Cummins, Inc. Q3 FY2026 earnings call

• Strategic Milestones: Cummins was selected to supply battery energy storage systems for a major U.S. data center project, its largest deployment to date. A new $100 million manufacturing facility for IEA cooling systems opened in Wisconsin, doubling production capacity.
• Product Launches: Completed the 'Forever Rising Tour' with over 500 customers, receiving positive feedback on the 2027 X15, X10, and natural gas X15N engines. Preparations are underway for the launch of these new engine platforms.
• Supply Chain & Capacity: Addressed a specific supplier constraint in the power systems segment that delayed shipments, expected to be recovered in Q4. Global supply chain remains tight, prompting investments in capacity expansion aligned with analyst day commitments.
• Market Dynamics: North America heavy and medium-duty truck markets showed strong growth (HD unit sales +68%, MD unit sales +88%), though MD demand was below expectations due to regulatory uncertainty. Pickup truck engine shipments declined 16% due to high diesel prices and interest rates.
• International Growth: China revenues increased 9% to $1.9 billion, supported by data center demand and exports to Africa/SE Asia despite domestic EV adoption. India revenues rose 13% to $803 million, driven by infrastructure and mining activity.
• Financial Discipline: Returned $661 million to shareholders via dividends and buybacks. Maintained focus on returning approximately 50% of operating cash flow to investors while funding growth.

The Engine business reported third-quarter revenues of $3.1 billion, a 20% increase year-over-year, with an EBITDA margin of 13.5%, up 350 basis points from 10% in the prior year, driven by higher North American heavy and medium-duty truck volumes. Components revenues reached $2.9 billion, up 23% year-over-year, with an EBITDA margin of 14.3%, improving 180 basis points from 12.5%. Distribution revenues grew 4% to $3.3 billion, but the EBITDA margin declined to 13.9% from 15.5% due to a lower mix of aftermarket revenues. Power Systems achieved record revenues of $2.3 billion, up 15% year-over-year, with an EBITDA margin of 25.4%, an improvement of 250 basis points from 22.9%, supported by strong global power generation demand and favorable pricing. Accelera revenues were $103 million, down from $121 million year-over-year due to lower electrolyzer sales, resulting in an EBITDA loss of $56 million, improved from a $96 million loss excluding prior non-cash charges.

• Full-Year 2026 Revenue: Lowered to approximately 10% growth, at the bottom end of the previous range of 10-13%, primarily due to weaker-than-expected pickup truck demand.
• Full-Year 2026 EBITDA Margin: Updated to approximately 18.2%, within the previous range of 18-18.5%.
• North America Heavy Duty Trucks: Maintained forecast of 240,000 to 250,000 units for full-year industry production.
• North America Medium Duty Trucks: Lowered forecast to 125,000 to 130,000 units, down from 130,000 to 140,000, reflecting regulatory delays.
• North America Pickup Truck Engines: Lowered shipment forecast to 118,000 to 122,000 units, down from 125,000 to 140,000, citing pressure from elevated fuel costs and interest rates.
• China Revenues: Maintained expectation of approximately 15% revenue growth, driven by power generation and export demand.
• India Revenues: Maintained expectation of approximately 5% revenue growth.
• Power Generation: Maintained guidance for global revenue growth of 15-25%, expecting Q4 recovery of delayed shipments.
• Aftermarket: Maintained outlook for 3-8% revenue growth.
• Capital Investments: Unchanged at $1.35 to $1.45 billion.
• Effective Tax Rate: Expected to be approximately 23% in 2026, excluding discrete items.

• Regulatory Uncertainty: Delays in EPA 2027 final rulings and National Clean Diesel Performance (NCP) standards are causing customer purchasing hesitation, particularly in the medium-duty truck market.
• Supply Chain Constraints: Identified bottlenecks with a key power systems supplier impacted Q3 shipments, though largely recoverable in Q4. General tightness exists in on-highway markets regarding components and axles.
• Market Demand Volatility: Pickup truck engine demand weakened significantly due to elevated diesel prices and interest rates, leading to downward revisions in guidance.
• Operational Issues: Hydrogenics issued a stop-use recommendation for Hylizer electrolyzer products following operational data reviews; no recall has been initiated yet, and financial impact is under evaluation.
• Inventory Levels: Elevated inventory levels in certain mining markets may moderate demand in the near term.

Q: Analyst asked if NCP recovery depends on OEM discipline and if EPA rules might delay past 2027. / A: CEO stated EPA likely issues final rule in December including NCPs, though amounts remain uncertain. CFO clarified NCP recovery applies to older products sold to customers. They anticipate selling current products next year before transitioning to new X10/X15 platforms in Jan 2027 and full production later.