Q1 2026 Cummins Inc Earnings Call

May 5, 2026

Speaker #1: Greetings and welcome to CUMMINS INC first quarter 2026 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation.

Operator: Greetings, welcome to Cummins Inc.'s Q1 2026 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. If you wish to register a question during today's conference, please press star one on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nick Arens, Executive Director of Investor Relations. Thank you. Please go ahead.

Speaker #1: If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. If you wish to register a question during today's conference, please press star one on your telephone keypad.

Speaker #1: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nick Arens, Executive Director of Investor Relations. Thank you.

Speaker #1: Please go ahead.

Speaker #2: Thank you, Donna. Good morning, everyone, and welcome to our teleconference today to discuss CUMMINS results for the first quarter of 2026. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer.

Nick Arens: Thank you, Donna. Good morning, everyone, welcome to our teleconference today to discuss Cummins results for Q1 2026. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities Exchange Act of 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 several risks and uncertainties.

Speaker #2: We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Security Exchange Act of 1934.

Speaker #2: Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future. Our actual future results could differ materially from these projected from those projected in such forward-looking statements because of several risks and uncertainties.

Speaker #2: 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.

Nick Arens: 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. During this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off.

Speaker #2: 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 this call, we will be discussing certain non-GAAP financial measures and we will refer you to our website for the reconciliation of those measures to GAAP financial measures.

Speaker #2: 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.

Speaker #2: With that out of the way, I will turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off.

Speaker #3: Thank you, Nick. Good morning, everyone. I'll start with a summary of our first quarter accomplishments and financial results. Then discuss our sales and end-market trends by region.

Jennifer Rumsey: Thank you, Nick. Good morning, everyone. I'll start with a summary of our Q1 accomplishments and financial results, then discuss our sales and end market trends by region. I will finish with the discussion of our outlook for 2026. Mark will then walk you through additional detail on our Q1 performance and our full year forecast. Before getting into the details of our performance, I want to highlight a few major events from the quarter. In February, Cummins marked a significant milestone with the deployment of the world's first commercial hybrid electric ultra-class mining truck, now in operation, in production at the Caserones open-pit mine in Chile. This pilot represents our first retrofit of a 300 tons Komatsu haul truck using First Mode hybrid technology in daily operation. It reflects our strategy of delivering solutions that reduce CO₂ emissions today while advancing our customers' long-term decarbonization goals.

Speaker #3: I will finish with the discussion of our outlook for 2026. Mark will then walk you through additional detail on our first quarter performance and our full-year forecast.

Speaker #3: Before getting into the details of our performance, I want to highlight a few major events from the quarter. In February, CUMMINS marked a significant milestone with the deployment of the world's first commercial hybrid electric ultra-class mining truck.

Speaker #3: Now in operation, in production, at the Casseronas Open Pit Mine in Chile. This pilot represents our first retrofit of a 300-ton Kamatsu haul truck using first-mode hybrid technology in daily operation.

Speaker #3: It reflects our strategy of delivering solutions that reduce CO2 emissions today while advancing our customers' long-term decarbonization goals. In March, MAC Truck announced the integration of the CUMMINS X10 engine into the MAC Granite chassis.

Jennifer Rumsey: In March, Mack Trucks announced the integration of the Cummins X10 engine into the Mack Granite chassis. This milestone reflects the strong collaboration between the Mack and Cummins teams and our shared commitment to delivering reliable, high-performing solutions for vocational customers. The X10 is well-suited for demanding work applications, and its integration into the Granite platform will provide customers with a compelling option in the vocational truck segment. Finally, during the quarter, we took targeted actions in our Accelera segment by completing the sale of our low-pressure fuel cell business and related customer commitments for this business. This sale will enable continued improvement in our trajectory of our financial results in the Accelera segment. Together, these actions demonstrate how we are executing against our strategy across our businesses.

Speaker #3: This milestone reflects the strong collaboration between the MAC and CUMMINS teams, and our shared commitment to delivering reliable, high-performing solutions for vocational customers. The X10 is well-suited for demanding work applications and its integration into the Granite platform will provide customers with a compelling option in the vocational truck segment.

Speaker #3: Finally, during the quarter, we took targeted actions in our Accelera segment by completing the sale of our low-pressure fuel cell business and related customer commitments for this business.

Speaker #3: The sale will enable continued improvement in our trajectory of our financial results in the Accelera segment. Together, these actions demonstrate how we are executing against our strategy across our businesses.

Speaker #3: Now I will turn to our overall company performance for the first quarter of 2026 and cover some of our key markets. Sales for the first quarter were 8.4 billion dollars, an increase of 3% compared to the first quarter of 2025.

Jennifer Rumsey: Now I will turn to our overall company performance for Q1 2026 and cover some of our key markets. Sales for Q1 were $8.4 billion, an increase of 3% compared to Q1 2025. Growth was driven primarily by higher demand in power generation markets, particularly from data centers. This increase was partially offset by weaker North America heavy and medium duty truck demand, with unit volumes down 20% from a year ago. EBITDA was $1.3 billion or 15.4%, which included a net charge of $199 million related to the sale of our low-pressure fuel cell business.

Speaker #3: Growth was driven primarily by higher demand and power generation markets, particularly from data centers. This increase was partially offset by weaker North America-heavy and medium-duty truck demand, with unit volumes down 20% from a year ago.

Speaker #3: EBITDA was 1.3 billion dollars, or 15.4%. Which included a net charge of 199 million dollars related to the sale of our low-pressure fuel cell business.

Speaker #3: Excluding this net charge, EBITDA was 1.5 billion dollars, or 17.7%, compared to 1.5 billion, or 17.9%, a year ago. Lower North America truck volumes and higher compensation expenses were partially offset by higher power generation demand favorable pricing and increased joint venture income.

Jennifer Rumsey: Excluding this net charge, EBITDA was $1.5 billion or 17.7% compared to $1.5 billion or 17.9% a year ago. Lower North America truck volumes and higher compensation expenses were partially offset by higher power generation demand, favorable pricing, and increased joint venture income. In Power Systems, we delivered record EBITDA dollars, reflecting continued operational improvements and strong end market demand. Our Q1 revenues in North America decreased 6% compared to 2025. Industry production of heavy-duty trucks in the Q1 was 50,000 units, down 23% from 2025 levels, while our heavy-duty unit sales were 18,000, down 16% year over year.

Speaker #3: In power systems, we delivered record EBITDA dollars, reflecting continued operational improvements and strong end-market demand. Our first quarter revenues in North America decreased 6% compared to 2025.

Speaker #3: Industry production of heavy-duty trucks in the first quarter was 50,000 units, down 23% from 2025 levels. While our heavy-duty unit sales were 18,000, down 16% year over year.

Speaker #3: Industry production of medium-duty trucks was 27,000 units in the first quarter of 2026. A decrease of 20% from 2025 levels. While our unit sales were 25,000, down 19% year over year.

Jennifer Rumsey: Industry production of medium-duty trucks was 27,000 units in Q1 2026, a decrease of 20% from 2025 levels, while our unit sales were 25,000, down 19% year over year. We shipped 30,000 engines to Stellantis for use in their Ram pickups in Q1 2026, up 4% from 2025 levels. Revenues for North America Power Generation increased by 23%, driven primarily by continued strong data center demand. Our international revenues increased by 16% in Q1 2026 compared to a year ago. Q1 revenues in China, including joint ventures, were $2.1 billion, an increase of 19% year over year, driven by accelerating data center demand and strong off-highway export activity by our OEM customers.

Jennifer Rumsey: Industry production of medium-duty trucks was 27,000 units in Q1 2026, a decrease of 20% from 2025 levels, while our unit sales were 25,000, down 19% year-over-year. We shipped 30,000 engines to Stellantis for use in their Ram pickups in Q1 2026, up 4% from 2025 levels. Revenues for North America Power Generation increased by 23%, driven primarily by continued strong data center demand. Our international revenues increased by 16% in Q1 2026 compared to a year ago. Q1 revenues in China, including joint ventures, were $2.1 billion, an increase of 19% year-over-year, driven by accelerating data center demand and strong off-highway export activity by our OEM customers.

Speaker #3: We shipped 30,000 engines to Stellantis for use in their RAM pickups in the first quarter of 2026, up 4% from 2025 levels. Revenues for North America power generation increased by 23%, driven primarily by continued strong data center demand.

Speaker #3: Our international revenues increased by 16% in the first quarter of 2026, compared to a year ago. First quarter revenues in China including joint ventures were 2.1 billion dollars, an increase of 19% year over year.

Speaker #3: Driven by accelerating data center demand and strong and on-off-highway export activity by our OEM customers. Industry demand for medium and heavy-duty trucks in China was 353,000 units, an increase of 20% from last year, driven by strong export demand.

Jennifer Rumsey: Industry demand for medium and heavy-duty trucks in China was 353,000 units, an increase of 20% from last year, driven by strong export demand. Our sales in units, including joint ventures, were 55,000, an increase of 14%. Industry demand for excavators in China in Q1 was 73,000 units, an increase of 19% from 2025 levels. We sold 14,000 units, an increase of 25%, primarily driven by strong export demand. Sales of power generation equipment in China increased 84% in Q1 due to accelerating data center demand. Q1 revenues in India, including joint ventures, were $814 million, an increase of 12% from Q1 a year ago. Industry truck production increased 21% from 2025, driven by tax incentives that are accelerating underlying demand.

Speaker #3: Our sales in units, including joint ventures, were 55,000, an increase of 14%. Industry demand for excavators in China in the first quarter was 73,000 units, an increase of 19% from 2025 levels.

Speaker #3: We sold 14,000 units, an increase of 25%, primarily driven by strong export demand. Sales of power generation equipment in China increased 84% in the first quarter due to accelerating data center demand.

Speaker #3: First quarter revenues in India including joint ventures were 814 million, an increase of 12% from the first quarter a year ago. Industry truck production increased 21% from 2025, driven by tax incentives that are accelerating underlying demand.

Speaker #3: Now let me provide our outlook for 2026, including some comments on individual regions and end markets. We are pleased to share that our expectations for 2026 have improved since our initial guidance issued in February.

Jennifer Rumsey: Now let me provide our outlook for 2026, including some comments on individual regions and end markets. We are pleased to share that our expectations for 2026 have improved since our initial guidance issued in February. We are raising our forecast for total company revenues in 2026 to a range of up 8% to 11% compared to our prior guidance of up 3% to 8%. We are raising our 2026 North America heavy-duty truck forecast to a range of 230,000 to 250,000 units, up from our prior guidance of 220,000 to 240,000 units. This increase reflects a trend of strong recent orders and improving spot rates.

