Cummins Q4 2024 Earnings Report

Cummins EPS Results

• Actual EPS: $5.16
• Consensus EPS: $4.70
• Beat/Miss: Beat by +$0.46
• One Year Ago EPS: $4.14

Cummins Revenue Results

• Actual Revenue: $8.45 billion
• Expected Revenue: $8.06 billion
• Beat/Miss: Beat by +$382.44 million
• YoY Revenue Growth: -1.10%

Cummins Announcement Details

• Quarter: Q4 2024
• Date: 2/4/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, February 4, 2025
• Conference Call Time: 10:00AM ET

Cummins (NYSE:CMI) designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide. It operates through five segments: Engine, Distribution, Components, Power Systems, and Accelera. The company offers diesel and natural gas-powered engines under the Cummins and other customer brands for the heavy and medium-duty truck, bus, recreational vehicle, light-duty automotive, construction, mining, marine, rail, oil and gas, defense, and agricultural markets; and offers parts and services, as well as remanufactured parts and engines. It provides power generation systems, horsepower engines, heavy and medium duty engines, application engineering services, custom-designed assemblies, retail and wholesale aftermarket parts, and in-shop and field-based repair services. In addition, the company offers emission solutions; turbochargers; air and fuel filters, fuel water separators, lube and hydraulic filters, coolants, fuel additives, and other filtration systems; and electronic control modules, sensors, and supporting software, as well as new, replacement, and remanufactured fuel systems. Further, it provides automated transmissions; standby and prime power generators, controls, paralleling systems, and transfer switches, as well as A/C generator/alternator products under the Stamford and AVK brands; and electrified power systems with components and subsystems, including battery, fuel cell, and hydrogen production technologies. Additionally, it offers filtration, aftertreatment, controls systems, air handling systems, and electric power generation systems, and batteries. It sells its products to original equipment manufacturers, distributors, dealers, and other customers. The company was formerly known as Cummins Engine Company and changed its name to Cummins Inc. in 2001. Cummins Inc. was founded in 1919 and is headquartered in Columbus, Indiana.

Cummins Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Greetings and welcome to the Cummins Inc. Q4 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. Joining us today are Chair and CEO, Jennifer Rumsey Vice President and CFO, Mark Smith and Chris Clulow, Vice President, Investor Relations.

[Operator]

It's now my pleasure to introduce your host, Chris Clulow. Please go ahead, sir.

[Chris Clulow, Vice President-Investor Relations at Cummins]

Thank you, Kevin. Good morning, everyone, and welcome to our teleconference today to discuss Cummins' results for the Q4 full year of 2024. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward looking statements within the meaning of the Securities and Exchange Act of 1934.

[Chris Clulow, Vice President-Investor Relations at Cummins]

Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the futures. Our actual future results could differ materially from those projected in such forward looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward looking disclosure statements in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed Annual Report on Form 10 ks and any subsequently filed quarterly reports on Form 10 Q. During the course of this call, we will be discussing certain non GAAP financial measures and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at commons.com.

[Chris Clulow, Vice President-Investor Relations at Cummins]

With that out of the way, I'll turn you over to our Chair and CEO, Jennifer Rumsey, to start us off.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Thank you, Chris. Good morning. I'll start with a summary of 2024, discuss our Q4 and full year results and finish with a discussion of our outlook for 2025. Mark will then take you through more details of our 4th quarter and full year financial performance and our forecast for this year. As I reflect back on 2024, I am pleased to share that we delivered strong financial results with records in several parts of the business, while also making significant progress in the execution of our Destination 0 strategy.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

