Cummins Inc. Q2 FY2025 earnings call

Key highlights - Delivered impressive second - quarter results with record financial performance in Power Systems and Distribution segments. - Launched a new 17 - liter engine platform generator in the Power Systems segment, designed for urban environments with high power demands. - Announced a 10% increase in the quarterly dividend from $1.82 to $2 per share, the 16th consecutive year of dividend increase. ### Regional market performance - North America: Revenues decreased 6% compared to 2024. Industry production of heavy - and medium - duty trucks declined. Power Generation equipment revenues in North America increased by 25%. - International: International revenues increased by 5% in the second quarter of 2025. China: Revenues including joint ventures were $1.8 billion, an increase of 9% due to accelerating data center demand and higher domestic truck demand. India: Revenues including joint ventures were $699 million, a decrease of 1% from the previous year, but Power Generation revenues increased 31% driven by G - Drive and data center demand.

Engine segment: Second quarter revenues were $2.9 billion, a decrease of 8% from the previous year. EBITDA was 13.8%, down from 14.1% a year ago. Components segment: Revenues were $2.7 billion, a decrease of 9% from the previous year. EBITDA was 14.7% compared to 13.6% of sales a year ago. Distribution segment: Revenues increased 7% from the previous year to $3 billion. EBITDA was a record $445 million, with an improvement as a percent of sales to 14.6% compared to 11.1% a year ago. Power Systems segment: Revenues were $1.9 billion, an increase of 19% from the previous year. EBITDA dollars were also a record at $433 million, rising from 18.9% to 22.8% of sales. Accelera: Revenues decreased 5% to $105 million. EBITDA loss was $100 million compared to an EBITDA loss of $117 million a year ago.

• Anticipated North America heavy - and medium - duty truck volumes to decline 25% to 30% in the third quarter from second quarter levels. - Expected continued strength in the Power Generation market in addition to stability in the aftermarket and industrial businesses. - Acknowledged tariffs were having an impact, but expected to enter the fourth quarter near full recovery regarding tariff impacts.

• Tariffs created uncertainty over freight activity and increased costs, with tariff costs being a factor in the second quarter. - Duration of weak demand in North America truck markets depended on broader economy trajectory, trade and tariff policies, and regulatory clarity. - Uncertainty regarding emissions regulations impacted engineering investment and product launch plans.

Q: It seems like you have a little bit of feast and a little bit of fam in here. So I'll focus on the feast, if that's all right. Power Systems, let's talk about Power Systems. Big margin there, obviously, much higher than I think we expected. I know you've been doing a lot of work on this over the past few years, Jen. But at the end of the day, I'm curious if you think that is sort of the right margin level that we should be thinking about as we start modeling forward? Is that sustainable? Or was there anything in there that we should be aware of?

A: Yes. Thanks, Steve, for the question. And really pleased with the performance of the Power Systems business. As you noted, we started a couple of years ago on a journey to really improve operational performance and really coupled with the strong and growing demand in the Power Generation market has really benefited that business. So we've made many of the steps in really better leveraging the capacity that we have and trying to improve throughput and operational performance. And frankly, the team has outperformed in terms of the efforts for that, and that has led to the really strong margin improvement that you've seen over the last couple of years. We're continuing to focus on areas where we can improve operational efficiency and performance. We're continuing our investment in doubling the capacity in that business, which we expect to be fully online by the beginning of next year. So I think the pace of improvement has probably stabilized, but we will certainly continue to work on operational efficiencies and delivering value to our customers and being able to price for that and drive that mentality across all of our businesses.

Q: Congrats on another strong quarter here. I wanted to ask a little bit of a bigger picture, sticking to the kind of Power Systems dynamic. Back at your Investor Day last year, you quantified that total data center, I think, business was $1.4 billion, I think, in sales, and that you were kind of 23% of the, I think, $6 billion global market for data centers. I think at the time, you also kind of noted that, that would be a $2 billion sales for you in 2026 and maybe a $9 billion market. I know it's difficult to quantify, and it's crazy [indiscernible] starting next year. But I guess, could you just comment on that? How are you seeing your business growth and demand and market share ultimately evolve toward that kind of $2 billion top line? And kind of where are we in terms of the size of your business within data centers?

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