about tariffs since I haven't been asked about that yet. But the cost of the tariffs to Cummins, and I'll quantify the tax benefits in a moment, are multiples of the tax benefits, the pull forward of tax benefits that are allowed under accelerated depreciation. And whilst we've done a pretty good job in mitigating tariffs, it's placing a significant burden on the industries and all the participants that we play on. So all that weighs into all this calculus of liquidity, capital allocation. To answer you specifically on the tax bill, I mean, we've got some choices to make and what elections we want to make through the various dynamics of tax legislation. You could reasonably expect $125 to $250 million of cash benefit, but we haven't.

I think all of that through so I would say.

On the margin could that be like 5% to 8% of our operating cash flow for the year, yes.

Mark Smith: Are you doing redundant or duplicative engineering?

Are you doing redundant or duplicative engineering?

Nicholas Arens: Development for a variety of outcomes? Just trying to get a better handle.

Development for a variety of outcomes? Just trying to get a better handle.

The monthly change any of our business plans for this you know we've invested a lot in North America to meet the upcoming emissions regulations and quite frankly, we're looking for some clarity to be able to deploy that capital.

The yes. If the taxes are the beautiful part then the tariffs are definitely not, right? And the, the challenge is that the Tariff costs have created great uncertainty. As I say a little bit about tariffs since they haven't been asked about that yet. Um,

Jennifer Rumsey: On how you're navigating. So the majority of the work we're doing is focused on these new product launches. And so you've got a peak of investment in research and development as well as capital going in ahead of that launch at the end of next year. And we did delay by six months one of the product launches because frankly the uncertainty around regulation and tariffs was creating an environment where even though it was more efficient, that we thought could bring some value to customers, the demand was a concern. So we've delayed that. That then extends some of the R and D for that program. We're of course doing some additional work on contingency plans at a much lower level while keeping the team focused on the launches that we have beginning of 2027.

On how you're navigating.

Jennifer Rumsey: So the majority of the work we're doing is focused on these new product launches. And so you've got a peak of investment in research and development as well as capital going in ahead of that launch at the end of next year. And we did delay by six months one of the product launches because frankly the uncertainty around regulation and tariffs was creating an environment where even though it was more efficient, that we thought could bring some value to customers, the demand was a concern. So we've delayed that. That then extends some of the R and D for that program. We're of course doing some additional work on contingency plans at a much lower level while keeping the team focused on the launches that we have beginning of 2027.

That the cost of the tariffs to Cummins and are quantify, the tax benefits in a moment.

Of multiples.

<unk> with our new products going forward. So we're not rushing to spend more capital here, we're hoping for clarity on it.

Of the tax benefit. The pull forward of tax benefits that are allowed under accelerated depreciation. And whilst we've done a pretty good job in mitigating tariffs.

Utilizing the Catholic weakness, so sorry for the long.

Little bit of wining, there, but just to reinforce the complexity.

Yes.

That's helpful. And then just as it sounds like you're you're only expecting to completely offset tariff impacts.

It's placing a significant burden on the industries and all the participants that we play on. So all that weighs into all this calculus of liquidity Capital, allocation

to answer your specifically on the

And then pass through to the customer you commented a little bit on how the industry is handling it.

But maybe you could just expand on just what you're seeing and hearing from the customers and markets and how they're handling that pass through.

tax bill. I mean, we've got some choices to make as and what elections we want to make, uh, through the various dynamics of tax legislation, you could reasonably expect

25 to 215 million of.

Mark Smith: We'll finalize our choices in the third quarter. In taxes, inherently some strange trade-offs where cash benefits today can be negative for long-term tax rates, and then we equate a relatively complex global tax. So we've got to think all of that through. So I would say on the margin, could that be like 5 to 8% of our operating cash flow for the year? Yes. Does it fundamentally change any of our business plans for this year? No. We've invested a lot in North America to meet the upcoming emissions regulations, and quite frankly, we're looking for some clarity to be able to deploy that capital effectively with our new products going forward. So we're not rushing to spend more capital here. We're hoping for clarity on, you know, utilizing the capital invested.

Of the tariff costs and that is the plan still to rollout the EPA twenty-seven compliant engine in 2006.

Jennifer Rumsey: And then we anticipate, following that, that level of R&D and capital investment and business components will start coming down.

And then we anticipate, following that, that level of R&D and capital investment and business components will start coming down.

Cash benefit, but we haven't. We'll finalize our choices.

uh,

That'll be additional pricing on that so just I guess would love to hear your thoughts on how youre thinking about that and the industry's ability to handle even more pricing. Thank you.

Mark Smith: Okay, great. So 27 is really when we start.

Noah Kaye: Okay, great. So 27 is really when we start.