Speaker #3: We are raising our forecast for total company revenues in 2026 to a range of up 8 to 11% compared to our prior guidance of up 3 to 8%.

Speaker #3: We are raising our 2026 North America heavy-duty truck forecast to a range of 230,000 to 250,000 units, up from our prior guidance of 220 to 240,000 units.

Speaker #3: This increase reflects a trend of strong recent orders and improving spot rates. We now expect the first half of the year to be stronger than previously anticipated, while the second half remains largely consistent with our prior outlook, including a modest pre-buy ahead of the 2027 EPA regulations.

Jennifer Rumsey: We now expect H1 of the year to be stronger than previously anticipated, while H2 remains largely consistent with our prior outlook, including a modest pre-buy ahead of the 2027 EPA regulations. In the North America medium-duty truck market, we are increasing our forecast to 125,000 to 135,000 units in 2026 compared to our prior guide of 110,000 to 120,000 units, reflecting stronger than anticipated demand in H1 and momentum expected to continue into H2 of the year. Consistent with our prior guidance, our engine shipments for pickup trucks in North America are expected to be 125,000 to 140,000 units in 2026.

Speaker #3: In the North America medium-duty truck market, we are increasing our forecast to 125,000 to 135,000 units in 2026, compared to our prior guide of 110,000 to 120,000 units.

Speaker #3: Reflecting stronger than anticipated demand in the first half and momentum expected to continue into the second half of the year. Consistent with our prior guidance, our engine shipments for pickup trucks in North America are expected to be 125,000 to 140,000 units in 2026.

Speaker #3: In China, we now expect total revenue, including joint ventures, to increase 10% in 2026. An improvement from prior outlook of down 1%, driven by stronger data center demand.

Jennifer Rumsey: In China, we now expect total revenue, including joint ventures, to increase 10% in 2026, an improvement from prior outlook of down 1%, driven by stronger data center demand. For heavy and medium-duty truck demand, we continue to expect a range of down 10% to flat versus prior year, consistent with our prior guidance and reflecting moderation in the benefits of scrapping policy, partially offset by continued strength in export demand. In India, we now project total revenue, including joint ventures, to increase 2% in 2026, up from our prior guide of 5% decline. We expect industry demand for trucks to be down 5% to up 5% for the year compared to our prior guidance of down 10% to flat, supported by tax rate reductions improving underlying demand.

Speaker #3: For heavy and medium-duty truck demand, we continue to expect a range of down 10% to flat versus prior year. Consistent with our prior guidance and reflecting moderation in the benefits of scrapping policy partially offset by continued strength in export demand.

Speaker #3: In India, we now project total revenue, including joint ventures, to increase 2% in 2026, up from our prior guide of 5% decline. We expect industry demand for trucks to be down 5 to up 5% for the year, compared to our prior guidance of down 10% to flat.

Speaker #3: Supported by tax rate reductions, improving underlying demand. For global construction, we now expect demand to range from flat to up 10% year over year, an improvement from our prior outlook of down 10% to flat.

Jennifer Rumsey: For global construction, we now expect demand to range from flat to up 10% year-over-year, an improvement from our prior outlook of down 10% to flat. In China, strong export demand is expected to partially offset continued domestic weakness, while in North America, we expect demand to remain largely flat given ongoing tariff and interest rate uncertainty. We expect our major global high-horsepower markets to remain strong in 2026. In global power generation, we now project revenues to increase 15% to 25%, up from our prior guidance of 10% to 20%. This reflects accelerating data center demand supported by capacity additions we brought on in North America at the end of 2025.

Speaker #3: In China, strong export demand is expected to partially offset continued domestic weakness. While in North America, we expect demand to remain largely flat, given ongoing tariff and interest rate uncertainty.

Speaker #3: We expect our major global high-horsepower markets to remain strong in 2026. In global power generation, we now project revenues to increase 15 to 25 percent, up from our prior guidance of 10 to 20 percent.

Speaker #3: This reflects accelerating data center demand, supported by capacity additions we brought on in North America at the end of 2025. We are also seeing stronger than expected international growth, particularly in China and the broader Asia-Pacific region.

Jennifer Rumsey: We are also seeing stronger than expected international growth, particularly in China and the broader Asia Pacific region, along with increased demand for lower output gensets to meet customer demand amid ongoing capacity constraints and larger configurations. In mining, engine sales are expected to be flat to up 10%, driven by replacement demand and consistent with our prior outlook. For aftermarket, we expect a range of 2% to 8% increase for 2026, consistent with our prior outlook, supported by aging fleets, higher parts consumption, and increased rebuild activity. In summary, coming off a strong Q1, we are raising our full year sales outlook to 8% to 11% increase and increasing our EBITDA margin guidance to a range of 17.75% to 18.5%.

Speaker #3: Along with increased demand for lower output jet sets to meet customer demand, amid ongoing capacity constraints and larger configurations. In mining, engine sales are expected to be flat to up 10%, driven by replacement demand and consistent with our prior outlook.

Speaker #3: For aftermarket, we expect a range of 2 to 8 percent increase for 2026, consistent with our prior outlook, supported by aging fleets, higher parts consumption, and increased rebuild activity.

Speaker #3: In summary, coming off a strong first quarter, we are raising our full-year sales outlook to 8 to 11 percent increase and increasing our EBITDA margin guidance to a range of 17 and three-quarters to 18 and a half percent.

Speaker #3: This reflects improving momentum in North America heavy and medium-duty truck markets. With volumes recovering from cyclical lows, faster than previously anticipated. A higher outlook for global power generation, improvement in accelera, and continued strong execution across our businesses.

Jennifer Rumsey: This reflects improving momentum in North America heavy and medium-duty truck markets, with volumes recovering from cyclical lows faster than previously anticipated, a higher outlook for global power generation, improvement in Accelera, and continued strong execution across our businesses. Additionally, this quarter, we returned $519 billion to shareholders, including $243 million in share repurchases, consistent with our long-standing commitment to return approximately 50% of operating cash flow to shareholders. I want to thank our employees and leaders around the world for their commitment to our customers and to each other. Their focus and execution are delivering strong financial results while continuing to strengthen our ability to invest in future growth, advance sustainable solutions, and create long-term value for shareholders. I look forward to discussing our long-term strategy and updated financial targets at our Analyst Day on 21 May.

Speaker #3: Additionally, this quarter, we returned 519 million dollars to shareholders, including 243 million dollars in share repurchases. Consistent with our long-standing commitment to return approximately 50% of operating cash flow to shareholders.

Speaker #3: I want to thank our employees and leaders around the world for their commitment to our customers and to each other. Their focus and execution are delivering strong financial results.

Speaker #3: While continuing to strengthen our ability to invest in future growth, advance sustainable solutions, and create long-term value for shareholders. I look forward to discussing our long-term strategy and updated financial targets at our analyst day on May 21st.

Speaker #3: Now let me turn it over to Mark.

Jennifer Rumsey: Now let me turn it over to Mark.

Speaker #2: Thank you, Jen, and good morning, everyone. We delivered strong revenue and profitability in the first quarter. Let me start with some key highlights that we want you to leave with today.

Mark Smith: Thank you, Jen. Good morning, everyone. We delivered strong revenue and profitability in Q1. Let me start with some key highlights that we want you to leave with today. First, we see stronger demand in multiple end markets, resulting in an improved outlook for engines, components, distribution, and Power Systems. Second, we completed the sale of the Low Pressure Fuel Cell business to Alstom, representing another step in reducing operating losses in Accelera, and we raised or we improved our 2026 forecast in that segment for EBITDA losses. Third, we took advantage of equity market volatility in Q1 to repurchase shares consistent with our plans to return excess capital to shareholders.

Speaker #2: First, we see stronger demand in multiple end markets, resulting in an improved outlook for engines, components, distribution, and power systems. We completed the second, we completed the sale of the low-pressure fuel cell business to Alstom, representing another step in reducing operating losses in accelera and we raised or we improved our 2026 forecast in that segment for EBITDA losses.

Speaker #2: And third, we took advantage of equity market volatility in the first quarter to repurchase shares, es, consistent with our plans to return excess capital to shareholders.

Speaker #2: Now let's look at the first quarter in a little bit more detail. Hopefully, I can head off some of your questions with some of these comments.

Mark Smith: Now let's look at Q1 in a little bit more detail, and hopefully, I can head off some of your questions with some of these comments. Q1 revenues were $8.4 billion, up 3% from a year ago. Sales in North America decreased 6%, while international revenues increased 16%, driven by China, where the data center demand is accelerating. EBITDA was $1.3 billion, or 15.4% of sales, compared to $1.5 billion, or 17.9% a year ago. Q1 2026 results included the net charge of $199 million related to the sale of the Low Pressure Fuel Cell business. Excluding these net charges, EBITDA was $1.5 billion or 17.7%, down 20 basis points from a year ago.

Speaker #2: First quarter revenues were 8.4 billion dollars, up 3% from a year ago. Sales in North America decreased 6%, while international revenues increased 16%, driven by China, where data center demand is accelerating.

Speaker #2: EBITDA was 15.4% of sales, compared to 1.5 billion or 17.9% a year ago. First quarter 2026 results included the net charge of 199 million dollars related to the sale of the low-pressure fuel cell business.

Speaker #2: Excluding these net charges, EBITDA was 1.5 billion or 17.7%, down 20 basis points from a year ago. Lower North American truck volumes and higher compensation expenses partially offset by higher power generation demand favorable pricing and increased joint venture income.

Mark Smith: Lower North American truck volumes and higher compensation expenses were partially offset by higher power generation demand, favorable pricing, and increased joint venture income. The net impact of tariffs to our EBITDA dollars in Q1 was immaterial. Although the exact amounts in total and by segment will vary quarter to quarter, we currently expect that the net impact of tariffs will continue to be immaterial to our EBITDA for the remainder of 2026, as we've worked hard with our supply chain partners and customers to mitigate the impacts. Now, let me go into more detail by line item. Excuse me. Gross margin for the quarter was $2.2 billion or 26.7% of sales, compared to $2.2 billion or 26.4% last year.

Speaker #2: The net impact of tariffs to our EBITDA dollars in the first quarter was immaterial. And although the exact amounts in total and by segment will vary quarter to quarter, we currently expect that the net impact of tariffs will continue to be immaterial to our EBITDA for the remainder of 2026, as we've worked hard with our supply chain partners and customers to mitigate the impacts.

