What is the approximate dollar impact of the incentive comp reset for next year? Why is the Power Gen target range so wide (15-25%) given capacity constraints?

Incentive comp reset could be around $200 million next year, with Q3/Q4 2026 expense about $25 million lower per quarter than Q2. The Power Gen range reflects some variability in smaller genset sales, but large gensets are at capacity, and China demand has been a positive surprise. “It's fair to say, it's unlikely to be a 10% swing from here to there. I think the one thing that's been a positive surprise is really the rapid acceleration in China.”

How much can Power Systems ramp deliveries in 2027 vs. 2026, given the capacity investments? How will the engine transition impact 2027 operations and margins, especially with the new phased approach?

Power Systems capacity ramp-up will see some step-up in 2027, with bigger increases in 2028 and through 2030. The phased engine transition allows for longer limited production, making the ramp smoother and less abrupt, with current products available longer. R&D costs will stay elevated longer, but product coverage costs for 2027 will be lower than anticipated with a full January 1 launch. “So we'd expect that to go up as we get more of a mix of new products in North America. And then over time, historically, those costs either have not played out quite as high as anticipated or would just addressed any field issues as we've gone along.”

Power Systems incremental margins seem better than expected; what's driving this? Is a pre-buy likely in 2027 for EPA 2027 engines, or will the phased ramp-up alleviate this?

Stronger demand in China and efficient ramp-up contribute to Power Systems margins. The phased EPA 2027 transition enables a smoother overall transition, and while some pre-buy is expected, it will be less abrupt than previously thought, driven more by improving market fundamentals. “I think it really enables just an overall smoother transition. That -- the industry is coming off of cyclical low. The fundamentals are improving, I would describe it as cautious optimism.”

CMI

Cummins (CMI) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 4, 2026

Source: earnings call transcript

Executive summary

Cummins Q2 FY26 — Record Sales and Raised Full-Year Outlook Driven by Power Generation and China Demand

Cummins delivered record Q2 FY26 results, driven by robust global power generation demand, particularly from data centers, and strong performance in China. The company raised its full-year revenue and EBITDA guidance, reflecting improved North America on-highway markets and continued strength in power generation. A phased transition plan for EPA 2027 emissions regulations is expected to smooth the product launch cycle, while capacity constraints continue to limit power generation growth.

Highlights

Record second quarter sales of $9.5 billion, an increase of 9% compared to Q2 FY25.
Record EBITDA of $1.7 billion, or 17.5% of sales.
Full-year revenue outlook raised to 10%-13% growth (from 8%-11%).
Full-year EBITDA guidance midpoint raised to 18%-18.5%.
Quarterly cash dividend increased by 10% for the 17th consecutive year.

Concerns

EBITDA margin decreased to 17.5% from 18.4% YoY, partially due to higher variable compensation and tariffs.
Power Systems growth constrained by capacity, despite strong demand.
Elevated inventory levels in some mining markets expected to moderate demand, lowering FY26 sales guidance to down 5% to up 5%.
R&D costs expected to remain elevated longer due to the staggered EPA 2027 transition.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 total company revenues	increase 10% to 13% high materiality	FY26	High
Full-year 2026 EBITDA margin	18% to 18.5% high materiality	FY26	High
Full-year 2026 North America heavy-duty truck forecast	240,000 to 250,000 units medium materiality	FY26	High
Full-year 2026 North America medium-duty truck forecast	130,000 to 140,000 units medium materiality	FY26	High
Full-year 2026 North America pickup truck engine shipments	125,000 to 140,000 units medium materiality	FY26	High
Full-year 2026 China total revenue (incl. JVs)	increase approximately 15% medium materiality	FY26	High
Full-year 2026 China heavy and medium-duty truck demand	down 5% to up 5% medium materiality	FY26	High
Full-year 2026 India total revenue (incl. JVs)	increase 2% medium materiality	FY26	High
Full-year 2026 Global Construction demand	flat to up 10% medium materiality	FY26	High
Full-year 2026 Global Power Generation revenues	increase 15% to 25% high materiality	FY26	High
Full-year 2026 Mining engine sales	down 5% to up 5% medium materiality	FY26	Medium
Full-year 2026 Aftermarket growth	3% to 8% medium materiality	FY26	Medium
Full-year 2026 Accelera revenues	$350 million to $400 million medium materiality	FY26	High
Full-year 2026 Accelera net losses	$260 million to $290 million medium materiality	FY26	High
Full-year 2026 effective tax rate	approximately 23% low materiality	FY26	High
Full-year 2026 capital investments	$1.35 billion to $1.45 billion medium materiality	FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Engine Projected 2026 revenues for the engine business to be at 9% to 14%, EBITDA 12.5% to 13.25%. EBITDA decreased from 13.8% YoYHigher research and development and freight costs were partially offset by stronger North American medium-duty truck volumes, China construction demand and improved tariff recovery	$3.1 billion	6%	—	12.5%
Components Projected 2026 revenues for Components to be up 8% to 13%, EBITDA 13.5% to 14.25%. EBITDA decreased from 14.7% YoYHigher product coverage costs were partially offset by stronger North American truck volumes, higher China on and off-highway volumes, favorable pricing	$2.9 billion	7%	—	13.2%
Distribution Projected 2026 revenues for Distribution to be up 9% to 14%, EBITDA 13.5% to 14.25%. EBITDA decreased from 14.6% YoYDriven by higher incentive compensation and freight expenses, which were partially offset by higher power generation volumes	$3.3 billion	9%	—	13.6%
Power Systems Projected 2026 revenues for Power Systems to grow 14% to 19%, EBITDA 25% to 25.75%. EBITDA increased from 22.8% YoYPrimarily driven by strong global power generation demand, especially in the U.S. and China	$2.3 billion	19%	—	24.5%
Accelera Projected 2026 revenues for Accelera to be $350 million to $400 million, net losses $260 million to $290 million. EBITDA improved from a loss of $100 million YoYDriven by higher electrified powertrain and electrolyzer salesReflecting targeted cost reduction actions	$145 million	38%	—	loss of $69 million

