Cummins Inc. Q3 FY2025 earnings call

• In September, announced collaboration with Komatsu to develop hybrid powertrains for surface haulage heavy mining equipment.
• Latest 15-liter engine had standout results in Run on Less – Messy Middle event.
• Third quarter sales were $8.3 billion, down 2% y/y; EBITDA was $1.2 billion or 14.3% y/y; included $240M noncash charges related to electrolyzer business; excluding charges, EBITDA was $1.4 billion or 17.2% of sales.
• North America heavy and medium-duty truck demand weak, global power generation markets strong, light-duty truck volumes up.
• Distribution segment had record revenues and EBITDA; Power Systems had record revenues and EBITDA.

Engine segment: Q3 revenues were $2.6 billion, a decrease of 11% from a year ago. EBITDA was 10%, a decrease from 14.7%. Components segment: revenue was $2.3 billion, a decrease of 15% from a year ago. EBITDA was 12.5% compared to 12.9% of sales a year ago. Distribution segment: revenues increased 7% from a year ago to a record $3.2 billion and EBITDA was also a record 15.5% compared to 12.5% of sales a year ago, driven by higher power generation demand and higher aftermarket earnings. Power Systems segment: revenues were a record $2 billion, an increase of 18% from a year ago. EBITDA dollars were also a record at $457 million, increasing as a percent of sales from 19.4% to 22.9%, driven by strong volume, particularly in data center applications, positive pricing and effective capacity expansions. Accelera segment: revenues increased 10% to a record $121 million as increased e-mobility sales partially offset lower electrolyzer installations. Our EBITDA loss, excluding noncash charges, of $96 million compared to an EBITDA loss of $115 million a year ago.

• Hopeful to reinstate guidance for 2026 in February.
• Expect near-term weakness in North America on-highway truck markets to persist at least through end of 2025; anticipate engine shipments to on-highway markets to decline ~15% in Q4 compared to Q3.
• Hoping for clarity on trade and regulatory policies to support North American truck industry and broader industrial economy.

• Geopolitical tensions could impact semiconductor supply and products using rare earth minerals, affecting supply chain.
• Reduction of U.S. government incentives for green hydrogen and slower international market development led to lower demand for electrolyzer products, prompting strategic review of electrolyzer business.
• Tariff costs increased, though efforts made to recover through pricing, but net impact negative year-over-year.

Q: Jamie Cook asked about Engine margins in Q4 and Power Systems' capacity.

A: Mark Smith said Engine business is dealing with various pressures but hopes to be at a low point; Jennifer Rumsey said Power Systems has been on a journey to fix performance, had record order intake in Q3, and will continue to invest for profitable growth.

Q: Angel Castillo asked about data center capacity additions and natural gas engines.

A: Jennifer Rumsey said focus on current capacity expansion for data centers, actively looking at future capacity expansion and considering natural gas engines for data centers.

Q: David Raso asked about Accelera's performance.

A: Mark Smith said Accelera's e-mobility has growth but electrolyzer is off track due to weaker demand; Jennifer Rumsey said strategically continuing to look at Accelera portfolio.

Q: Kyle Menges asked about Engine margins and tariffs.

A: Mark Smith said Engine business has headwinds but working hard to mitigate, not expecting dramatic improvement in Q4.

Q: Tami Zakaria asked about aftermarket services and NOx 2027.

A: Jennifer Rumsey said limited aftermarket in data center backup power but expecting improvement; said prepared to launch products for 2027 regulations if certainty is obtained.

Q: Steven Fisher asked about international data center opportunities and Power Systems margins.

A: Jennifer Rumsey said strong demand in U.S. and China, well-positioned; Mark Smith said China has more local competition; Mark Smith also said Power Systems has strong margins and expecting earnings growth.

Q: Noah Kaye asked about R&D spend and prime power opportunity.

A: Jennifer Rumsey said R&D spend likely flat next year; said strategy is to have portfolio of solutions for prime power.

Q: Cole Couzens asked about Engine margins and tariffs.

A: Mark Smith said tariffs have been a hindrance, not framing as margin improvement; Jennifer Rumsey reiterated need for stability in tariffs for margins.

Q: Charles Albert Dillard asked about standby power capacity and tariffs.

A: Jennifer Rumsey said evaluating capacity expansion for standby power; Mark Smith said net tariff impact has been negative, with tens of millions in negative impact each quarter so far.