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    CMI
    Earnings call· Mar 2025(Q1 FY25)

    CUMMINS Q1 FY25 earnings call CMI

    May 5, 2025 Source

    Executive summary

    Cummins Q1 FY25 — Strong Power Systems Performance Amid Tariff Uncertainty

    Cummins delivered strong Q1 FY25 results, particularly in its Power Systems segment which achieved record profitability, driven by robust data center demand and operational efficiencies. However, the company withdrew its full-year guidance due to significant uncertainty stemming from evolving trade tariffs and their potential to disrupt global trade and impact demand for capital goods, especially in North America truck markets. Management emphasized its strong financial position and focus on controllable factors while awaiting greater clarity on economic conditions.

    Highlights

    5

    • Q1 revenues of $8.2 billion, down only 3% YoY despite Atmus separation impact.

    • Adjusted EBITDA improved to $1.5 billion or 17.9% of sales, up from 15.5% a year ago (excluding one-time items).

    • Power Systems segment achieved record EBITDA of 23.6% of sales, up from 17.1% YoY, driven by strong data center demand and operational improvements.

    • Engine segment EBITDA improved to 16.5% from 14.1% YoY, benefiting from pricing, aftermarket volumes, and operational efficiencies.

    • Distribution segment revenues increased 15% to $2.9 billion, with EBITDA margin improving to 12.9% from 11.6% YoY.

    Concerns

    5

    • Guidance for the year was withdrawn due to significant uncertainty from trade tariffs and potential demand destruction.

    • North America heavy-duty truck industry production was down 18% YoY (63,000 units), with Cummins unit sales down 21%.

    • North America medium-duty truck industry production was down 21% YoY (32,000 units), with Cummins unit sales down 14%.

    • International revenues decreased 5% YoY, with India revenues down 14% due to prior-year prebuy ahead of emissions regulations.

    • Operating cash flow was an outflow of $3 million, compared to an inflow of $276 million a year ago, driven by higher working capital.

    Guidance & targets

    1
    CategoryTargetConfidence
    Full-year 2025 Outlook
    Withdrawn
    high materiality
    Low

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Engine
    Benefited from pricing related to new light-duty products, stronger aftermarket volumes, operational efficiencies, good cost control, and a modest increase in JV income.
    North America heavy-duty unit sales: down 21%North America medium-duty unit sales: down 14%Stellantis Ram pickup engine shipments: 29,000 units (down 25%)
    		$2.8 billion-5%—16.5% EBITDA
    Components
    Impacted by lower on-highway demand in North America and Europe and the dilutive effect of the Atmus separation, partially offset by operational efficiencies.
    		$2.7 billion-20%—14.3% EBITDA
    Distribution
    Driven by higher power generation volumes, higher aftermarket, and favorable pricing.
    		$2.9 billion+15%—12.9% EBITDA
    Power Systems
    Driven by strong volume, particularly in data center applications and rebuilds, favorable pricing, and continued focus on operational improvement.
    North America power generation revenues: increased 12%China power generation sales: increased 68%
    		$1.6 billion+19%—23.6% EBITDA
    Accelera
    Driven by increased e-mobility sales and electrolyzer installations from prior orders. Lowered costs in existing operations, partially offset by additional losses in the Amplify Cell joint venture.
    		$103 million+11%—-$86 million EBITDA loss

    Operational metrics

    9
    Consolidated Revenue
    $8.2 billiondown 3% YoY
    Q1 FY25

    Sales in North America decreased 1%, while international revenues declined 5%. The separation of Atmus in mid-March in the prior year resulted in year-over-year sales decline of around 4% to the total consolidated sales.

    Adjusted EBITDA
    $1.5 billionup from $1.3 billion YoY
    Q1 FY25

    Higher EBITDA was driven by higher power generation and aftermarket volumes, positive price cost driven by operational improvements, partially offset by lower North America truck volumes and the separation of Atmus.

    Gross Margin
    $2.2 billionup from $2.1 billion YoY
    Q1 FY25

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

    Selling, Administrative and Research Expenses
    $1.1 billiondown from $1.2 billion YoY
    Q1 FY25
    Joint Venture Income
    $131 millionincreased $8 million YoY
    Q1 FY25
    Effective Tax Rate
    23.9%
    Q1 FY25
    Adjusted Net Earnings
    $824 millioncompared to $2 billion YoY (GAAP)
    Q1 FY25

    Excluding the net gain on the separation of Atmus and restructuring expenses, net earnings for the quarter were strong.

    Price Cost Improvement
    3%YoY
    Q1 FY25

    This impact varies between segments and includes improved warranty costs.

    Product Coverage Costs
    1.9%below normal 2%-2.5% range
    Q1 FY25

    This was a real positive for the Engine business in the quarter.

    Industry KPIs

    6
    MetricValueDetails
    Capacity expansionMore than $1 billionUSD
    Tariff cost impactImmaterial
    Parts aftermarket businessStrong
    Data center prime power demandStrong growth
    Order backlog order intake by segmentMultiyear
    Industry production market size forecasts63,000 unitsunits

    Orderbook & backlog

    1
    Power Generation Order BoardmultiyearQ1 FY25

    Customers wanting to cancel or push out builds can be reallocated to other customers.

    Product announcements

    3
    ProductTypeDetails
    X10 Enginelaunch
    B7.2 Diesel Enginelaunch
    100-megawatt PEM electrolyzer systemlaunch

    Deals & partnerships

    1
    First ModeAcquisition of assets of a leader in retrofit hybrid solutions for mining and rail operations.

    Reinforces Cummins' commitment to providing innovative and effective decarbonization solutions.