CMI operating KPIs by quarter

CMI operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Mar 2025 Q1 FY25	Jun 2025 Q2 FY25	Sep 2025 Q3 FY25	Mar 2026 Q1 FY26	This call Jun 2026 Q2 FY26	Change vs prior quarter
Engine shipments to Stellantis	29K We shipped 29,000 engines to Stellantis for use in their Ram pickups in the first quarter of 2025, down 25% from 2024 level. Source: earnings call transcript	34K We shipped 34,000 engines to Stellantis for use in the Ram pickups in the second quarter of 2025, down 18% from 2024 levels. Source: earnings call transcript	40K We shipped 40,000 engines to Stellantis for use in their Ram pickups in the third quarter of 2025, up 44% from 2024 levels, driven by a ramp-up of model year '25 product, which was launched earlier this year. Source: earnings call transcript	30K We shipped 30,000 engines to Stellantis for use in the RAM pickups in the first quarter of 2026, up 4% from 2025 levels. Source: earnings call transcript	33K We shipped 33,000 engines to Stellantis for use in the ramp pickups in the second quarter of 2026, down 2% from a year ago. Source: earnings call transcript	+10%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Power Generation Backup Power Genset Demand several gigawatts Q2 FY26

Secured through a multiyear agreement with a global hyperscaler, providing visibility into future demand.

Power Generation Backlog very strong Q2 FY26

Demand for backup power is ahead of industry supply availability, leading to extended lead times into H2 2028 for new orders.

Product announcements

Product	Type	Timeline
130-liter natural gas genset	launch	development underway
Model Year 2027 X15 engine	launch	limited production in January 2027, full production expected Q4 2027
Model Year 2027 X10 engine	launch	limited production in January 2027, full production expected Q3 2027
Next-generation B platform	launch	expected to launch in January 2028

Deals & partnerships

Global Hyperscaler Multiyear agreement for backup power genset demand several gigawatts of future demand multiyear

Expanding a long-standing partnership, securing visibility into future backup power genset demand.

Circe Energy Provide QSK60 and HSK78 natural gas generator sets and integrated microgrid technology

For a behind-the-meter prime power solution, supporting a high-performance computing data center in Texas.

Capital programs

Global Power Generation Capacity Expansion underway

Start: end of 2025 (North America capacity)

Benefit:20 gigawatt incremental capacity

In response to growing global investments in data centers, expanding global capacity across all plants and supply chain. Growth in 2026 will continue to be constrained by capacity, with some capacity coming online in 2027 and bigger step-ups in 2028.

Risks & headwinds

Higher variable compensation expenses Q2 FY26

Partially offset EBITDA margin decrease from 18.4% to 17.5% YoY in Q2 FY26.

Mitigation:Expected to be lower in H2 FY26 and reset for FY27.

Tariffs Q2 FY26

Partially offset gross margin increase in dollars in Q2 FY26.

Mitigation:Net impact was immaterial to EBITDA dollars in the quarter; improved tariff recovery in Engine segment.