I am incredibly proud of what Cummins and our employees accomplished for our stakeholders and I feel energized about the opportunities ahead for us as we continue to demonstrate our relentless focus on advancing our strategy and executing our financial commitments as we lead the energy transition. It continues to be clear that our multi solution Destination 0 strategy that leverages advancements and solutions from both our core and Accelera by Cummins businesses will continue to position us to succeed. We demonstrated this in 2024 as we further strengthen our position through evolving our portfolio and expanding and establishing relationships with new and longstanding key stakeholders and partners. Most notably for our core business in 2024, we introduced the Cummins Helm engine platform. Applied across Cummins legendary BX10 and X15 series engine portfolios, the Helm platforms provide customers with the option to choose the fuel type, either advanced diesel or alternate fuels like natural gas and hydrogen that best suits their business needs and offers the power and performance customers expect, while also reducing emissions.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Cummins began full production of the X-15N natural gas engine at the Jamestown engine plant earlier this year, and we are actively engaged with some of North America's largest and most demanding heavy duty fleets as they look to reduce their carbon footprint. Additionally, in our core business, we introduced 4 new generator sets to the award winning CENTUM series, 2 each powered by Cummins QSK50 and QSK78 engines. In response to high market demand, these new models have been engineered specifically for the most critical applications such as data centers. In order to further raise our capacity to meet rising power generation demand, we also intend to invest $200,000,000 across our U. S, England and India manufacturing sites.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

As you will see in our full year financial performance details and 2025 guidance, we are excited about the continued impressive performance and growth potential for our Power Systems business. Cummins also successfully completed the separation of our filtration business, Atmos Filtration Technologies. Cummins will continue its focus on advancing innovative power solutions, while Atmos is now well positioned to pursue its own plans for profitable growth. The separation of Atmos resulted in the tax free exchange of shares, which reduced Cummins shares outstanding by approximately $5,600,000 in the Q1. In our Accelera business, we completed the formation of our joint venture Amplify Cell Technologies with Daimler Trucks and Buses, PACCAR and EVE Energy to localize battery cell production and the battery cell supply chain in the United States.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

This strategic collaboration will advance and is targeting start up production in 2027. Lastly, as we navigate this long and messy transition for our customers, we remain committed to pacing and refocusing our investments on the most promising paths as the adoption of 0 emission solution slows in some regions around the world. As you can see in our Q4 results, we recorded charges related to the reorganization of our Accelera business segment as we underwent a strategic review to streamline the business, while also ensuring we are set up for long term success. We remain committed to Accelera and its mission and this business continues to play an important role in our Destination 0 strategy. Now, I will comment on overall company performance for the Q4 of 2024 and cover some of our key markets.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Demand for our products remained strong across many of our key markets and regions, offsetting the softening in the North America heavy duty truck market. Revenues for the quarter totaled $8,400,000,000 a decrease of 1% compared to 2023 as lower North America heavy duty and pickup truck volumes and the reduction in sales from the separation of Atmos were partially offset by continued high demand in our global power generation markets, stronger aftermarket and North America medium duty truck volumes as well as improved pricing. EBITDA was $1,000,000,000 or 12.1 percent compared to a loss of $878,000,000 or negative 10.3 percent a year ago. 4th quarter 2024 results included $312,000,000 of charges related to the strategic reorganization of our Accelera business segment. This compares to the Q4 2023 results, which included $2,000,000,000 of costs related to the agreement to resolve U.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

S. Regulatory claims, dollars 42,000,000 of costs related to our voluntary retirement and separation programs and $33,000,000 of costs related to the separation of the Atmos business. Excluding those items, EBITDA was $1,300,000,000 or 15.8 percent compared to $1,200,000,000 or 14.4 percent a year ago. EBITDA and gross margin dollars improved compared to the Q4 of 2023 as the benefits of higher power generation volume, pricing and operational efficiency more than exceeded lower North America truck volumes and the separation of Atmos. 2024 revenues were a record $34,100,000,000 essentially flat with 2023 despite the decline in North America heavy duty truck demand in the second half of the year and reduction of sales from the Atmos separation.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