Nicholas Arens: To see some leverage there, and then just quickly shifting gears to power. As you mentioned, your content is primarily today around the backup genset. With the shift towards more on-site direct power, you have an entire division that can do battery backup and fuel cell power. You're obviously very familiar with natural gas generation, and you've talked in the past, including Investor Day, about microgrids. Can you give us any color on trends in wallet share expansion with the data center customers and if you're seeing?

To see some leverage there, and then just quickly shifting gears to power. As you mentioned, your content is primarily today around the backup genset. With the shift towards more on-site direct power, you have an entire division that can do battery backup and fuel cell power. You're obviously very familiar with natural gas generation, and you've talked in the past, including Investor Day, about microgrids. Can you give us any color on trends in wallet share expansion with the data center customers and if you're seeing?

in the third quarter in taxes, inherently some strange trade-offs were cash benefits. Today can be negative for long-term tax rates and then we equate a relatively complex local.

So tariffs with negative to profitability for Cummins in the second quarter. So we had.

I think all of that through. So I would say.

We did not fully recover.

We are approximately.

$22 million negative net in the quarter.

We've been working hard to mitigate the costs through.

Managing when we're buying materials, where we're buying it from Resourcing, where we can.

We've done a lot as you can imagine making choices about supply chain is hard when the international tariff dynamic keeps changing so it's hard to make any.

On the margin. Could that be like 5 to 8% of our operating cash flow for the yes, does it fundamentally change any of our business plans for this year? Know we've invested a lot in North America to meet the upcoming emissions, regulations, and quite frankly, we're looking for some clarity to be able to deploy that Capital effectively with our new products going forward. So we're not rushing to spend more Capital here. We're hoping for Clarity on

Mark Smith: So sorry for the long little bit of whining there, but just to reinforce the complexity that we're facing.

Steven Wolfman: That's helpful. And then just as it sounds like you're probably expecting to completely offset tariff impacts and pass through to the customer, you commented a little bit on how the industry is handling it. But maybe you could just expand on just what you're seeing and hearing from the customers and markets and how they're handling that pass-through of the tariff costs. And then is the plan still to roll out the EPA 27 compliant engine in '26? And you know, that'll be additional pricing on that. So just, you know, I guess would love to hear your thoughts how you're thinking about that and the industry's ability to handle even more pricing. Thank you.

Uh, you know, utilizing the capital invested. So, sorry for the long, uh, little bit of whining there. But there just to reinforce the complexity that we're thinking,

Decisions to shift when you're not sure that we've reached a period of stability so about $22 million negative as we said three months ago.

Mark Smith: That's where it's coming from.

That's where it's coming from.

Jennifer Rumsey: We have launched in the last year a stationary energy storage product in the market. You know, we have some limited offerings I would say today in both natural gas and stationary energy storage. That's an area that we are continuing to evaluate, you know, our position, the products that we have in our portfolio, and over time how we might want to participate and if that's an area we want to expand. No firm decisions or anything to give guidance on today. But that certainly is an area that could be interesting for Cummins, the microgrid space given the growing demand for power and the challenges for customers to meet that.

We did not expect the full impact until the second half of the year. That's the case.

So both the cost to Cummins and the degree of recoveries will be increasing in subsequent quarters, we expect to enter Q4.

That's helpful. And and then just as it sounds like you're, you're fully expecting to completely offset, tariffs impacts um and and pass through to the customer. You comment a little bit on how the industry is handling it. Um, but maybe you could just expand on just what you're seeing and hearing from the customers and markets and how they're handling that.

On a much closer to <unk>.

<unk> cost neutral on tariffs.

Starting in the fourth quarter, but there is a gap in Q2 will be again in Q3 Q4, we'll get close but it's hard to underestimate the amount of resources and time that this is consumed amongst.

Mark Smith: So tariffs were negative to profitability for Cummins in the second quarter. So we did not fully recover. We're approximately $22 million negative net in the quarter. We've been working hard to mitigate the costs through, you know, managing when we're buying materials, where we're buying it from, resourcing where we can. We've done a lot, as you can imagine, making choices about supply chain is hard when the international tariff dynamic keeps changing. So it's hard to make any decisions to shift when you're not sure that we've reached a period of stability. So about $22 million negative. As we said three months ago, we didn't expect the full impact until the second half of the year. That's the case. So both the costs to Cummins and the degree of recoveries will be increasing in subsequent quarters.

All industry participants.

Through, uh, of the Tariff costs. And then is the plan still to roll out the EPA 27 compliant engine in 26 and, um, you know, that'll be additional pricing on that. So just, you know, I guess would love to hear your thoughts how how you're thinking about that and the industry's ability to to handle even more pricing. Thank you.