Speaker #2: Now let me go into more detail by line item. Excuse me. Gross margin for the quarter was 2.2 billion dollars, or 26.7% of sales compared to 2.2 billion or 26.4% last year.

Speaker #2: The improved margins were driven by favorable pricing and higher power generation sales, partially offset by lower North American heavy- and medium-duty truck volumes and higher compensation expenses.

Mark Smith: The improved margins were driven by favorable pricing and higher power generation sales, partially offset by lower North American heavy and medium-duty truck volumes and higher compensation expenses. Selling, administrative, and research expenses were $1.2 billion or 14.3% of sales, compared to $1.1 billion or 13.6% of sales a year ago. This increase was driven primarily by higher compensation, especially variable compensation expenses. Joint venture income of $148 million increased $17 million from the prior year, primarily driven by stronger performance in our on and off highway joint ventures in China, benefiting the Engine and Power Systems segments. Other income was -$178 million compared to +$23 million from the prior year.

Speaker #2: Selling administrative and research expenses were 1.2 billion dollars, or 14.3% of sales compared to 1.1 billion dollars, or 13% of sales 13.6% of sales a year ago and this increase was driven primarily by higher compensation especially variable compensation expenses.

Speaker #2: Joint venture income of 148 million dollars increased 17 million dollars from the prior year, primarily driven by stronger performance in our on and off-highway joint ventures in China, benefiting the engine and power system segments.

Speaker #2: Other income was negative 178 million dollars compared to favorable 23 million dollars from the prior year. This decrease was primarily driven by 199 million of net charges related to the sale of the low-pressure fuel cell business.

Mark Smith: This decrease was primarily driven by $199 million of net charges related to the sale of the low-pressure fuel cell business. Interest expense was $76 million, a decrease of $1 million from the prior year. The all-in effective tax rate in Q1 was 27.2%, including the unfavorable discrete tax impact related to the sale of the low-pressure fuel cell business and $7 million or $0.05 per diluted share of other favorable discrete items. All in net earnings for the quarter was $654 million, or $4.71 per diluted share, which included $1.44 per diluted share related to the sale of the low-pressure fuel cell business.

Speaker #2: Interest expense was 76 million dollars, a decrease of 1 million from the prior year. The all-in-effective tax rate in the first quarter was 27.2%, including the unfavorable discrete tax impact related to the sale of the low-pressure fuel cell business.

Speaker #2: And 7 million or 5 cents per diluted share of other favorable discrete items. All-in-net earnings for the quarter were 654 million dollars, or 4 dollars and 71 cents per diluted share, which included a dollar 44 per diluted share related to the sale of the low-pressure cell business.

Speaker #2: Excluding the sale net earnings were 853 million dollars, or 6.6 dollars and 15 cents, compared per share compared to 824 million dollars or 5.96 per diluted share a year ago.

Mark Smith: Excluding the sale, net earnings were $853 million or $6.60 and $0.15 per share, compared to $824 million, $5.96 per diluted share a year ago. Operating cash flow was an inflow of $309 million compared to an outflow of $3 million in Q1 2025. Additionally, we returned over half a billion dollars of cash to shareholders in the first quarter. We executed $243 million in share repurchases at an average price of $536.97 and paid $276 million in cash dividends this quarter, consistent with our long-standing commitment to return approximately 50% of operating cash flow to shareholders. Now, let me comment a little bit more on segment performance.

Speaker #2: Operating cash flow was an inflow of 309 million dollars compared to an outflow of 3 million dollars in the first quarter of 2025. Additionally, we returned over half a billion dollars of cash to shareholders in the first quarter, we executed 243 million in share repurchases, at an average price of 536 dollars and 97 cents, and paid 276 million in cash dividends this quarter consistent with our long-standing commitment to return approximately 50% of operating cash flow to shareholders.

Speaker #2: Now let me comment a little bit more on segment performance. For the Engine segment, first quarter revenues were $2.7 billion, a decrease of 4% from a year ago.

Mark Smith: For the Engine segment, Q1 revenues were $2.7 billion, a decrease of 4% a year ago. EBITDA was 10.4%, a decrease from 16.5% a year ago, as weaker North American truck volumes, higher compensation expenses related to overall company performance, higher research and development expenses as we approach our 2027 launches, and increased product coverage costs were partly offset by higher joint venture income. For the full year 2026, we now project Engine business revenues to be up 7% to 12%, up from our prior guidance of flat to an increase of 5%.

Speaker #2: EBITDA was 10.4%, a decrease from 16.5 a year ago as weaker North American truck volumes higher compensation expenses related to overall company performance higher research and development expenses as we approach our 2027 launches and increased product coverage costs were partly offset by higher joint venture income.

Speaker #2: For the full year 2026, we now project engine business revenues to be up 7 to 12 percent, up from our prior guidance of flat to an increase of 5%.

Speaker #2: We've also raised our EBITDA margin projections now to be in the range of 12 and a half to 13 and a half percent, up 50 basis points at the midpoint of demand with demand in the first half of the year particularly proving stronger than we'd anticipated just three months ago.

Mark Smith: We've also raised our EBITDA margin projections now to be in the range of 12.5% to 13.5%, up 50 basis points at the midpoint of demand, with demand in H1 particularly proving stronger than we'd anticipated just 3 months ago. Components segment revenue was $2.5 billion, a decrease of 5% from a year ago. EBITDA was 13.3%, a decrease from 14.3% a year ago, as weaker North American truck volumes and higher material costs were partially offset by pricing. For Components, we expect 2026 full year revenues now to be up 5% to 10%, an increase from our prior guide of flat to up 5% due to stronger demand for heavy and medium-duty trucks in North America.

Speaker #2: Component segment revenue was 2.5 billion dollars, a decrease of 5% from a year ago EBITDA was 13.3%, a decrease from 14.3% a year ago as weaker North American truck volumes and higher material costs were partially offset by pricing.

Speaker #2: For components, we expect 2026 full year revenues now to be up 5 to 10 percent, an increase from our prior guide of flat to up 5 due to stronger demand for heavy and medium-duty trucks in North America and we expect EBITDA margins to be in the range of 13 and a half to 14 and a half percent, up 50 basis points from our prior guide at the low and the high end due to higher earnings in North America.

Mark Smith: We expect EBITDA margins to be in the range of 13.5% to 14.5%, up 50 basis points from our prior guide at the low and the high end due to higher earnings in North America and China. In the Distribution segment, revenues increased 7% from a year ago to $3.1 billion. EBITDA increased as a percent of sales to 14.2% compared to 12.9% a year ago, driven by higher power generation demand, partially offset by higher variable compensation expenses. We now expect full year 2026 distribution revenues to be up 9% to 14% from our prior guidance of up 5% to 10% due to stronger demand for power generation equipment.

Speaker #2: And China. In the distribution segment, revenues increased 7% from a year ago to 3.1 billion dollars. EBITDA increased as a percent of sales to 14.2% compared to 12.9% a year ago driven by higher power generation demand partially offset by higher variable compensation expenses.

Speaker #2: We now expect full year 2026 distribution revenues to be up 9 to 14 percent from our prior guidance of up 5 to 10 percent due to stronger demand for power generation equipment mainly.

Speaker #2: We also expect EBITDA margins to be in the range of 13.7 to 14.7 percent, an increase from our previous forecast of 13.25 to 14.25 percent.

Mark Smith: We also expect EBITDA margins to be in the range of 13.7% to 14.7%, an increase from our previous forecast of 13.25% to 14.25%. In the Power Systems segment, revenues were $2 billion, an increase of 19%, and EBITDA was a record, increasing from 23.6% to 29.5% of sales. Increased volumes, positive pricing, net tariff recovery with higher joint venture income, and one-time cost recoveries all helped boost results. For 2026, we now expect power systems revenues to grow 14% to 19%, up from our prior forecast of up 12% to 17% due to stronger demand, especially in international markets.

Speaker #2: In the power system segment, revenues were 2 billion dollars an increase of 19%, an EBITDA was a record increasing from 23.6 to 23.6 percent to 29.5 percent of sales as increased volumes positive pricing net tariff recovery and higher joint venture income and cost recovery some cost one-time cost recoveries all helped boost results.

Speaker #2: For 2026, we now expect power systems revenues to grow 14 to 19 percent up from our prior forecast of up 12 to 17 percent due to stronger demand especially in international markets.

Speaker #2: We also expect EBITDA margins in the range of approximately 25 to 26 percent compared to our previous guidance of 23 to 24. The margins for the remainder of the year are expected to be strong but a little below first quarter levels due to the uneven nature of tariff costs and recoveries and the benefit in the first quarter of some one-time modest non-tariff cost recoveries.

Mark Smith: We also expect EBITDA margins in the range of approximately 25% to 26% compared to our previous guidance of 23% to 24%. The margins for the remainder of the year are expected to be strong, but a little below Q1 levels due to the uneven nature of tariff custom recoveries and the benefit in Q1 of some one-time modest non-tariff cost recoveries. Accelera revenues decreased 2% to $101 million, driven by lower electrified powertrain sales, partially offset by higher electrolyzer sales, as we meet our remaining sales commitments in the electrolyzer business. EBITDA was at loss of $277 million, including a net charge of $199 million related to the sale of our low-pressure fuel cell business.

Speaker #2: Accelerate revenues decreased 2 percent to 101 million dollars driven by lower electrified powertrain sales partially offset by higher electrolyzer sales. As we meet our remaining sales commitments in the electrolyzer business.

Speaker #2: EBITDA was a loss of 277 million dollars including a net charge of 199 million related to the sale of our low-pressure fuel cell business.

Speaker #2: Excluding these charges, EBITDA was a loss of 78 million dollars an improvement from the loss of 86 million dollars in the prior year reflecting the benefit of the actions that we've been taking over the last couple of years starting to gain traction across the segment.

Mark Smith: Excluding these charges, EBITDA was a loss of $78 million, an improvement from the loss of $86 million in the prior year, reflecting the benefit of the actions that we've been taking over the last couple of years, starting to gain traction across the segment. In 2026, we anticipate Accelera revenues to be in the range of $300 to 350 million, unchanged from three months ago. We now expect net losses, excluding the charge related to the fuel cell sale, to improve to a range of $270 to 300 million, better than our previous projection of EBITDA losses of $325 to 355 million.

Speaker #2: In 2026, we anticipate Accelerate revenues to be in the range of $300 to $350 million, unchanged from three months ago, but we now expect net losses, excluding the charge related to the fuel cell sale, to improve to a range of $270 to $300 million, better than our previous projection of EBITDA losses of $325 to $355 million.