EBITDA was a record $6,300,000,000 or 18.6 percent of sales compared to $3,000,000,000 or 8.9 percent of sales in 2023. 2024 results include a gain net of transaction costs and other expenses of 1 point $3,000,000,000 related to the Atmos divestiture, dollars 312,000,000 of charters related to the Accelera reorganization and $29,000,000 of 1st quarter restructuring expenses. This compares to the 2023 results that included $2,000,000,000 of costs related to the agreement to resolve U. S. Regulatory claims, dollars 100,000,000 of costs related to the separation of Atmos and $42,000,000 of costs related to the voluntary retirement and separation programs.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Excluding those items, EBITDA was a record $5,400,000,000 or 15.7 percent of sales for 2024 compared to $5,200,000,000 or 15.3 percent of sales for 2023 as the benefits of higher power generation volumes, pricing and operational efficiency more than exceeded lower second half North America truck volumes and the reduction in margin from the Atmos separation. EBITDA dollars were a record in Power Systems, Distribution and Engine segment. Our Power Systems business in particular finished 2024 with a record full year EBITDA of 18.4 percent of sales, up from 14.7% in 2023. I am very pleased with the performance across our core business segments and you will see from our guidance that we are excited to continue to build on this momentum. Now let me provide our overall outlook for 2025 and then comment on individual regions and end markets.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

We are forecasting total company revenues for 2025 to be down 2% to up 3% compared to 2024 and EBITDA to be 16.2% to 17.2% of sales, up from 15.7% in 2024. While we expect weaker first half demand in our North America on highway truck markets, we expect many of our markets, particularly power generation to remain strong throughout the year. Industry production for heavy duty trucks in North America is projected to be 260,000 to 290,000 units in 2025, flat to down 10% year over year. We anticipate weaker first half demand and while we do expect a pre buy in the second half of the year, the uncertainty on the exact timing and extent is driving our wider guidance range. In the medium duty truck market, we expect the market size to be 140,000 to 155,000 units, down 5% to 15% compared to 2024, primarily driven by weaker than expected recent net orders and a depleting backlog.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Our engine shipments for pickup trucks in North America are expected to be 130,000 to 140,000 in 2025, flat to up 5% year over year. In China, we project total revenue including joint ventures to increase 5% in 2025. We are projecting a range of down 5% to up 10% in heavy and medium duty truck demand in China. While export demand is expected to decline slightly, we are hopeful that the recent NS4 scrapping policy and other stimulus actions may lead to domestic demand growth. We have not however seen a meaningful recovery thus far.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

While there is still uncertainty around the China truck market for 2025, we expect strength in other markets, particularly power generation, where demand is expected to remain high as data center momentum continues. In NDA, we project total revenue, including joint venture to increase 10% in 2024, primarily driven by stronger power generation demand. We expect industry demand for trucks to be down 5% to up 5% for the year. For global construction, we expect flat to down 10% year over year, primarily driven by weak property investment and shrinking export demand in China. We project our major global high horsepower markets to remain strong in 2025.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Revenues in global power generation markets are expected to increase 5% to 15% driven by continued high demand in the data center market. Sales of mining engines are expected to be down 5% to up 5%. For aftermarket, we expect revenue improvement with a range of flat to an increase of 5% for 2025. In Accelera, we expect full year sales to be $400,000,000 to $450,000,000 compared to $414,000,000 in 2024. In summary, 2024 was a record year for revenues, net income, EBITDA and earnings per share.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

In 2025, we anticipate that demand will be slightly weaker in the North America on highway truck markets, particularly in the first half of the year, but offset by continued strength in the power generation market and resiliency in our distribution business given our strong aftermarket presence. Despite our relatively flat revenue forecast, we are expecting to improve profitability and cash flow. We remain committed to our multi solution approach that is proving to be the right strategy for our customers, for the environment and for the continued growth of Cummins, while also returning cash to investors. Now let me turn it over to Mark, who will discuss our financial results in more detail.

[Mark Smith, CFO & VP at Cummins]

Thank you, Jen, and good morning, everyone. We delivered strong operational results in the Q4, which resulted in revenue achieving the top end of our prior guidance and EBITDA margins exceeding our projections. 2024 was a record year for revenues, EBITDA and earnings per share, reflecting the strong demand for our products and the strong hard work of our employees. Now let me go into more details on Q4 and the full year performance. There were some notable non routine transactions in 20242023, and I'll quantify those and describe our underlying results to give a better understanding of the performance from regular operations.