Nicholas Arens: Thank you. Our next question has come from the line of Chad Dillard with Bernstein. Please proceed with your questions. Go ahead. So you commented about tariffs or the price cost being neutral by Q4, and I was just wondering whether that's true on a segment by segment basis or is it biased towards one versus the other. And then secondly, what was price cost in Q2, and if you can share any thoughts on what it should look like in Q3, that'd be helpful. Thank you.

Operator: Thank you. Our next question has come from the line of Chad Dillard with Bernstein. Please proceed with your questions. Go ahead.

It is I do believe we don't know exactly what we end user prices are but.

So tariffs had a negative impact on profitability for Cummins in the second quarter. So we

But we do know that everybody's suffering with this it doesn't help at a time when truck orders in particular had already been slowing.

We did not fully recover.

Chad Dillard: So you commented about tariffs or the price cost being neutral by Q4, and I was just wondering whether that's true on a segment by segment basis or is it biased towards one versus the other. And then secondly, what was price cost in Q2, and if you can share any thoughts on what it should look like in Q3, that'd be helpful. Thank you.

We're approximately uh, 22 million negative net, uh, in the quarter.

Maybe more than you wanted to move on quickly from a very.

Yes uncomfortable topic here.

That we've been working hard to mitigate the costs.

Through, you know.

And on the product launches. So the regulations are still in place today, we are continuing to work towards launching and we have our new platforms of course, the harm engine platforms launching.

managing, when we're buying materials where we're buying it from resourcing where we can

Mark Smith: I mean, I think it's a challenge in all segments of our businesses. What I would say for tariffs with the Engine Business, Components probably absorbing more than the rest of the company, but not dramatically different price-cost overall when we weigh in the actions that we've taken on parts, the actions that we've taken on light duty engines, some of the improvements in Power Systems. I ignore, if I ignore tariffs then we were about, we were about 1.2% improvement overall across all the businesses. Remembering that's a big step up in Power Systems and Distribution in particular.

As a part of the 27 regulations, we no longer are launching the F 15 earlier in the year. So at the end of next year, we'll be launching those new platforms.

To comply with the 27 regulation and.

Uh we've done a lot as you can imagine making choices about supply chain is hard when the international tariff Dynamic keeps changing. So it's hard to make any decisions to shift when you're not sure that we've reached a period of stability. So about 22 million negative, as we said 3 months ago,

Continuing to keep the team focused on that just as a reminder, those engines are all made in the U S and we're investing $1 billion.

We didn't expect the full impact until the second half of the year. That's the case.

In our engine plants.

Mark Smith: We expect to enter Q4 on a much closer to price-cost neutral on tariffs starting in the fourth quarter. But there's a gap in Q2. There'll be a gap in Q3. Q4 will get close. But it's hard to underestimate the amount of resources and time that this has consumed amongst all industry participants. I do believe we don't know exactly what the end user prices are, but we do know that everybody's suffering with this. It doesn't help at a time when truck orders in particular had already been slowing. But that's maybe more than you wanted. I'll move on quickly from a very, yeah, uncomfortable topic here.

Primarily because of the new platforms, which we believe will really position us with the most efficient highest power density.

So both the costs are coming and the degree of recoveries will be increasing in subsequent quarters. We expect to enter Q4.

Best products in the market.

Yeah.

On a much closer to price cost neutral on tariffs.

Thank you. Our next question will come from the line of Tami Zakaria with Jpmorgan. Please proceed with your question.

Hey, good morning, Thank you so much.

Yet one more question on par system.

Should we expect.

Better cost absorption and improved incremental margin versus what we are seeing now when the remaining capacity.

Starting in the fourth quarter, but there's a gap in Q2, will be a gap in Q3 Q4 will get close, but it's hard to underestimate the amount of resources and time that this is consumed amongst all industry. Participants

Nicholas Arens: You can see that the engine business.

You can see that the engine business.

Mark Smith: Components margins were down or flat as product coverage improved.

Components margins were down or flat as product coverage improved.

July of next year.

The premise of the question is whether Youre currently seeing some inefficiencies that youre building capacity and firing on all cylinders against the robust demand and so whether incremental margin could get even better once the new capacity is live and running at full rate. So if you could comment on that.

Nicholas Arens: Second, just on Accelera, just recognizing that we're in, I guess, a new regime when it comes to alternative powertrains. I guess. How are you thinking about the growth trajectory, particularly more so on the electrolyzer side, and then, like, the path towards the long-term profit targets that you set out? Has that changed?

Chad Dillard: Second, just on Accelera, just recognizing that we're in, I guess, a new regime when it comes to alternative powertrains. I guess. How are you thinking about the growth trajectory, particularly more so on the electrolyzer side, and then, like, the path towards the long-term profit targets that you set out? Has that changed?