Speaker #2: This improvement reflects actions previously taken to reduce losses in existing operations as well as the benefits of the targeted decisions taken in the fourth in the first quarter.

Mark Smith: This improvement reflects actions previously taken to reduce losses in existing operations, as well as the benefits of the targeted decisions taken in Q1. In summary, we now expect stronger full-year top and bottom line. We expect total company revenues to increase between 8% and 11%, and EBITDA to be in the range of 17.75% to 18.5%. Whilst Power Systems and Distribution naturally have been gaining the headlines over recent quarters, I hope you take away from these comments that we're seeing an improved profit outlook for all of our segments for the remainder of this year. Our effective tax rate is expected to be approximately 23% in 2026, excluding any discrete items.

Speaker #2: In summary, we now expect stronger full year top and bottom line we expect total company revenues to increase between 11 percent 8 and 11 percent an EBITDA to be in the range of 17.75 to 18.5 percent and whilst power systems and distribution naturally are being gaining the headlines over recent quarters I hope you take away from these comments that we're seeing an improved profit outlook for all of our segments for the remainder of this year.

Speaker #2: Our effective tax rate is expected to be approximately 23 percent in 2026 excluding any discrete items. Investments expected to be in the range of 1.3 to 5 to 1.45 billion dollars as we continue to make critical investments to support future growth.

Mark Smith: Capital investments expected to be in the range of $1.35 billion to $1.45 billion as we continue to make critical investments to support future growth. Summary, we delivered strong profitability in the Q1, despite weaker production levels in North America on highway markets. As those markets improve through the year, along with the continued robust global demand for power generation equipment, we are well-positioned to further improve our financial performance yet this year. The actions we have taken in Accelera are improving the cost structure and reducing ongoing losses, while we continue to invest in the products which we believe have stronger prospects for adoption and future profitable growth.

Speaker #2: In summary, we delivered strong profitability in the first quarter despite weaker production levels in North America on highway markets as those markets improved through the year along with the continued robust global demand for power generation equipment we are well positioned to further improve our financial performance yet this year.

Speaker #2: The actions we have taken in accelerate improving the cost structure and reducing ongoing losses while we continue to invest in the products which we believe have stronger prospects for adoption and future profitable growth.

Speaker #2: Cash generation remains a clear priority enabling continued investment in our portfolio returning excess cash to shareholders and maintaining a strong balance sheet that allows us to weather any economic volatility and continue investing for the long run.

Mark Smith: Cash generation remains a clear priority, enabling continued investment in our portfolio, returning excess cash to shareholders, and maintaining a strong balance sheet that allows us to weather any economic volatility and continue investing for the long run. We look forward to seeing some of you in person when we provide an update on our medium-term financial targets at our Analyst Day on 21 May. That's enough from me. Let me turn it over to Nick.

Speaker #2: We look forward to seeing some of you in person when we provide an update on our medium-term financial targets at our analyst day on May the 21st that's enough from me let me turn it over to Nick.

Speaker #2: 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.

Nick Arens: 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. Operator, we are ready for our first question.

Speaker #2: If you have an additional question please rejoin the queue. Operator, you're ready for our first question.

Speaker #3: Thank you. As a reminder that is star one if you would like to register a question. Today's first question is coming from Angel Castillo of Morgan Stanley.

Operator: Thank you. As a reminder, that is star 1 if you would like to register a question. Today's first question is coming from Angel Castillo of Morgan Stanley. Please go ahead.

Operator: Thank you. As a reminder, that is star one if you would like to register a question. Today's first question is coming from Angel Castillo of Morgan Stanley. Please go ahead.

Speaker #3: Please go ahead.

Speaker #4: Hi, good morning and congratulations on the strong quarter here. So just wanted to Mark go back to the point on power systems. Could you just I guess unpack how much the one-time was in the first quarter here the non-repeating or I guess yeah just one-time cost there benefit and then as you think about the cadence of the rest of the year just curious if you could kind of help us understand is it just kind of normal seasonality absent that one-time or how we should think about kind of the cadence of the margin for that segment.

Angel Castillo: Hi, good morning, and congratulations on the strong quarter here. Just wanted to, Mark, go back to the point on Power Systems. Could you just, I guess, unpack how much the one time was in Q1 here, the non-repeating or I guess, yeah, just one-time cost there, benefit. Then as you think about the cadence of the rest of the year, just curious if you could kind of help us understand, is it just kind of normal seasonality absent that one time? Or how we should think about kind of the cadence of the margin for that segment?

Speaker #2: Yep. So, I don't want to diminish the extraordinary achievements of the Power Systems business—and we're really short answer because they're doing incredibly well and investing in raising capacities to meet even stronger demand, as we'll talk more about in May—but, yes, if you look at the guidance, you can back normal seasonality for the rest of the year. We should expect Q4 is usually just a shorter production quarter generally, but otherwise, there shouldn't be enormous variation in the margins quarter to quarter.

Mark Smith: Yep. I don't want to diminish the extraordinary, you know, achievements of the Power Systems business into a really short answer because they're doing incredibly well and investing in raising capacities to meet even stronger demand, as we'll talk more about in May. Yes, if you look at the guidance, you can back normal seasonality for the rest of the year. We should expect Q4 is usually just a shorter production quarter generally, but otherwise there shouldn't be enormous variation in the margins quarter to quarter. As I mentioned, there were a number of factors that contributed to margin performance above our expectations. You've got stronger demand in China, which is usually weighted more to the H1 of the year. That line item will probably be weaker in the H2 of the year.

Speaker #2: As I mentioned there were a number of factors that contributed to margin performance above our expectations you've got stronger demand in China which is usually weighted more to the first half of the year that'll that line item will probably be weaker in the second half of the year it's just the way that buying patterns tend to happen in China you've got net tariff recoveries which you heard me say at the start for the company were immaterial they've really been immaterial for several quarters and will remain immaterial but were a net boost to power systems and then we had some one-time cost recovery.

Mark Smith: It's just the way that buying patterns tend to happen in China. You got net tariff recoveries, which you heard me say at the start for the company were immaterial. They've really been immaterial for several quarters and will remain immaterial, but were a net boost to Power Systems. We had some one-time cost recovery. If you just factor in a slightly slower Q4 and because of the lower production days, the rest of the quarter should look pretty even for the remainder.

Speaker #2: So if you factor if you just factor in a slightly slower Q4 because of the lower production days the rest of the quarter should look pretty even for the rest the remainder.

Speaker #3: Thank you. The next question is coming from Kyle Mengies of Citigroup. Please go ahead.

Operator: Thank you. The next question is coming from Kyle Menges of Citigroup. Please go ahead.

Speaker #5: Great. Thanks for taking my question. It would be good to hear just an update on the EPA 27 engines and number one curious if there could actually be some meaningful fuel efficiency gains with the new heavy-duty engine based on what you're seeing and hearing thus far and then number two just would be great to get an update on the medium-duty engine and what it might be ready and any potential ramifications if it might not be ready say until later in 2027.

Kyle Menges: Great. Thanks for taking my question. It would be good to hear just an update on the EPA 2027 engines. Number 1, curious if there could actually be some meaningful fuel efficiency gains with the new heavy-duty engine based on what you're seeing and hearing thus far? Number 2, just would be great to get an update on the medium-duty engine and when it might be ready and any potential ramifications if it might not be ready, say, until later in 2027?

Speaker #6: Yeah. Great. Thanks, Kyle. Well, we remain very excited about launching our HELM platforms the diesel variant of those along with the EPA 27 regulation and do anticipate bringing a lot of performance value to our customers including fuel efficiency improvements and other service and performance optimization.

Jennifer Rumsey: Yeah. Great. Thanks, Kyle. Well, we remain very excited about launching our Cummins HELM platform, the diesel variant of those, along with the EPA 2027 regulation, and do anticipate bringing a lot of performance value to our customers, including fuel efficiency improvements and other service and performance optimization. As I've talked about in the past, it's really unusual at this stage in the development cycle for regulations to be uncertain. We've been working very closely with EPA over the last year as they've been evaluating ways to move forward with the regulation, as they've said they will, while taking some of the cost associated with that regulation out. We anticipate changes in the longer emissions warranty and emissions useful life that were in the previous version of that regulation.

Speaker #6: And as I've talked about in the past it's really unusual at this stage in the development cycle for regulations to be uncertain. We've been working very closely with EPA over the last year as they've been evaluating ways to move forward with the regulation as I've said they will while taking some of the cost associated with that regulation out and we anticipate changes in the longer emissions warranty and emissions useful life that were in the previous version of that regulation.

Speaker #6: Based on kind of the late changes we have made the decision to delay the launch of our B platform to January 28th. That'll be the final launch of our diesel HELM platform.

Jennifer Rumsey: Based on kind of the late changes, we have made the decision to de-delay the launch of our B platform to January 2028. That'll be the final launch of our diesel HELM platform. We continue to plan to move forward with X15 and X10 in 2027. As I've shared previously, the B platform in particular is the one that we sell to the most number of customers and diversity of applications. We've been transparent with EPA about our plans on the launch and are looking forward to seeing the draft of their revised rule, anticipated this quarter, and getting the final version of that before we start launching our new platforms next year. Excited about the value we're bringing to the customer and just continuing to work closely with the EPA as they finalize their plans.

Speaker #6: We continue to plan to move forward with the X15 and X10 in '27. And as I've shared previously, the B platform in particular is the one that we sell to the most number of customers and diversity of applications. We've been transparent with EPA about our plans on the launch and are looking forward to seeing the draft of their revised rule, anticipated this quarter, and getting the final version of that before we start launching our new platforms next year.

Speaker #6: So excited about the value we're bringing to the customer and just we're continuing to work closely with the EPA as they finalize their plans.

Speaker #5: Got it. And I'm just curious, what the ramifications could be, or maybe the range of outcomes for next year, if that medium-duty engine is not ready until 2028.

Kyle Menges: Got it. I'm just curious what the ramifications could be or maybe range of outcomes for next year if that medium-duty engine is not ready until 2028. Thank you.

Speaker #5: Thank you.

Speaker #6: So we'll continue to offer the current version of the B series platform through '27. This will allow us to kind of phase out the launch of our products to our customers and through our plants and we are as we said continuing to anticipate some amount of pre-buy in the second half of the year in particular in the heavy-duty market.

Jennifer Rumsey: We'll continue to offer the current version of the B Series platform through 2027. This will allow us to kind of phase out the launch of our products to our customers and through our plants. We are, as we said, continuing to anticipate some amount of pre-buy in H2 of the year, in particular in the heavy-duty market.