[Mark Smith, CFO & VP at Cummins]

4th quarter reported revenues were $8,400,000,000 and EBITDA was $1,000,000,000 or 12.1 percent of sales. As Jenn mentioned, we underwent a strategic review of our Accelerus segment, which resulted in charges of $312,000,000 of which $305,000,000 were non cash. Excluding this charge, we delivered EBITDA of $1,300,000,000 or 15.8 percent of sales. In the Q4 of 'twenty 3, we reported sales of 8,400,000,000 dollars and an EBITDA loss of $878,000,000 Excluding the regulatory settlement, Atmos separation costs and voluntary retirement and separation program costs in Q4 2023, EBITDA was positive $1,200,000,000 or 14.4 percent. I know that's a lot to digest.

[Mark Smith, CFO & VP at Cummins]

In summary, on an underlying basis, EBITDA improved by 140 basis points on slightly lower sales, excluding those charges I just described. 4th quarter revenues decreased by 1% from a year ago, as organic growth was more than offset by the reduction in sales driven by the separation of Atmos. Sales in North America were flat, while international revenues decreased 3%. Foreign currency movements negatively impacted sales by less than 1%. The EBITDA improvement of 100 and 40 basis points was primarily due to higher power generation volumes, pricing and operational efficiency, partially offset by lower North America truck volumes and the separation of Atlas.

[Mark Smith, CFO & VP at Cummins]

Now let me summarize some of the impacts by line item in the income statement. Gross margin was $2,100,000,000 or 25.4 percent of sales compared to $2,000,000,000 or 23.7 percent last year. The improved margins were driven by stronger power generation and aftermarket demand, favorable pricing, particularly in Power Systems and Distribution and improved operational efficiency. Selling, administrative and research expenses were $1,100,000,000 or 13.6 percent of sales compared to $1,200,000,000 or 14.2 percent last year due to lower research and development costs. Joint venture income of $87,000,000 decreased $26,000,000 primarily driven by lower technology fees from some of our international partnerships and costs incurred in the ramp up of the Amplify Cell Technology battery venture here in the U.

[Mark Smith, CFO & VP at Cummins]

S, which was formed in the Q2 of 'twenty four. Other income was negative $25,000,000 a decrease of $75,000,000 from a year ago, primarily driven by mark to market losses on investments related to company owned life insurance. Interest expense was $89,000,000 a decrease of $3,000,000 from a prior year, driven by lower weighted average interest rates. The all in effective tax rate in the Q4 was 32.8%, principally due to non deductible costs related to the Excelera reorganization. All in net earnings for the quarter were $418,000,000 or $3.02 per diluted share, which includes $312,000,000 or $2.14 per diluted share of Accelera reorganization charges.

[Mark Smith, CFO & VP at Cummins]

Excluding the Accelera charges, EPS was $5.16 per diluted share. Operating cash flow was an inflow of $1,400,000,000 just $37,000,000 lower than the level we saw in the Q1 last year. For the full year 2024, revenues were a record $34,100,000,000 slightly above a year ago and reflecting 4% growth if we exclude Atmos from both 2023 2024. EBITDA in 2024 was $6,300,000,000 or 18.6 percent. Excluding the gain in costs associated with the separation of Atmos, the Accelerate charge in the 4th quarter and 1st quarter restructuring expenses, EBITDA in 2024 was 5,400,000,000 or 15.7 percent.

[Mark Smith, CFO & VP at Cummins]

2023 EBITDA was €3,000,000,000 or €5,200,000,000 and 15.3 percent excluding the regulatory settlement, Atlas separation costs and voluntary retirement separation programs. The increase in EBITDA percent was primarily driven by higher power generation volumes, pricing and operational efficiencies, more than offsetting the impact of lower North American heavy duty truck volumes and the reduction in margin from the Atlas separation. All in net earnings were $3,900,000,000 or $28.37 per diluted share compared to $735,000,000 or $5.15 per diluted share a year ago. 2024 results included the gain related to the separation of Atmos, net of transaction costs and other expenses of $1,300,000,000 or $9.28 per diluted share, charges related to Acceleration of $2.12 per diluted share and 1st quarter restructuring costs of $0.16 per diluted share. Capital expenditures in 2024 were $1,200,000,000 flat compared to 2023, as we continue to invest in the new products and capabilities to drive growth, particularly related to the Helm platforms within our core business in North America.