It is. I do believe. We don't know exactly what the end-user prices are, but we do know that everybody's suffering with this. It doesn't help at a time when trucker orders in particular had already been slowing. Uh, but that's maybe more than you wanted. I'll move on quickly from a very.

Jennifer Rumsey: And on the product launches, so you know the regulations are still in place today. We're continuing to work towards launching, and we have our new platforms, of course, the Helm engine platforms launching as a part of the 27 regulations. We are no longer launching the X15 earlier in the year. So at the end of next year, we'll be launching those new platforms to comply with the 27 regulation and continue to keep the team focused on that. Just as a reminder, those engines are all made in the US, and we're investing a billion dollars in our engine plants primarily because of the new platforms, which we believe will really position us with the most efficient, highest power density, best products in the market.

Yeah, uncomfortable topic here. Yeah. And on the product launches, so.

The regulations.

are still in place today. We're continuing to

Okay perfectly reasonable question.

It makes the assumption that so many things are standing still right I mean this is all.

It was $1 million and one things going on but if you ask us do we have aspirations for the power systems margins over time to go yes.

Jennifer Rumsey: Yeah, I mean it's, it's fair to say that trajectory of growth in that business is slowed. You have seen us growing and you know, reducing losses. We did a restructuring at the end of last year to try to focus on the areas, the technologies, and products that we think will grow. And I do think it positions Cummins well because we're continuing to of course offer engine-based solutions. Startups are not surviving and you know, many of our OEM customers don't really want to invest given the uncertainty, so we're really trying to position ourselves to pace investment but be able to be the provider as the market starts to develop. We're continuing to move forward with our partners in the Amplify Cell joint venture here in the US with commercial vehicle cell and pacing investments in that together as well.

Yes, we do right and yes, when capacities fully installed and the demand still usually that's better.

Work towards launching and we have our new platforms. Of course, the helm engine platforms launching uh as a part of the 27 regulations. We uh are no longer launching the X-15 uh earlier in the year. So at the end of next year, we'll be launching those new platforms.

To comply with the 27 regulation. And um,

There's a lot of variation we don't just make one engine in one facility loaded differences by end market and region.

Continue to keep the team focused on that. Just as a reminder, those engines are all made in the us and we're investing a billion dollars in our engine plants.

But just to be clear do we expect over time.

Uh, primarily because of the new platforms, which we believe will really position us with the most efficient, highest power density.

Whats been nice to see this consistency now with higher performance quarter on quarter, Yes, We're still we still think there's plenty of things to work on to.

Uh, best products in the market.

Operator: Thank you. Our next questions come from the line of Tammy Zakaria with JPMorgan. Please proceed with your question.

Angel Castillo: Hey, good morning. Thank you so much. Yet one more question on power systems. Should we expect better cost absorption and improved incremental margin versus what we are seeing now when the remaining capacity goes live next year? The premise of the question is whether you're currently seeing some inefficiencies as you're building capacity and firing on all cylinders against robust demand. And so whether incremental margin could get even better once the new capacity is live and running at full rate. So if you could comment on that.

Thank you. Our next question is come from the line of Tammy Zakaria with JP Morgan. Please proceed with your question.

To take it we don't expect.

Changes for the remainder of this year revenue should be relatively range bound.

But as we go forward, yes, after absorbing investments, we'd hope to do better all other things being equal.

Jennifer Rumsey: So it's slowing, but we're committed to continue to reduce losses over time and grow as the market grows. And in the meantime, we'll sell more engines which will be positive for our base business.

So it's slowing, but we're committed to continue to reduce losses over time and grow as the market grows. And in the meantime, we'll sell more engines which will be positive for our base business.

Great. Thank you that's all ahead.

Thank you.

Thank you. Our next question is come from the line of Steven Fisher with UBS. Please proceed with your questions.

Whether you're currently seeing some inefficiencies as you're building capacity and firing on all cylinders against robust demand. And so,

Thanks. Good morning, just wanted to start on power. Gen. You mentioned that you have backlog out two years I'm, assuming that's for the largest engine.

Nicholas Arens: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Nick Ahrens for closing comments.

Operator: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Nick Ahrens for closing comments.

Mark Smith: Perfectly reasonable question that makes the assumption that so many things are standing still, right? I mean, there's always a million and one things going on. But if you ask us, do we have aspirations for the power systems margins over time to go high? Yes, we do, right? And yes, when capacity's fully installed and the demand's still there, usually that's better. But you know, there's a lot of variation. We don't just make one engine in one facility. A lot of differences by end market and region. But just to be clear, do we expect over time, not, you know, what's been nice to see is this consistency now of higher performance quarter on quarter. Yes, we still think there's plenty of things to work on to take us high. We don't expect dramatic changes for the remainder of this year. Revenue should be relatively range-bound.