Speaker #3: Thank you. The next question is coming from Jerry Revich of Wells Fargo Securities. Please go ahead.

Operator: Thank you. The next question is coming from Jerry Revich of Wells Fargo Securities. Please go ahead.

Speaker #7: Yes. Hi. Good morning, everyone.

Jerry Revich: Yes. Hi. Good morning, everyone.

Speaker #8: Hey, Jerry.

Mark Smith: Hey, Jerry.

Jerry Revich: I'm wondering if you folks can comment on how far out lead times extend for your 95-liter engines. We're hearing that for some folks it's out into the back half of 2028, even at higher production levels. Can you comment how far out you folks are? Mark, you folks have consistently put up really attractive incremental margins in that line of business for a number of years now. As we think about production continuing to ramp higher, anything that we should keep in mind as we think what incremental margins might look like in the medium term compared to the, you know, 45% incrementals that you folks have consistently delivered here?

Speaker #7: I'm wondering if you folks can comment on how far out lead times extend for your 95-liter engines. We're hearing that for some folks it's out into the back half of 2080, even at higher production levels.

Speaker #7: Can you comment how far out you folks are? And then, Mark, you folks have consistently put up really attractive incremental margins in that line of business for a number of years now, as we think about production continuing to ramp higher.

Speaker #7: Is there anything we should keep in mind as we think about what incremental margins might look like in the medium term, compared to the 45% incrementals that you folks have consistently delivered here?

Speaker #6: Thanks, Jerry. Well, as you know we doubled the capacity that 95-liter finished that investment last year really taking advantage of that and continuing to see strong demand multi-year discussions with our customers around their needs and that's underpinning the stronger guidance this year.

Jennifer Rumsey: Thanks, Jerry. Well, you know, as you know, we doubled the capacity of that 95-liter, finished that investment last year, really taken advantage of that and continuing to see, you know, strong demand, multi-year discussions with our customers around their needs, that's underpinning the stronger guidance this year. Jennifer Rumsey will be sharing more with you at our upcoming Analyst Day on how we're thinking about those investments in the capacity.

Speaker #6: And we've been continuing to look closely at longer-term demand expectations and if there's additional capacity investments we want to make across our plants and supply chain and Jenni will be sharing more with you at our upcoming analyst day on how we're thinking about those investments and the capacity.

Speaker #8: Right. But I think yeah. I think we're going to have a you're going to see a strong presentation in the next couple of weeks about power systems we're very enthusiastic about the prospects going forwards and quite frankly they've only strengthened Jerry even in the last few months.

Mark Smith: Right. I think, yeah, I think you're going to see a strong presentation in the next couple of weeks about Power Systems. You know, we're very enthusiastic about the prospects going forward, and quite frankly, they've only strengthened, Jerry, even in the last few months. We are very optimistic. Confident, maybe optimistic is not the right word. Confident in the performance in the Power Systems business. Right now, whilst we are ramping up production, we have been increasing margins. We're also continuing to invest going forward, and you'll hear more about those plans here coming up. Certainly, as revenues grow, obviously we have the goal of expanding margins.

Jennifer Rumsey: Absolutely

Mark Smith: even in the last few months. We are very optimistic. Confident, maybe optimistic is not the right word. Confident in the performance in the Power Systems business. Right now, whilst we are ramping up production, we have been increasing margins. We're also continuing to invest going forward, and you'll hear more about those plans here coming up. Certainly, as revenues grow, obviously we have the goal of expanding margins.

Speaker #8: So we are very optimistic confident maybe optimistic's not the right word confident in the performance and the power systems business. Right now we're focusing whilst we are ramping up production we have been increasing margins.

Speaker #8: We're also continuing to invest going forward, and you'll hear more about those plans here coming up. But certainly, as revenues grow, obviously we have the goal of expanding margins.

Jerry Revich: Okay, super. Can I ask you in engines, nice to see the positive margin revision for the year. Looks like you're gonna exit potentially in the 14% plus EBITDA margin range. Every time on a new regulation, you folks tend to drive margins higher. Can you just talk about the puts and takes as we think about EPA 2027 and the EBITDA margin opportunity for you folks on the new platforms, considering it's been a while since we've had a new platform in the US?

Speaker #7: Okay, super. And can I ask—in Engines and ICC, the positive margin revision for the year looks like you're going to exit potentially in the 14% plus EBITDA margin range.

Speaker #7: Every time there's a new regulation, you folks tend to drive margins higher. Can you just talk about the puts and takes as we think about EPA '27 and the EBITDA margin opportunity for you on the new platforms, considering it's been a while since we've had a new platform in the US?

Speaker #8: Yeah. It's been a while since we've had this many new platforms at the same time. So yes. Obviously there's going to be there are going to be significant content ads primarily on the powertrain for the new trucks.

Mark Smith: Yeah, it's been a while since we've had this many new platforms at the same time. Yes, obviously there are gonna be significant content adds primarily on the powertrain for the new truck. That's gonna benefit not only the engine business, but also component story. We're expecting You know, we're not here to give guidance for next year, but we expect some, you know, volatility in demand between H2 of this year and H1 of next year. Yes, I think you're gonna hear a positive story from Brett coming up in the next couple of weeks. We've been through a peak investment period because of all the platforms, not just the current ones. We've launched other platforms in the past couple of years that have gone well, and we are moving beyond this peak investment period.

Speaker #8: So that's going to benefit not only the engine business but also the component story. We're expecting—we're not here to give guidance for next year—but we expect some volatility in demand between the second half of this year and the first half of next year.

Speaker #8: But yes. I think you're going to hear a positive story from Brett coming up in the next couple of weeks. We've been through a peak investment period because of all the platforms not just the current ones.

Speaker #8: We've launched other platforms in the past couple of years that have gone well. And we are moving beyond this peak investment period. So yeah.

Mark Smith: Yeah, you're gonna hear from us that we expect our performance to improve over time.

Speaker #8: You're going to hear from us that we expect our performance to improve over time. So,

Speaker #3: Thank you. The next question is coming from Stephen Volkman of Jefferies. Please go ahead.

Operator: Thank you. The next question is coming from Stephen Volkmann of Jefferies. Please go ahead.

Stephen Volkmann: Great. Good morning, everybody. Can I just continue on that thread, if possible here? The, you know, the engine incrementals this year are sort of low teens, I guess, if I'm doing my math right. Mark, you talked about some of your spending on new platforms rolling off as we go forward, but I assume warranty tends to be higher when you launch these new platforms. Just trying to think about, like, what's the fair kind of value for incremental margins in engines.

Speaker #5: Great, good morning, everybody. Can I just continue on that thread, if possible here? The engine incrementals this year are sort of low teens, I guess, if I'm doing my math right.

Speaker #5: Mark, you talked about some of your spending on new platforms rolling off as we go forward. But I assume warranty tends to be higher when you launch these new platforms.

Speaker #5: So just trying to think about what's the fair kind of value for incremental margins in engines?

Speaker #8: Yeah. I think over an extended first of all you're exactly right. So when we launch a brand new platform we start with a new warranty accrual rate and that's usually fixed for the first six quarters until we get enough field experience and then history's shown over time that we've been able to bring down those accrual rates quite significantly.

Mark Smith: Yeah, I think. First of all, you're exactly right. When we launch a brand-new platform, we start with a new warranty accrual rate, and that's usually fixed for the first 6 quarters until we get enough field experience. History's shown over time that we've been able to bring down those accrual rates quite significantly. Certainly over, it's one of the highlights of my time as CFO, is seeing that improvement, significant improvement over time and quality. Yes, we'll start next year on new engine platforms that are launched with higher accrual rates. This demand may be lighter in H1 of the year, as if there to the extent there is some pre-buy, it's always hard to know exactly what's pre-buy versus slightly improving freight conditions.

Speaker #8: Certainly over—it’s one of the highlights of my time as CFO is seeing that improvement, significant improvement over time, in quality. So yes.

Speaker #8: We'll start next year with on new engine platforms that are launched with higher accrual rates. That will be a portion of our demand maybe lighter in the first half of the year if to the extent there is some pre-buy.

Speaker #8: It's always hard to know exactly what's pre-buy versus slightly improving freight conditions—demand could be weaker. But yes, over, let's say, we get through the first half of next year and into '28, we should be seeing improved incremental margins for the engine business.

Mark Smith: Demand could be weaker. Yes, over, let's say we get through the H1 of next year and into 2028, we should be seeing improved incremental margins for the engine business. The tariffs, of course, probably the biggest single burden for the company has fallen on the engine business, not only so that even though we've done a great job in trying to mitigate those and minimize the USD impact, that's been somewhat diluted last year and this year on top of the peak investment period. Yes, I would expect the incremental margins to improve from what we're seeing this year as we get through the next 18 months.

Speaker #8: The tariffs of course probably the biggest single burden for the company has fallen on the engine business not only. So that even though we've done a great job in trying to mitigate those and minimize the dollar impact that's been somewhat diluted last year and this year on top of the peak investment period.

Speaker #8: So yes. I would expect the incremental margins to improve from what we're seeing this year as we get through the next 18 months.

Operator: Thank you. The next question is coming from David Raso of Evercore ISI. Please go ahead.

Speaker #3: Thank you. The next question is coming from David Russow of Evercore ISI. Please go ahead.

Speaker #9: Hi. Thank you for the time. The rest of the year the top line for the four major segments were all up 12 to 16 percent.

David Raso: Hi. Thank you for the time. The rest of the year, the top line for the four major Segments were all up 12% to 16%. Solid breadth there with incrementals and Engines and Power Systems both above 30% for the rest of the year. I was curious why Distribution, the incrementals the rest of the year are only 7 and Components are 19. I'm just curious, particularly in Distribution, but also as Components may be bearing more of those investment dollars. Just trying to understand why the incrementals are that low on those two businesses the rest of the year. Thank you.

Speaker #9: So solid breath there with incrementals in engines and power both above 30% for the rest of the year. But I was curious why distribution the incrementals the rest of the year are only 7 and components are 19.

Speaker #9: I'm just curious particularly in distribution but also as components maybe bearing more of those investment dollars. Just trying to understand why the incrementals are that low on those two businesses the rest of the year.

Speaker #9: Thank you.

Speaker #8: Yeah. I think the one of the factors in the distribution business is we're seeing more growth I say the rate of growth at parts is not keeping pace with the rate of growth in whole goods as we refer to them or power generation equipment.

