CUMMINS INC CMI

Cummins' multi-solution 'Destination Zero' strategy, leveraging both core and Accelera businesses, proved effective in 2024. The company introduced the HELM engine platforms, offering fuel flexibility (advanced diesel, natural gas, hydrogen) for B, X10, and X15 series engines. Full production of the X15N natural gas engine began at the Jamestown Engine Plant, with active engagement from heavy-duty fleets seeking to reduce carbon footprint. The HELM platform's fuel flexibility is key, with diesel versions offering higher efficiency and lower CO2, and a goal of 8% adoption for the natural gas version, though adoption rates depend on infrastructure and regulation.

The Power Systems business achieved record full-year EBITDA of 18.4% of sales in 2024, up from 14.7% in 2023, driven by strong power generation demand, particularly from data centers. Cummins is investing $200 million across its U.S., England, and India manufacturing sites to ramp up capacity for power generation products, targeting a doubling of capacity by the end of 2025. This investment supports the production of larger engines (50-60 liter, 78, 95 liters) for critical applications. The strong performance is attributed to improved operating efficiency, supply chain management, and favorable pricing, coinciding with the data center market surge.

Cummins completed a strategic review of its Accelera segment, resulting in $312 million in charges in Q4 2024, primarily non-cash. The restructuring aims to streamline the business and refocus investments on promising paths, such as battery electric vehicles and the Amplify Cell Technologies joint venture, while pacing investments in areas like electrolyzers and fuel cells where adoption is slower. While Accelera is not on track to achieve its previous EBITDA breakeven target by 2027, management is committed to significant loss reduction and believes the overall company targets remain achievable. Accelera's full-year sales are projected to be $400 million to $450 million in 2025, with net losses reducing to $385 million to $415 million.

The North America heavy-duty truck market is projected to be flat to down 10% in 2025 (260,000 to 290,000 units), with weaker first-half demand anticipated. Management expects a prebuy in the second half of 2025 due to EPA27 regulations, which are expected to remain in place. The medium-duty truck market is forecast to be down 5% to 15% (140,000 to 155,000 units) due to weaker net orders and depleting backlog. Engine shipments for pickup trucks are expected to be flat to up 5% (130,000 to 140,000 units). The company's guidance reflects a stronger second half for heavy-duty trucks, driven by potential economic recovery and the EPA27 prebuy.

In China, total revenue (including JVs) is projected to increase 5% in 2025, despite a wide range for heavy and medium-duty truck demand (down 5% to up 10%). Management hopes the MS4 scrapping policy and stimulus actions will drive domestic demand, though no meaningful recovery has been observed yet. India's total revenue (including JVs) is expected to increase 10%, primarily from stronger power generation demand, with truck industry demand projected flat to up 5%. Global construction is forecast flat to down 10%, mainly due to weak property investment and shrinking export demand in China.

Cummins' capital allocation in 2024 focused on organic investments, dividend growth, and returning $969 million to shareholders via cash dividends and debt reduction. The tax-free Atmus separation also reduced shares outstanding by approximately 5.6 million. The company's long-term goal is to deliver at least 50% of operating cash flow to shareholders, having returned 54% over the past five years. Capital investments for 2025 are projected to increase to $1.4 billion to $1.5 billion (from $1.2 billion in 2024) to support future growth.