CUMMINS Q2 FY25 earnings call CMI

Cummins delivered impressive Q2 FY25 results, with EBITDA increasing 310 basis points year-over-year to 18.4% of sales, reaching $1.6 billion. This strong profitability was achieved despite a 2% decline in overall revenues to $8.6 billion and a significant 30% drop in North America heavy-duty truck volumes. The improvement was primarily driven by record performance in the Distribution and Power Systems segments, coupled with operational efficiencies, positive pricing, and lower compensation expenses, which more than offset the impact of lower truck volumes and unfavorable tariffs.

The Power Systems segment achieved record EBITDA of $433 million, with its margin expanding to 22.8% of sales, up from 18.9% a year ago. This was attributed to strong volume, particularly in data center applications, favorable pricing, and productivity improvements. The Distribution segment also reported record EBITDA of $445 million, with margins improving to 14.6% of sales, benefiting from higher Power Generation demand, strong parts sales, and overall gross margin improvements. The company is doubling capacity in Power Systems, expected to be fully online by early next year, to meet continued strong demand.

The North America truck market experienced a sharp decline, with heavy-duty truck production down 27% and medium-duty down 36% year-over-year. Cummins' unit sales mirrored this trend, falling 29% and 35% respectively. The company anticipates Q3 FY25 North America heavy- and medium-duty truck volumes to decline 25% to 30% from Q2 levels, citing multiyear low orders and OEM production cuts. Management noted that the duration of this downturn depends on the broader economy, trade/tariff policies, and regulatory clarity, making a prediction for 2026 and 2027 difficult.

International revenues increased 5% in Q2 FY25. China revenues, including JVs, rose 9% to $1.8 billion, driven by accelerating data center demand and higher domestic truck demand (up 13% for medium/heavy-duty units) due to government stimulus and NS4 scrapping incentives. China excavator demand also increased 11%. India revenues decreased 1%, with Power Generation revenues up 31% due to G-Drive and data center demand. Data center demand was a consistent growth driver across multiple geographies and segments.

Tariffs negatively impacted Cummins' profitability by approximately $22 million net in Q2 FY25. The company expects to enter Q4 FY25 close to a price/cost neutral position regarding tariffs, having actively negotiated agreements with customers and implemented dual sourcing where viable. Management highlighted the significant burden tariffs place on the industry and the ongoing uncertainty, which was exacerbated by recent announcements, impacting business confidence and capital goods demand.

The Accelera segment's revenues decreased 5% to $105 million, with an EBITDA loss of $100 million, an improvement from $117 million a year ago due to a lower cost base. Management acknowledged a slowed growth trajectory for alternative powertrains but remains committed to reducing losses and growing as the market develops. The company is continuing with its Amplify Cell joint venture in the U.S. for commercial vehicle cells and is evaluating expansion into stationary energy storage and microgrids.

Cummins increased its quarterly dividend by 10% to $2.00 per share, consistent with its long-term plan to return approximately 50% of operating cash flow to shareholders. The company is working to improve leverage metrics. While tax benefits from accelerated depreciation could provide $125 million to $250 million in cash benefit, this is outweighed by tariff costs. Regulatory uncertainty^🌐 around EPA27 emissions regulations has led to a delay in one product launch (X15) and requires retaining flexibility in engineering spend, impacting the ability to reduce R&D intensity as a percentage of sales.