Mark Smith: I think one of the factors in the distribution business is we're seeing the rate of growth at parts is not keeping pace with the rate of growth in whole goods, as we refer to them, or power generation equipment. That's one factor. I would say last year, we had more pricing particularly in the middle of the year, and that's why one of the factors why the margins stepped up so well in Q2. I think you're getting into tough comparisons, Q2 and Q3 in particular. Long-term, medium-term, we're bullish on distribution growth and margin expansion. Those are some of the factors.

Speaker #8: So, that's one factor. And then I would say, last year we had more pricing in the middle of, particularly in the middle of the year.

Speaker #8: And that's why one of the factors why the margins stepped up so well in the second. So I think you're getting into tough comparisons.

Speaker #8: Q2 and Q3 in particular, long-term and medium-term, were bullish on distribution growth and margin expansion. But those are some of the factors we did pretty well in Q1.

Mark Smith: We did pretty well in Q1, so we've just got to keep doing more of the same and over time, differences in mix and other factors will take care of themselves. I think the prospects are very encouraging. That's probably the main factor there. There's no other one-time special item or anything like that, David.

Speaker #8: So we've just got to keep doing more of the same, and over time, differences in mix and other factors will take care of themselves.

Speaker #8: And I think the prospects are very encouraging. But that's probably the main factor there. There's no other one-time special item or anything like that David.

Speaker #9: And a follow-up on the availability of the '27 heavies. What are your customers telling you for '26 build slots and when would they expect to be sold out and then have to ask you to introduce your '27 your '27 engine?

David Raso: A follow-up on the 2027 heavies. What are your customers telling you for 2026 build slots? When would they expect to be sold out and then have to, you know, ask you to introduce your 2027 engine? Thank you.

Speaker #9: Thank you.

Speaker #1: Yeah. Thanks David. And we've seen I'm sure you've been paying attention like we have to truck orders that have gone up over the last several months.

Jennifer Rumsey: Yeah. Thanks. Thanks, David. You know, we've seen, I'm sure you've been paying attention like we have to truck orders that have gone up over the last several months. Spot rates have improved. You've got a combination of.

Speaker #1: Spot rates have improved. So you've got a combination of improved economics for the truck customers along with anticipation of EPA '27 regulation and the industry of course was at a cyclical low.

Jennifer Rumsey: Improved economics for the truck customers, along with anticipation of EPA 2027 regulation. You know, the industry of course, was at a cyclical low. What we're seeing is things starting to step back up. In fact, right now we're adding a third shift at Rocky Mount. We really saw medium duty demand improving starting in Q1 and quite strong here as we go to Q2. We're seeing heavy duty stepping up. We do think that, you know, we're watching the supply base to see if there's going to be some constraints. We're getting to the point where, you know, part of our top end guide is how much can everybody take up build rates and supply to meet that ahead of the 2027 regulatory changeover.

Speaker #1: So what we're seeing is things starting to step back up. In fact right now we're adding a third shift at Rocky Mount. So we really saw medium duty demand improving starting in Q1 and quite strong here as we go to the second quarter.

Speaker #1: And then we're seeing heavy duty stepping up. And we do think that we're watching the supply base to see if there's going to be some constraints.

Speaker #1: We're getting to the point where you see everybody take up build rates and supply to meet that ahead of the '27 regulatory changeover.

Speaker #1: And we're really focused on making sure that we can execute to meet our customer commitments as we do that. In fact we had a big supplier conference last week with all of our key suppliers to make sure that they're ready to support all of our businesses.

Jennifer Rumsey: We're really focused on making sure that we can execute to meet our customer commitments as we do that. In fact, we had a big supplier conference last week with all of our key suppliers to make sure that they're ready. Just for all of our businesses, we're ramping up capacity at our plants and investing in new products.

Speaker #1: We're ramping up capacity at our plants and investing in new products.

Speaker #3: Thank you. The next question is coming from Jamie Cook of...

Operator: Thank you. The next question is coming from Jamie Cook of Truist Securities. Please go ahead.

Jamie Cook: Hi, good morning. And nice quarter. I guess, you know, one question for you, Mark, is as we think about the H2 and I guess sort of, longer term, you know, we're getting lots of questions on your ability to put up the incremental 25% margin. You know, with some of the concerns on tariffs perhaps potentially are indeed not being as big of a tailwind as we would've thought if the medium duty engine, you know, doesn't meet the 2027 emissions, maybe that's higher, you know, puts and takes with Accelera losses. So just sort of your confidence level there. Then I guess, the second question, pace of Accelera losses decelerating. Obviously we saw some nice progress in the quarter and what's implied in the guide.

Speaker #10: Morning. And nice quarter. I guess one question for, and I guess sort of, I guess longer term. We're getting lots of questions on your ability to put up the incremental 25% margin.

Speaker #10: you Mark as we think about the second half

Speaker #10: With some of the concerns on tariffs perhaps really are potentially R&D not being as big of a tailwind as we would have thought if the medium duty engine doesn't meet the 2027 emissions maybe that's higher.

Speaker #10: Puts and takes with a seller or losses. So just sort of your confidence level there. And then I guess the second question pace of a seller or losses decelerating obviously we saw some nice progress in the quarter and what's implied in the guide.

Speaker #10: Just how we're thinking about that as a potential again offset in to losses in 2027 and beyond. Thank you.

Jamie Cook: Just how we're thinking about that is a potential, again, offset in losses in 2027 and beyond. Thank you.

Speaker #8: Good. Well I think we'll address probably very

Mark Smith: Good. Well, I think we'll address probably very specifically incremental margins here in a couple of weeks over through 2030. We'll give you an update and compare that to what we said a couple of years ago. That should be fairly clear in aggregate. I think there are a lot of moving parts right now. That's true. Obviously we've raised the guide for this year, our confidence is improving. It's gonna be a little bit bumpy probably in H1 of next year. I think overall we feel like we've taken the tough actions in Accelera. We are seeing out some remaining commitments on electrolyzers. We expect that those losses, yet they can vary quarter to quarter, they're on a clear downward trajectory right now, that's positive for our underlying performance.

Speaker #8: Margins here in a couple of weeks, over through 2020-2030. We'll give you an update and compare that to what we said a couple of years ago.

Speaker #8: So that should be fairly clear in aggregate. I think there are a lot of moving parts right now. That's true. Obviously we've raised the guide for this year.

Speaker #8: So our confidence has improving. It's going to be a little bit bumpy probably in the first half of next year. But I think overall we feel like we've taken the tough actions and accelerator.

Speaker #8: We are seeing out some remaining commitments on electrolyzers. We expect that those losses can vary quarter to quarter, but they're on a clear downward trajectory right now.

Speaker #8: So that's positive for our underlying performance. And then yeah I think the theme is still we've been through peak investment period. Yes the odd program cost could extend through next year.

Mark Smith: Yeah, I think the theme is still we've been through peak investment period. Yes, the odd program cost could extend through next year, but I think the theme's still gonna be primarily the same. I think we should be able to answer all of those questions pretty well without spoiling what's gonna happen in a couple of weeks.

Speaker #8: But I think the theme's still going to be primarily the same, and I think we should be able to answer all of those questions pretty well without spoiling what's going to happen in a couple of weeks.

Speaker #1: And I'll just add on the accelerator business Jamie I think that team has really done a remarkable job through a rapidly changing landscape for adoption of zero emissions technology and green hydrogen.

Jennifer Rumsey: I'll just add, you know, on the Accelera business, Jamie, you know, I think that team has really done a remarkable job through a, you know, a rapidly changing landscape for adoption of zero emissions technology and green hydrogen, and we've really been able to focus that business now. You know, the actions we took at the end of the year around the electrolyzer business, as Mark noted, we're still needing some customer commitments there, and over time that'll continue to ramp down, you know, a big action in the first quarter with the low pressure fuel cell sale and the associated customer commitments to that.

Speaker #1: And we've really been able to focus that business now. The actions we took at the end of the year around the electrolyzer business as Mark noted we're still meeting some customer commitments there and over time that'll continue to ramp down a big action in the first quarter with the low pressure fuel cell sale and the associated customer commitment to that.

Speaker #1: So we're really focused now on battery electric power train pacing investments as that market evolves. And we've got some good customer wins in that space.

Jennifer Rumsey: We're really focused now on battery electric powertrain pacing investments as that market evolves, and we've got some good customer wins in that space, and so we're, you know, we'll focus on that part of the Accelera business going forward.

Speaker #1: And so we'll focus on that part of the accelerator business going forward.

Speaker #3: Thank you. The next question is coming from Stephen Fisher of UBS. Please go ahead.

Operator: Thank you. The next question is coming from Steven Fisher of UBS. Please go ahead.

Speaker #11: Thanks. Good morning. Just wanted to ask about the heavy-duty truck market, with a follow-up. I think you said there's no change to your second-half expectation at this point.

Steven Fisher: Thanks. Good morning. Just wanted to ask about the heavy-duty truck market, a follow-up. I think you said there's no change to your H2 expectation at this point. I'm just curious how you're thinking about that, because it seems like you said in an improving market and orders are good. It may just be, you know, the answer that you gave David Raso about concerns about supply chain being able to meet that, but curious, you know, how you're thinking about the potential upside for the H2 of the year on the trucks.

Speaker #11: I'm just curious how you're thinking about that because it seems like you cited an improving market and orders are good. It may just be the answer that you gave David Russell about concerns about supply chain being able to meet that.

Speaker #11: But curious how you're thinking about the potential upside for the second half of the year on the trucks.

Speaker #1: Yeah. If you recall back to our original guidance we kind of projected this year we'd kind of the inverse of last year with weak first half and then improving in the second half.

Jennifer Rumsey: Yeah. If you recall back to our original guidance, we kind of projected this year would kind of be inverse of last year with weak H1 and then improving in the H2. Now what we're seeing is that improvement's coming sooner. Going up and then, you know, still we think that as you get into the H2, the build rates that we had projected are probably still accurate because of some of those, you know, supply constraints, you know, potential supply disruption risk. We'll certainly do everything we can to meet the demand that comes. To us, I think it'll be a good H2 of the year, but probably some just constraint in days in the year to the upside.

Speaker #1: And now what we're seeing is that improvement's coming sooner. So going up and then still we think that as you get into the second half the build rates that we had projected are probably still accurate.

Speaker #1: Because of some of those supply constraints potential supply disruption risk. So we'll certainly do everything we can to meet the demand that comes into us and think it'll be a good second half of the year.

Speaker #1: But probably some just constraining days in the year to the upside.

Speaker #11: Without getting too much into a strong Q2 ahead, right? The first half is just to underpin that. The first half's better than we anticipated.