Whether incremental margin could get even better once the new capacity is live and running at full rate. So, if you could comment on that.

Mark Smith: Thank you.

Nick Arens: Thank you.

Nicholas Arens: That concludes our teleconference for the day. Thank you all for participating and your continued interest.

That concludes our teleconference for the day. Thank you all for participating and your continued interest.

Just curious what the what the lead times are on some of those.

Yeah. Perfectly reasonable question. That

Mark Smith: As always.

As always.

Nicholas Arens: The investor relations team will be available for questions after the call. Thank you. Ladies and gentlemen. That does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

The investor relations team will be available for questions after the call.

And obviously you have the capacity coming online fully next year.

Operator: Thank you. Ladies and gentlemen. That does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

How does that affect the lead times that you see there.

Yes. So obviously as we were taking orders were considering the incremental capacity that will have comment on online next year.

So we are taking orders out in the 2007 timeframe now from our customers. If we have any movement in terms of current order.

Makes the assumption that so many things are standing still, right? I mean, there's there's always a million and 1 things going on, but if you ask us, do we have aspirations for the Power Systems margins over time to go, are you? Yes, we do, right? But and yes when capacities fully installed and the demands still there, usually, that's better. But, you know, there's a lot of variation. We don't just make 1 engine in 1 Faces by in market and region.

Backlog in order demand, we reallocate those slots and we work with our customers to do that but.

But just to be clear, do we expect over time? Not, you know, we.

You want and particularly the larger engine orders today.

Im happy to put you in the queue and 27 for that.

We what's been nice to see? Is this consistency? Now of higher performance quarter on quarter? Yes, we're still, we still think there's plenty of things to work on.

Okay.

To take as high, we don't expect.

And then sorry to two.

I ask a follow up on the uncomfortable topic, but.

Mark Smith: But as we go forward, yes, after absorbing investments, we'd hope to do better. All other things being equal.

Dramatic changes. For the remainder of this year, Revenue should be relatively range-bound.

In terms of the Q4 tariffs.

You mentioned that you expect to kind of be price versus cost neutral there.

Angel Castillo: Great, thank you. That's all I had.

Uh, but as we go forward, yes, after absorbing investments, we'd hope to do better, all other things being equal.

Mark Smith: Thank you.

Customers is that sort of just contractually what you have embedded in these in these new agreements or is there a negotiation that has to happen there.

Great. Thank you. That's all I had.

Operator: Thank you. Our next questions come from the line of Steven Fisher with UBS. Please proceed with your questions.

Thank you.

Steven Wolfman: Thanks. Good morning. Just wanted to start on power gen. You mentioned that you have backlog out two years. I'm assuming that's for the largest engines. Just curious what the lead times are on some of those. And obviously, you have the capacity coming online fully next year. You know, how does that affect the lead times that you see there?

Just curious how how that.

Thank you. Our next question has come from the line of Stephen Fischer with UBS. Please proceed with your questions.

Should play out.

It is not contractual in most cases, we have been actively negotiating with our customers on tariff.

Recovery timeline.

Thank you. Our next question will come from the line of Noah Kaye with Oppenheimer <unk> Company. Please proceed with your questions.

Thanks wanted to tie together a couple of points you mentioned earlier I think mark you.

Jennifer Rumsey: Yeah, so obviously, as we're taking orders, we're considering the incremental capacity that we'll have coming on online next year. So we are taking orders out in the 27 timeframe now from our customers. If we have any movement in terms of current order backlog and order demand, we reallocate those slots and work with our customers to do that. But if you want, in particular, the larger engine orders today, I'm happy to put you in the queue in 27 for that.

Thanks. Good morning. Just wanted to start on on powergen. Uh, you mentioned that you have backlog out 2 years. I'm assuming. That's for the uh the largest engines. I just curious what the what the lead times are on on some of those and obviously you have the capacity coming online fully next year. You know, how do, how does that affect the lead times that you see there?

Highlighted that.

Yeah. So obviously as we're taking orders we're uh considering the in

Maybe engineering spend intensity.

Is is being negatively impacted by the uncertainty around the rigs and then.

John You mentioned.

So some actual launch push outs.

Can you help us understand.

Operationally, how your engineering and technology strategy are being affected at this moment.

That we'll have coming on online next year. Um, so we are taking orders out in the 27 time frame. Now, from our customers if we have any movement in terms of current order, uh, uh, backlog and Order demand, we reallocate those slots and we'll work with our customers to do that, but if, if you want in particular, the larger engine orders today.