Power Generation Capacity Constraints FY26

Constrains 2026 growth despite 15-25% revenue increase.

Mitigation:Ongoing global capacity expansion investments (20 GW incremental capacity) phasing in through 2030.

Elevated Mining Inventory Levels Remainder of FY26

Expected to moderate demand for mining engine sales to down 5% to up 5% (from flat to up 10%).

Mitigation:Fleet replacement activity remains supportive in other markets.

Elevated R&D Costs FY27

R&D cost will stay elevated for a little bit longer.

Mitigation:Offset by lower product coverage costs for 2027 compared to a full January 1 launch, due to phased EPA 2027 transition.

Higher Warranty Accruals for New Platforms FY27 and beyond

Expected to go up as more new products are mixed in North America.

Mitigation:Phased transition allows for addressing issues quickly as volume ramps, which should provide a positive from a quality perspective over the long term.

What to watch in Q3 FY26

EPA 2027 Engine Transition Smoothness

Next quarter and into FY27

Current Phased transition announced, limited production of X15/X10 in Jan 2027.

Target Smooth ramp-up of new products, continued availability and demand for current products, minimal disruption.

Why it matters

The success of this transition impacts market share, profitability, and customer satisfaction for a critical product line.

So it's going to smooth that overall transition and really, I think, make less variation of what year-to-year demand looks like, more driven just by the fundamental economics.

Find out whether CMI delivers this. Inve re-checks your case every morning.

Q&A highlights

How does the EPA 2027 clarity impact the 2027 outlook, especially given prior expectations for a down H1? Also, why were distribution margins lowered in guidance?

The phased EPA 2027 transition will smooth demand, making 2027 less abrupt than previously anticipated, with current products available longer. Distribution margins were impacted by higher incentive compensation (due to record full-year projections) and mix, but underlying growth is strong.

“So it's going to smooth that overall transition and really, I think, make less variation of what year-to-year demand looks like, more driven just by the fundamental economics.”

asked by Jamie Cook · answered by Jennifer Rumsey

2 min read 6 chapters

Detailed narrative

EPA 2027 Emissions Regulations Transition

Cummins announced a phased transition plan for the North America On-Highway 2027 emissions regulations, leveraging implementation flexibilities outlined by the EPA. This approach aims for a smoother transition, with limited production of the model year 2027 X15 and X10 engines beginning in January 2027, and full production ramping progressively through Q3/Q4 2027.

The current X12 and L9 engines will remain available under the proposed rule, and the next-generation B platform is set for a January 2028 launch, with the current B platform available throughout 2027.

Data Center Market Expansion and Agreements

The company is significantly expanding its presence in the data center market, driven by growing global investments. This includes plans to broaden its power generation portfolio with integrated solutions and the development of a 130-liter natural gas genset. A multiyear agreement was signed with a global hyperscaler, securing visibility into several gigawatts of future backup power demand, reinforcing confidence in growth and supporting ongoing capacity expansion.

Additionally, an agreement with Circe Energy will provide natural gas generator sets and microgrid technology for a high-performance computing data center in Texas.

Record Q2 Financial Performance

Cummins delivered record second-quarter sales of $9.5 billion, a 9% increase year-over-year, and record EBITDA of $1.7 billion (17.5% of sales). This performance was primarily driven by higher global demand in power generation markets, particularly from data centers, and international construction markets. Increased joint venture earnings and positive pricing also contributed, partially offset by tariffs and higher variable compensation expenses.

Raised Full-Year Outlook

The company raised its full-year 2026 revenue growth outlook to 10-13% and increased the midpoint of its EBITDA guidance to 18-18.5%. This improved outlook reflects stronger North America on-highway markets, continued power generation strength, and improved on- and off-highway demand in China. Management expects improving operating performance in the second half of the year, entering with positive momentum and greater regulatory clarity.

Strategic Capital Allocation

Cummins returned over $0.5 billion to shareholders in Q2 FY26, comprising $225 million in share repurchases and $276 million in cash dividends, consistent with its long-standing commitment to return approximately 50% of operating cash flow. The Board of Directors also approved a 10% increase in the quarterly cash dividend, marking the 17th consecutive year of dividend growth, signaling confidence in future performance.

China Market Rebound

Revenues in China, including joint ventures, increased 30% year-over-year to $2.3 billion, driven by accelerating data center demand and improving on-highway and construction markets. Industry demand for medium- and heavy-duty trucks in China rose 24%, supported by strong export demand (Africa, Southeast Asia) and domestic replacement, alongside an increase in battery electric powered trucks.

Excavator demand in China also increased 34%, driven by exports and rural development projects.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.