Mark Smith: Without getting too much into quarters, a strong Q2 ahead, right? The H1 is, just to underpin that, the H1's better than we anticipated, and that's what's primarily driving the guide. Q2 should be good.

Speaker #11: And that's what's primarily driving the guide. So Q2 should be good. Okay. Great. And then I know you said the net tariff impact was pretty unchanged and still immaterial.

Steven Fisher: Okay, great. I know you said the net tariff impact was pretty unchanged and still a material, and you got some supply chain benefits that were part of that. Is it possible to talk about some of the underlying kind of dynamics that netted out there in terms of the different rules and kind of where you saw benefits and where you saw any incremental headwinds and how you offset those various things.

Speaker #11: And you got some supply chain benefits that were part of that. Is it possible to talk about some of the underlying kind of dynamics that netted out there in terms of the different rules, and kind of where you saw benefits and where you saw incremental headwinds, and how you offset those various things?

Speaker #8: Well, if we start doing that by segment, we'll be on all night. What I would—I would just take you back to, yes, Power Systems had a net improvement. That's not going to persist. The company has had—when I say immaterial, very, very small net impacts to EBIT, but does.

Mark Smith: Well, if we start doing that by segment, we'll be on all night. I would just take you back to, yes, Power Systems had a net improvement that's not gonna persist. The company has had immaterial, very small net impacts to EBITDA. We could do a whole lot of talking and come back to a very small dollar impact. I think the main thing is the tariffs are changing, right? Probably the gross impact to Cummins, because if you recall last quarter, I tried to simplify as much as possible. We were expecting to get to net neutral, we thought that would take about half a percent off our EBITDA for the full year just because of recovering a large number for tariffs. That large number is still large.

Speaker #8: We could do a whole lot of talking and come back to a very small dollar impact. I think the main thing is the tariffs are changing.

Speaker #8: Right? Probably the gross impact to Cummins, because if you recall, last quarter I gave—I tried to simplify it as much as possible—we were expecting to get to net neutral.

Speaker #8: And we thought that would take about half a percent off our EBITDA for the full year, just because of recovering a large number for tariffs.

Speaker #8: That large number is still large. It's probably just a little bit less now 20 to 30 basis points full year impact. So lots of moving parts but a little bit lower outlook overall.

Mark Smith: It's probably just a little bit less now, 20 to 30 basis points full-year impact. Lots of moving parts, but a little bit lower outlook overall.

Speaker #1: I'll just add a little the change in tariff policies continues to happen. And we continue to be really focused on managing it with our suppliers and our customers.

Jennifer Rumsey: I'll just add a little, you know, the change in tariff policies, you know, continues to happen, and we continue to be really focused on managing it with our suppliers and our customers. Remember, we predominantly make and source in the US. We're making engines in the US for the US market. We're making gensets in the US for the US market. Much of our supply comes from the US. What I will say is, as we've come into this year, at least in the truck space with the 232 tariffs, we're working really closely with the Department of Commerce to make sure they understand how do we meet our mutual goal of encouraging US manufacturing and how the engine offset program is going to work.

Speaker #1: Remember we predominantly make and source in the US. We're making engines in the US for the US market. We're making Genesis in the US for the US market.

Speaker #1: Much of our supply comes from the US. And what I will say is, as we've come into this year, at least in the truck space with the 232 tariffs, we're working really closely with the Department of Commerce to make sure they understand how we meet our mutual goal of encouraging US manufacturing and how the engine offset program is going to work.

Speaker #1: That has not been finalized yet but our guidance does reflect our assumptions of what that will look like for our engine and components business.

Jennifer Rumsey: That has not been finalized yet, but our guidance does reflect our assumptions of what that will look like, for our engine and components business. That's kind of a key change to make sure that we're getting the appropriate credit, if you will, for manufacturing and sourcing and work that we're doing in the US.

Speaker #1: And that's kind of a key change to make sure that we're getting the appropriate credit, if you will, for manufacturing and sourcing and work that we're doing in the U.S.

Speaker #11: And yeah, we've really just been battling to mitigate and recover, right? There's no windfalls to Cummins—we've not tried to make money out of tariffs. We're just trying to collaborate across the supply chain to mitigate the impact.

Mark Smith: Yeah, we've really just been battling to mitigate and recover, right? There's no windfalls to Cummins, that we're not trying to make money out of tariffs. We're just trying to collaborate across the supply chain to mitigate the impact, and we've done well on that. Yes, there's some little bit of variation quarter-to-quarter and segment, but really pleased with the net impact. Better than I would have anticipated from this time last year, when this really became a big deal.

Speaker #11: And we've done well on that. And yes there's some little bit of variation quarter to quarter and segment but really pleased with the net impact.

Speaker #11: It's better than I would have anticipated from this time last year, when this really became a big deal.

Speaker #3: Thank you. The next question is coming from Tim Sine of Raymond James. Please go ahead.

Operator: Thank you. The next question is coming from Tim Thein of Raymond James. Please go ahead.

Speaker #8: Thank you. Good morning. I just wanted to circle back again to an earlier comment about the delayed launch. Of the B series engine is it fair to assume that through the use of credits or other means that Cummins would be able to defray or potentially offset any potential penalties that may arise in that situation?

Tim Thein: Thank you. Good morning. I just wanted to circle back, Jen, to an earlier comment about the delayed launch of the B Series engine. Is it fair to assume that through the use of credits or other means that Cummins would be able to defray or potentially offset any potential, you know, penalties that may arise in that situation?

Speaker #1: Yeah. So as I said we've been working closely with the EPA as they're kind of working on a revision to the regulation. We've been transparent on what we're planning.

Jennifer Rumsey: Yeah. As I said, we've been working closely with EPA as they're kind of working on a revision to the regulation. We've been transparent on what we're planning. You know, we're waiting to see the final rule and the details of that in terms of the exact implications. We anticipate being able to continue to offer our current product through 2027 on the B Series and then launch the new 7-liter at the beginning of 2028. You know, the details of pricing and all of that, we won't be able to finalize until the rule itself has been finalized.

Speaker #1: We're waiting to see the final rule. And the details of that in terms of the exact implications. But we anticipate being able to continue to offer our current product through 27 on the B series and then launch the new 7-liter at the beginning of 28.

Speaker #1: And the details of pricing and all of that we won't be able to finalize until the rule itself has been finalized.

Speaker #8: Okay, all right. And then maybe just to—we used to talk a lot about, in the Cummins calls, the role of China, and it's a pretty big change in terms of the full-year growth expectations from what you were thinking earlier, from a top-line perspective.

Tim Thein: Okay. All right. Maybe just to, you know, we used to talk a lot about on the Cummins calls, just the role of China and, you know, it's a pretty big change in terms of the full year growth expectations from what you were thinking earlier from a top-line perspective. I'm just curious about the kind of the underlying profit dynamics in China that's, you know, we've obviously been in a pretty long deflationary cycle in that economy. I'm just curious, you know, just how the underlying kind of pull-through dynamics may exist for Cummins in China today versus, you know, years ago.

Speaker #8: I'm just curious about the kind of underlying profit dynamics in China, as we've obviously been in a pretty long deflationary cycle in that economy.

Speaker #8: So I'm just curious just how the underlying kind of pull-through dynamics may exist in for Cummins in China today versus years ago.

Speaker #1: Yeah. So just from a market perspective the big change in China has been this dramatic increase in power generation to support data centers and you like all of us are reading this strong investment in data centers in the US and China.

Jennifer Rumsey: Yeah. Just from a market perspective, you know, the big change in China has been this dramatic increase in power generation to support data centers. You know, you, like all of us, are reading this, you know, strong investment in data centers in the US and China. We have a strong position in both of those markets with the products that we're offering and, you know, really saw an increase over a year ago in China for that data center demand as well as Asia Pacific more broadly. You know, our team has done an excellent job of positioning Cummins in the market, you know, with very favorable business. I'll let Mark comment on that.

Speaker #1: And we have a strong position in both of those markets, with the products that we're offering, and really saw an increase over a year ago.

Speaker #1: And China for that data center demand, as well as Asia Pacific more broadly. And our team has done an excellent job of positioning Cummins in the market with very favorable business.

Speaker #1: But I'll let Mark talk more about it.

Speaker #8: I think the things that have helped is, even though top-line growth in the traditional truck market and construction equipment has not been as dynamic upwards as it was five to ten years ago, the themes that have been helping us are commitment to tighter emissions regulations.

Mark Smith: I think the things that have helped us, even though top-line growth in the traditional truck market and construction equipment has not been as dynamic upwards as it was, you know, in the, you know, 5 to 10 years ago. The themes that have been helping us are commitment to tighter emissions regulations that's continued to drive content. When we were first talking about new emissions regulations in China, I think there was some investor skepticism as to whether China would follow through on those regulations. In fact, they have. That's continued to drive significant content adds. We are very successful at localizing content. That's a big advantage of what we do, and that's a big strength of being such a significant player in China. Then you see in rising displacement, right, in power generation needs, that tends to help overall.

Speaker #8: That's continued to drive content when we were first talking about new emissions regulations in China. I think there was some investor skepticism as to whether China would follow through on those.

Speaker #8: Regulations and in fact they have. And so that's continued to drive significant content ads we are very successful at localizing content. That's a big advantage of what we do.

Speaker #8: And that's a big strength of being such a significant player in China. And then you see, in rising displacement, right? In power generation needs, that tends to help overall.

Speaker #8: So I think those combination of factors combined of course with our leading position and partnerships that have been there for a long period of time those are all helping.

Mark Smith: I think those combination of factors combined, of course, with our leading position and partnerships that have been there for a long period of time, those are all helping. Yes, China's definitely more of a tailwind than a headwind right now, and it looks like the enthusiasm for data centers there is very robust, and we're very well positioned to benefit from that or support the customers in what they need. We're excited about that.

Speaker #8: So yes, China's definitely more of a tailwind than a headwind right now. And it looks like the enthusiasm for data centers there is very robust.

Speaker #8: And we're very well positioned to benefit from that or support the customers in what they need. So we're excited about that.

Speaker #3: Thank you. The next question is coming from Rob Wertheimer of Melius Research. Please go ahead. Rob please make sure your line's not muted.

Operator: Thank you. The next question is coming from Rob Wertheimer of Melius Research. Please go ahead. Rob, please make sure your line is not muted.

Speaker #11: Yes. Thank you. Sorry. Question is on electrification. Obviously China has had a surge maybe for their own reasons and then I think Tesla's taken a few orders for the semi.