Steven Wolfman: Okay. And then sorry to ask a follow-up on the uncomfortable topic, but in terms of the Q4 tariffs, you know, you mentioned that you expect to kind of be price versus cost neutral there from customers. Is that sort of just contractually what you have embedded in these new agreements, or is there a negotiation that has to happen there? Just curious how that should play out.

I'm happy to put you in the queue in 27 for that.

Are you doing redundant or duplicative engineering development for a variety of outcomes.

Just trying to get a better handle on how you are now.

Okay.

So the majority of the work we're doing is focused on these new product launches.

And so you've got a peak of investment in research and development as well as capital a lot of it going and ahead of that launch at the end of next year.

Jennifer Rumsey: It is not contractual. So in most cases, we've been out actively negotiating with our customers on a tariff recovery timeline.

Okay. Um and then sorry to uh to ask a follow-up on the uncomfortable topic but uh in terms of the Q4 tariffs um you know you mentioned that you expect to kind of be price uh versus cost neutral there. Uh from customers is that sort of just contractually what you have embedded in these in these new agreements? Or is there a negotiation that has to happen there? Uh just curious how how that should play out

And we did delay by six months one of the product launches because frankly, the uncertainty around regulation and Tara screening.

It is not contractual, and so in most cases, we've been out actively negotiating with our customers on tariff.

Recovery timeline.

In an environment, where even though it was a more efficient product that we thought could bring some value to customers.

Operator: Thank you. Our next questions come from the line of Noah Kay with Oppenheimer and Company. Please proceed with your questions.

Demand for the content.

Steven Wolfman: Thanks. I wanted to tie together a couple of points you mentioned earlier. I think, Mark, you know, you highlighted that maybe engineering spend intensity is being negatively impacted by the uncertainty around the regs. And then, you know, Jen, you mentioned some actual launch push-outs. So can you help us understand just operationally how your engineering and technology strategy are being affected at this moment? Are you doing sort of redundant or duplicative engineering development for a variety of outcomes? Just trying to get a better handle on how you're navigating the uncertainty.

Thank you. Our next question is come from the line of know. Okay, with Oppenheimer Company, please proceed with your questions.

We've delayed that that then extend some of the R&D for that program. We are of course doing some additional work on contingency plans at a much lower level, while keeping the team focused on that.

Launches that we have.

We get into 2017, and then we anticipate following that.

Level of R&D and capital investment engine business.

Thanks. Um, wanted to tie together a couple of points you mentioned earlier, I think. Mark, you know, you highlighted that, um, maybe engineering spend intensity is, is being negatively impacted by the uncertainty around the rags. And then, um, you know, Jen you mentioned the

Yeah.

Okay. Great. So 2017 is really when we start to see some signs of some leverage there.

And then quickly.

Quickly shifting gears to two power.

As you mentioned in your content is primarily today.

Around the backup Gen set with.

With the shift towards one side direct power you have an entire division.

Jennifer Rumsey: So the majority of the work we're doing is focused on these new product launches. And so you've got a peak of investment in research and development, as well as capital going in ahead of that launch at the end of next year. And we did delay by six months one of the product launches because, frankly, the uncertainty around regulation and tariffs was creating an environment where even though it was a more efficient product that we thought could bring some value to customers, the demand was a concern. So we've delayed that. That then extends some of the R&D for that program. We're, of course, doing some additional work on contingency plans at a much lower level while keeping the.Team

Some, some actual launch push outs. Um, so can can you help us understand? Um, just operationally how your engineering and Technology strategy are being affected at this moment? I mean, are you doing sort of redundant or duplicative uh engineering development for a variety of outcomes? Just trying to get a better handle on. Yeah. So

That can do.

Battery backup.

So, the majority of the work we're doing is focused on these new product launches.

And fuel cell power, you're obviously very familiar with natural gas generation.

And you've talked in the past, including at Investor Day about micro grids.

Give us any color on <unk>.

Um, and so you've got a peak of investment in research and development, as well as capital, a lot of going in ahead of that launch at the end of next year.

Trends in wallet share expansion with the datacenter customers and if youre seeing that where it's coming from.

So we have launched.

Year.

Hey, Sherri energy storage product in the market, we have some limited offerings I would say today in Nash.

Natural gas and.

Energy storage and that's an area that we are continuing to evaluate our position in the products that we have in our portfolio and over time, how we might want to participate NFS an area, we want to expand so no no firm decisions or anything to give guidance on today, but that certainly is an area that could be interesting for comments and microgrid space.

Operator: focused on the launches that we have beginning of '27. And then we anticipate following that, that the level of R&D and capital investment and engine business and components will start coming down.

contingency plans at a much lower level, while keeping the the team focused on

The launches that we have.

Given the growing demand for power and the challenges for.

Beginning of 27, and then we anticipate that following that, the level of R&D and capital investment in the engine business and components will start coming down.