    Capital programs

    1
    US Manufacturing Investmentunderwaymore than $1 billion

    Benefit: employing people in nearly every state through manufacturing plants and sales and service branches

    This investment is in our Engine and Power Systems manufacturing operations in the U.S., crucial as the administration supports American manufacturing.

    Risks & headwinds

    4
    Trade TariffsQ2 FY25 and H2 FY25

    Immaterial impact in Q1 FY25; expected to build over Q2 and H2 FY25.

    Mitigation: Mitigation through inventory strategies and dual sourcing; working to pass on costs with some lag; primarily produce engines and gensets in markets where sold (e.g., US for US, China for China).

    Economic Uncertainty / Demand DestructionNear-term to H2 FY25

    Uncertainty is high; April truck orders described as disappointing; significant slowing of freight activity into West Coast.

    Mitigation: Focus on managing costs, optimizing working capital, meeting customer commitments; strong financial position to navigate uncertainty.

    North America Emissions Regulations for 20272027

    Led to weaker-than-anticipated recent orders; pre-buy for H2 FY25 unlikely.

    Mitigation: Expect new NOx regulation in 2027; focused on launching products on schedule; working with administration to explore options to lower cost of existing regulations (e.g., extended warranty requirement).

    Section 232 Investigation on Trucks and PartsOngoing (public comment period)

    Potential for additional tariffs.

    Mitigation: Providing comments to Commerce Department; emphasizing U.S. manufacturing; advocating for exemptions on imports to U.S. manufacturing; ensuring reflection of impact on U.S. economy.

    What to watch in Q2 FY25

    5

    Tariff Cost Impact

    Q2 FY25
    CurrentImmaterial in Q1 FY25
    TargetQuantified impact on P&L

    Why it matters

    Tariffs are a major source of uncertainty and could significantly impact profitability and demand.

    The impact of tariffs on our financial results in Q1 was immaterial. So those results that you saw, which were very strong, had essentially close to 0 financial impact. So that's going to change, right? It's going to change, and it's probably -- it's going to change month to month as we -- certainly, as we start to go through the second quarter, probably that it's contributing with the biggest degree of uncertainty for the second half of the year in terms of the demand outlook.

    Q&A highlights

    5

    Asked for quantification of gross/net tariff costs and which segments are most impacted, and where backlog provides visibility, especially concerning pricing risk with tariffs.

    Mark Smith stated they are not quantifying tariffs due to uncertainty, but the bigger concern is broader economic impact. Jennifer Rumsey noted Power Systems has a multiyear order board and aftermarket is resilient, while Engine and Components (on-highway) are most sensitive. Tariffs will be passed on, with some lag.

    “Quite frankly, the bigger concern is the broader impact on the overall economic level environment. We've taken the steps without knowing what the tariffs were going to be. We've taken what steps we could to try and mitigate the impact. But beyond that, to the extent that we incur tariffs, we're going to have to pass those on.”

    asked by Jamie Cook · answered by Mark Smith

    2 min read6 chapters

    Detailed Narrative

    01

    Impact of Trade Tariffs and Guidance Withdrawal

    The company withdrew its full-year guidance for 2025, citing significant uncertainty from evolving trade tariffs. Management noted that the breadth and changing nature of tariffs make it impossible to predict performance with confidence, with the biggest concern being the broader impact on the economic environment and demand for capital goods. The impact on Q1 was immaterial, but it is expected to build over Q2 and the second half of the year.

    02

    Destination Zero Strategy and Product Launches

    Cummins continues to execute its Destination Zero strategy. In the Engine segment, the new X10 engine was introduced as part of the HELM platforms, replacing the L9 and X12, and will go into production in North America in 2027. The new B7.2 diesel engine, designed as a global platform, will also be manufactured at Rocky Mount and go into production in 2027.

    03

    Strategic Acquisitions and Partnerships

    In Power Systems, Cummins acquired assets of First Mode, a leader in retrofit hybrid solutions for mining and rail, to advance decarbonization. Accelera by Cummins announced a supply of a 100-megawatt PEM electrolyzer system for bp's Lingen green hydrogen project in Germany, to be manufactured in Spain and commissioned in 2027, producing up to 11,000 tons of green hydrogen annually.

    04

    North America Market Trends

    Demand softened in the North America truck market. Heavy-duty truck industry production was down 18% YoY to 63,000 units, with Cummins unit sales down 21%. Medium-duty truck industry production decreased 21% to 32,000 units, with Cummins unit sales down 14%. Engine shipments to Stellantis for Ram pickups were down 25% to 29,000 units. North America power generation revenues increased 12% due to strong data center demand.

    05

    International Market Trends

    International revenues decreased 5% YoY. China revenues, including JVs, increased 9% to $1.8 billion, driven by accelerating data center demand and high domestic infrastructure demand, offsetting lower export demand. China medium- and heavy-duty truck demand was down 4% (294,000 units), but Cummins sales (including JVs) increased 6% to 42,000 units. China excavator demand increased 23% (61,000 units), with Cummins units sold up 19%. India revenues, including JVs, decreased 14% to $725 million, with power generation revenues down 11% due to a prior-year prebuy.

    06

    EPA27 Regulations and Order Weakness

    There is uncertainty regarding North America emissions regulations for 2027. While Cummins expects new NOx regulations and plans product launches accordingly, the uncertainty, combined with economic factors, has led to weaker-than-anticipated recent orders and made a pre-buy for the second half of the year unlikely. Management is working with the EPA to explore options to lower the cost of existing regulations, potentially impacting the extended warranty requirement.

    AI-generated summary of the company’s earnings call. Not investment advice.