Rob Wertheimer: Yes, thank you. Sorry. Question is on electrification. Obviously, China's had a surge maybe for their own reasons, then I think Tesla has taken a few orders for the Semi. Could you just kind of talk about, I think you touched on it, Jennifer, a little bit. Could you talk about, you know, what the demand pull from your customers is in North America right now? You know, what you think the shape of that market looks like over the next 2 or 3 years.

Speaker #11: Could you just kind of talk about and I think you touched on it, John, for a little bit. Could you talk about what the demand pull from your customers is in North America right now and what you think the shape of that market looks like over the next two or three years?

Speaker #1: Yeah. I mean the demand pull in North America with the change in greenhouse gas regulations has outside of bus gone to very low levels.

Jennifer Rumsey: Yeah. I mean, the demand pull in North America with the change in greenhouse gas regulations has, outside of bus, gone to very low levels. Very low levels.

Jennifer Rumsey: Yeah. I mean, the demand pull in North America with the change in greenhouse gas regulations has, outside of bus, gone to very low levels. Very low levels. You know, interest in diesel remains very high, and we are continuing to sell electric school buses. But really the demand in trucks is very low and, you know, and not projected to improve anytime soon. That's why we're, you know, we're really focusing on some of the global opportunities we have, being ready for the market here, developing in the school bus market that we have and monitoring signposts that say there's gonna be a shift here.

Speaker #1: Very low levels. Interest in diesel remains very high. And we are continuing to sell electric school buses. But really the demand in trucks is very low.

Rob Wertheimer: Yeah.

Jennifer Rumsey: You know, interest in diesel remains very high, and we are continuing to sell electric school buses. But really the demand in trucks is very low and, you know, and not projected to improve anytime soon. That's why we're, you know, we're really focusing on some of the global opportunities we have, being ready for the market here, developing in the school bus market that we have and monitoring signposts that say there's gonna be a shift here.

Speaker #1: And not projected to improve anytime soon. And so that's why we're really focusing on some of the global opportunities we have being ready for the market here developing in the school bus.

Speaker #1: Market that we have. And monitoring signposts that say there's going to be a shift here.

Speaker #11: Yeah. And if your trucker were recent earnings calls you can see generally our demand has been outpacing the market. Or demand not our demand.

Mark Smith: Yeah. If you track our recent earnings calls, you can see generally our demand has been outpacing the market. Or demand, not our demand for our existing combustion engine products has been outpacing the market. Things can change, but that's what we're seeing right now.

Speaker #11: Demand for our existing combustion engine products has been outpacing the market. Things can change, but that's what we're seeing right now.

Speaker #3: Thank you. The next question is coming from Tammy Zakaria of JPMorgan. Please go ahead.

Operator: Thank you. The next question is coming from Tami Zakaria of JPMorgan. Please go ahead.

Speaker #12: Hi. Good morning. Thank you so much. A couple of questions. First could you share what was the price realization in the quarter?

Tami Zakaria: Hi. Good morning. Thank you so much. A couple of questions. First, could you share what was the price realization in the quarter?

Speaker #11: Yeah. I mean price cost was a very modest positive overall I would say. Not significant.

Mark Smith: Yeah, I mean, price cost was a very modest positive overall, I would say. Not significant.

Speaker #12: Understood. Okay. And Mark maybe wanted to get some color. You said 2Q would be great. Good in terms of builds.

Tami Zakaria: Understood. Okay. Mark, maybe wanted to get some color. You said Q2 would be great, good in terms of builds. Can you put some numbers?

Speaker #11: Q1 was great.

Speaker #12: Give me some numbers.

Mark Smith: Q1 was great.

Speaker #1: Keep going.

Jennifer Rumsey: Keep going.

Speaker #11: Keep going. Keep going. I was just introducing my human. Yeah.

Mark Smith: Keep going. Keep going. I was just introducing my humor. Yeah, go on.

Speaker #1: Oh. Okay. Sorry. I didn't catch that. I apologize. So I think 2Q builds you're expecting to be better than 1Q. And so sequentially are we talking about maybe 20, 30 percent growth and then another step up in 3Q.

Tami Zakaria: Okay. I Sorry, I didn't catch that. I apologize. I think Q2 builds, you're expecting to be better than Q1. Sequentially, are we talking about maybe 20%, 30% growth and then another step up in Q3? Is Q3 sort of the peak of builds and engine segment margins? Is that how we should be modeling?

Speaker #1: So is Q3 sort of the peak of builds and engine segment margins? Is that how we should be modeling?

Speaker #11: Well I hope the margins keep growing long beyond Q3. But yes usually Q4 is not the strongest because of the holiday periods and then you're going into product transitions it may be strong right through till the end.

Mark Smith: Well, I hope the margins keep growing long beyond Q3. Yes, usually Q4 is not the strongest because of the holiday periods, and then you're going into product transitions. It may be strong right through till the end, you're right, we should see a step up in Q2, and then remaining strong in Q3. There are just usually less production days by the OEMs because of the holiday periods in Q4, and that's why it tends to be a little bit lower. I mean, there's many factors that go into our EBITDA margins, of course, demand is one of the biggest. Certainly, we're expecting the rest of the year to be as good or better than the first quarter. That's the simplest way to put it.

Speaker #11: But you're right we should see a step up in Q2 and then remaining strong in Q3. There are just usually less production days by the OEMs because of the holiday periods in Q4.

Speaker #11: And that's why it tends to be a little bit lower. I mean, there are many factors that go into our EBITDA margins, but of course demand is one of the biggest.

Speaker #11: But certainly we're expecting the rest of the year to be as good or better than the first quarter. That's the simplest way to put it.

Speaker #1: But yeah as you said trucks or engines and components will step up in Q2 step up again in Q3 and then as Mark said that the year-end dynamic in Q4 seasonally.

Jennifer Rumsey: Yeah, as you said, trucks or engines and components will step up in Q2, step up again in Q3, and then as Mark said, the year-end dynamic in Q4 seasonally.

Speaker #11: Right. We've even been adding a production shift in medium duty in our plant in Rocky Mountain North Carolina here to deal with the extra demand that just went down the slippery slope.

Mark Smith: Right. We've even been adding a production shift in medium-duty in our plant in Rocky Mount in North Carolina here to deal with the extra demand that just went down the slippery slope, and now we're climbing back up again rapidly. We're excited about that. It was managing those downturns gives us the platform to really capitalize on the way back up. Overall, looking up. Yeah, a strong quarter.

Speaker #11: And now we're climbing back up again at rapidly. So we're excited about that. And it's always managing those downturns gives us the platform to really capitalize on the way back up.

Speaker #11: So overall, looking up. Yeah. A strong quarter.

Speaker #3: Thank you. The next question is coming from Cole Cousins of Wolfe Research. Please go ahead.

Operator: Thank you. The next question is coming from Cole Couzens of Wolfe Research. Please go ahead.

Speaker #13: Hey guys. Implied engine pricing is down year over year and sequentially in 1Q. What's driving this? And in the context of an improving demand backdrop and visibility to higher engine prices next year when do you think we can start to see engine pricing start to move higher this year?

Cole Couzens: Hey, guys. Implied engine pricing is down year over year and sequentially in Q1. What's driving this? In the context of an improving demand backdrop and visibility to higher engine prices next year, when do you think we can start to see engine pricing start to move higher this year?

Cole Couzens: Hey, guys. Implied engine pricing is down year-over-year and sequentially in Q1. What's driving this? In the context of an improving demand backdrop and visibility to higher engine prices next year, when do you think we can start to see engine pricing start to move higher this year?

Speaker #11: Well, I think there's a number of things — there's no significant change on a per-unit basis to most. What you've really got is a mix going on between what's being sold in the quarter, whether that's on-highway versus off-highway, North America versus international. Parts are in the revenue numbers but not in the units numbers.

Mark Smith: Well, I think there's a number of things. There's no significant change on a per unit basis to most. What you've really got is a mix going on between what's being sold in the quarter, whether that's on highway versus off highway, North America versus international. Parts are in the revenue numbers, but not in the units numbers. There is no significant decline in prices per unit. There's just some variation between content is going up for the 2027 emissions regulations in North America for the trucks, and our understanding is most of that's gonna be related to the powertrain going forward, but that's gonna be content-driven.

Speaker #11: So, there is no significant decline in prices per unit. There's just some variation, but content is going up for the 2027 emissions regulations in North America for the trucks, and our understanding is most of that's going to be related to the powertrain going forward.

Speaker #11: But that's going to be content driven.

Speaker #13: Okay. And maybe just to follow up on the EPA 27 rule. If they do decide to introduce non-compliance penalties can you confirm that this shouldn't impact your competitive position in the Class 8 market as it seems like every OEM has a compliant engine ready at this point?

Cole Couzens: Okay. Maybe just to follow up on the EPA 2027 rule. If they do decide to introduce non-compliance penalties, can you confirm that this shouldn't impact your competitive position in the Class 8 market as it seems like every OEM has a compliant engine ready at this point?

Speaker #1: Yeah. I'm not going to speculate on what the EPA is going to do and how we'll respond to that. But as I said we've been having a lot of conversations to make sure as they're revisiting the rulemaking they understand our business and that they're developing a fair rule that makes sense for our customers.

Jennifer Rumsey: Yeah. I'm not gonna speculate on what the EPA is gonna do and how we'll respond to that. As I said, we've been having a lot of conversations to make sure they're re-revisiting the rulemaking, they understand our business, and that they're developing a fair rule that makes sense for our customers.

Speaker #3: Thank you. This brings us to the end of today's time for questions and answers. I would like to turn the floor back over to Mr. Arens for closing comments.

Operator: Thank you. This brings us to the end of today's time for questions and answers. I would like to turn the floor back over to Mr. Arens for closing comments.

Speaker #11: Thank you. That concludes our call today. Thank you very much for your continued interest in Cummins. We're excited to continue the conversation at our analyst day on May 21st.

Nick Arens: Thank you. That concludes our call today. Thank you very much for your continued interest in Cummins. We're excited to continue the conversation at our Analyst Day on 21 May, where the leadership team will share how the business has strengthened and what's next. Having achieved our 2030 profitability targets early, you should expect updates on our targets, capital deployment, and the growth opportunities ahead, including data centers. We look forward to seeing you there. Thank you very much.

Speaker #11: Where the leadership team will share how the business has strengthened and what's next. Having achieved our 2030 profitability targets early you should expect updates on our targets capital deployment and the growth opportunities ahead.

Speaker #11: Including data centers. We look forward to seeing you there. Thank you very much.

Speaker #3: Ladies and gentlemen this concludes today's event. You may disconnect your lines or log off the webcast at this time. And enjoy the rest of your day.

Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.