Nick Aarons: Okay, great. So, so '27 is really when we start to see some, some, some leverage there. and then just quickly shifting gears to to power. as you mentioned, I mean, your content is primarily today, around the backup gen set. with the shift towards more on-site direct power, I mean, you know, you have an entire division, that can do, battery backup, you know, and fuel cell power. You're obviously very familiar with, you know, natural gas generation. And you've talked in the past, including at Investor Day, about microgrids. Just maybe there's any color on, you know, trends and wallet share expansion with the data center customers and if you're seeing that, where it's coming from.

Our customers.

To meet that.

Okay, great. So so 27 is really when we start to see some some some leverage there. Um,

Thank you. Our next question will come from the line of Chad Dillard with Bernstein. Please proceed with your questions.

Hi, good morning, guys.

So you commented about tariff or the price cost being neutral five that's fourth quarter. I was just wondering whether that's true on a second by second basis or is the bias towards one versus the other.

And then secondly.

What was price cost in <unk> and if you can share any thoughts on what it should look like in this quarter that'd be helpful. Thank you.

And then just quickly shifting gears to, to power. Um, as you mentioned, I mean your content is primarily today uh, around the backup, Jen set, um, with the shift towards more on-site direct power. I mean, you know, you have an entire division, uh, that can do, uh, battery backup, uh, you know, and Fuel Cell power, you obviously very familiar with you know, natural gas generation.

Yes, I think.

Yes, it's a challenge in all segments of our business, what I would say for tariffs.

Operator: So we have launched in the last year, a stationary energy storage product in the market. You know, we have some limited offerings, I would say, today in both natural gas and stationary energy storage. And that's an area that we are continuing to evaluate, you know, our position, the products that we have in our portfolio, and over time, how we might want to participate and if that's an area we want to expand. So no, no firm decisions or anything to give guidance on today, but that that certainly is an area that could be interesting for Cummins, the microgrid space, given the the growing demand for power and the challenges, for customers to to meet that.

With the engine business and components probably.

And you've talked in the past, including an investor day, about microgrids. Can you give us any color on trends and wallet share expansion with the data center customers? Are you seeing that, and where is it coming from?

So, we have launched, uh, in the last

Absorbing more than the rest of the company, but not not dramatically different.

Price cost overall.

Here. Uh a stationary energy storage product in the market, you know, we have some limited offerings I would say today and

When we weigh in.

The actions that we've taken on past reactions that we've taken on light duty engines some of the improvements in power systems I ignore.

If I ignore tariffs than we were about.

<unk>.

We were about one two.

2% improvement overall across all the businesses remembering thats, a big step up in power systems and distribution in particular.

Both natural gas and station energy storage. And that's an area that we are continuing to evaluate, you know, our our position, the products that we have in our portfolio and over time, how we might want to participate, and if that's an area, we want to expand. So no, no firm decisions or anything to give guidance on today. But that, that certainly is an area that could be interesting for Commons and micro grids space. Uh, it gives them the, the growing demand for power and the challenges for customers to, to meet that.

Nick Aarons: Thank you. Our next questions come from the line of Chad Dillard with Bernstein. Please proceed with your questions.

Got it that's helpful.

The EBIT business in components margins.

Jennifer Rumsey: Hi, good morning, guys. so you you commented about tariff or the the price cost being neutral by that fourth quarter. And I was just wondering whether that's true on a segment-by-segment basis or is it biased towards one versus the other? And then secondly, what was price cost in in Q2? And if you can share any thoughts on what it should look like in the third quarter, that'd be helpful. Thank you.

Were down or flat.

Thank you. Our next question is come from the line of Chad, Dillard with Bernstein, please proceed with your questions.

Okay product coverage.

Group.

And.

Secondly, just on <unk>.

Just recognizing that we're in I guess.

Regime, when it comes to like alternative powertrains.

I guess, how are you thinking about.

Growth trajectory.

Mark Smith: Yeah, I mean, I think, yeah, it's a challenge in all segments of our business is what I would say for tariffs, with the engine business and components probably, absorbing more than the rest of the company, but not not dramatically different. price cost overall, when we weigh in, you know, the actions that we've taken on parts, the actions that we've taken on light-duty engines, some of the improvements in power systems. If I ignore tariffs, then we were about, we were about 1.2% improvement overall across all the businesses, remembering that's a big step up in power systems and distribution in particular.

I'm thinking maybe more solid on the electrical side.

Um, so you you commented about tariff or the the price costs being neutral by that's fourth quarter. And I was just wondering whether that's this true on the second by second basis or as a bias towards 1 versus the other and then secondly uh what was price cost in in 2q. And if you can share any thoughts on what it should look like, as a third quarter, that'd be helpful. Thank you.

And then like the path towards.

For long term profit targets that you've set out how has that changed.

Yeah. I mean, I think. Yeah, it's a challenge in all segments of our businesses, what I would say for tariffs,

Yes.

It's fair to say that trajectory of growth in that business as you have seen us growing in reducing losses, we did a reset.

Um, with the engine business components probably.

Construction at the end of last year to try to focus on the areas the technologies and products that we think.

Uh, absorbing more than the rest of the company, um, but not dramatically different, uh, price cost overall.

uh, when we weigh in

We will grow.

And I do think it positions comment as well because we're continuing to of course offer engine based solution startups are not surviving in many of our OEM customers.

You know, the actions that we take on Parts, the actions that we've taken on light-duty engineers, some of the improvements in power systems, I ignore.

If I ignore tariffs, then we were about, uh,

Don't really want to invest given the uncertainties that we're really trying to position ourselves to pace of investment.

Being able to.

Be that provider as the market starts to develop we're continuing to move forward with our.

We were about 1.2% Improvement overall across all the businesses remembering that's a big step up in Power Systems and distribution in particular.

Jennifer Rumsey: Got it. That's helpful.

Our partners in the amplify sell joint venture here in the U S commercial vehicle Sal and pacing investment does that take.

Mark Smith: You can see that the engine business and components margins were were down or flat.

You can see that the engine business and components margins were.

Gathering as well so it's slowing.

Jennifer Rumsey: Got it.

Mark Smith: Product coverage did not improve.

were down or flat.

But we're committed to continue to reduce losses over time and grow as the.

Jennifer Rumsey: And secondly, just on Accelera, you know, just recognizing that we're in, I guess, a new regime when it comes to like alternative powertrains. I guess, how are you thinking about the growth trajectory, you know, particularly maybe more so on the electrolyzer side, and then like the path towards the the long-term profit targets that you've set out? Has that changed?

X product coverage um, not improved.

As the market grows in the meantime, we'll sell some more engines, which will be positive for <unk>.

Yes.

Yeah.

Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Nick <unk> for closing comments.

Thank you that concludes our teleconference for today. Thank you all for participating and your continued interest as always the Investor relations team will be available for questions. After the call.

And, and, and secondly, just just on accelera, um, you just recognizing that we're in, I guess a, a new regime when it comes to like alternative power trains. Um, I guess how are you thinking about the growth trajectory, um, particularly more songs on the electrical aser side, uh, and then like the path towards

Operator: Yeah, I mean, it's it's fair to say that trajectory growth in that business is slowed. You have seen us growing and, you know, reducing losses. We did a restructuring at the end of last year to try to focus on the the areas, the technologies, and products that we think will grow. And I do think it positions Cummins well because we're continuing to, of course, offer engine-based solutions. Startups are not surviving. And, you know, many of our OEM customers don't really want to invest given the uncertainty. So we're really trying to position ourselves to pace investments, but be able to, be the provider as the market starts to develop. We're continuing to move forward with our our partners in the Amplify Cell joint venture here in the US with commercial vehicle cell and pacing investment in that, together as well.

The, the long-term profit Target that you set out, has that changed.

Thank you, ladies and gentlemen that does now conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.

Yeah, I mean it's it's fair to say that trajectory of growth in that business is slow. Do you you have seen us growing and you know reducing losses we did a a restructuring at the end of last year to try to focus on the the areas the Technologies and products that we think.

I believe we will grow. I do think it positions Cummins well, because we're continuing to, of course, offer engine-based solutions. Startups are not surviving, and many of our OEM customers are facing challenges.

Don't really want to invest given the uncertainty. So, we're really trying to position ourselves to pace investments, uh, but be able to, um, be the provider as the market starts to develop. We're continuing to move forward with our.

Operator: So it's slowing, but we're committed to continue to reduce losses over time and grow as the as the market grows. And in the meantime, we'll sell sell more engines, which will be positive for for our base business.

But these losses over time and grow as the as the market grows. And in the meantime, we'll sell sell more inches, which will be positive for for our base business.

Nick Aarons: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Nick Aarons for a closing comment.

Steven Wolfman: Thank you. That concludes our teleconference for the day. Thank you all for participating and your continued interest. As always, the Investor Relations team will be available for questions after the call.

Thank you. We have reached the end of our question and answer session. I would now like to turn the floor. Back over to Nick errands, for closing comments.

Thank you that concludes our teleconference for the day. Thank you. All for participating in your continued interest. As always the investor relations. Team will be available for questions after the call.

Nick Aarons: Thank you, ladies and gentlemen. That does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Thank you, ladies and gentlemen, that does now, conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Q2 2025 Cummins Inc Earnings Call

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