[Mark Smith, CFO & VP at Cummins]

Our long term goal is to deliver at least 50% of operating cash flow to shareholders over the and over the past 5 years, we've returned 54% in the form of share repurchase and dividends even while we absorbed significant acquisition in the form of Meritor. In 2024, we focused our capital allocation on organic investments, dividend growth and returning $969,000,000 to shareholders via the cash dividend and debt reduction. We also reduced our shares outstanding by approximately 5,600,000 shares from the tax free Atmos separation share exchange. I will now summarize the 2024 results for the operating segments and provide guidance for 2025. And thankfully for you and for me, I'm going to exclude all those non routine items in the following pages.

[Mark Smith, CFO & VP at Cummins]

And thanks for staying with me as I work through that. For the Engine segment, 2024 revenues were a record $11,700,000,000 or up $28,000,000 compared to last year. EBITDA was 14.1 percent of sales, flat compared to a year ago. In 2025, we project revenues for the engine business will be down 2% to up 3% due to expected weakness in North American truck market, particularly in the first half of the year, slightly offset by improved demand in pickup and some international markets. 2024 EBITDA is expected to improve with projections in the range of 14.2 percent to 15.2 percent.

[Mark Smith, CFO & VP at Cummins]

Components segment revenues were $11,700,000,000 in 2024, 13% lower than the prior year, and EBITDA was 13.8 percent of sales compared to 14.4% in 'twenty three. There are a lot of work done to improve existing operations, but that was offset in the year over year comparisons due to the separation of Atmos. For 2025, we expect total revenue for the components business to range from down 5% to flat, as 2024 included Atmos in the Q1 through March 18. EBITDA margins are expected to be between 13.8% 14.8%. In the Distribution segment, revenues increased 11% in 2024 compared to 2023 and were a record $11,400,000,000 EBITDA was 12.1% compared to 11.8% a year ago, driven by higher power generation volumes and pricing.

[Mark Smith, CFO & VP at Cummins]

We expect 2025 distribution revenues to increase 2% to 7% and EBITDA margins to be in the range of 12% to 13%. In the Power Systems segment, revenues were a record $6,400,000,000 up 13% over 2023, driven primarily by power generation demand, especially data center applications. EBITDA was 18.4% or 3.70 basis points higher than 2023, driven by stronger volume, favorable pricing and a continued focus on operational performance and cost reduction. In 2025, we expect Power Systems revenues to be up 2% to 7% and EBITDA to improve again and be in the range of 19% to 20%. Accelera revenues increased to $414,000,000 in 2024 with a net operating loss of $452,000,000 as we lower costs in existing operations, partially offset by additional losses in the Amplify Cell joint venture as it advances its operations.

[Mark Smith, CFO & VP at Cummins]

In 2025, we anticipate revenues to be in the range of $400,000,000 to $450,000,000 and net losses to reduce to $385,000,000 to $415,000,000 as we continue to make targeted investments aligned with market demand whilst reducing cost. We currently project 2025 company revenues to be down 2% to up 3%. Company EBITDA margins are projected to be approximately 16.2% to 17.2% compared to an equivalent 15.7% in 2024. Our effective tax rate this year is expected to be 24.5%, excluding any discrete items. Capital investments will be in the range of $1,400,000,000 to $1,500,000,000 as we continue to make critical investments to support future growth.

[Mark Smith, CFO & VP at Cummins]

To summarize, we delivered record sales and profitability in 2024, including strong results in the second half of the year, even as demand in the North American heavy duty truck market declined. Cash generation has been and will continue to be a focus as we enter 2025, enabling us to continue investing in new products for new and existing markets, returning cash to shareholders and maintaining a strong balance sheet. Last May, we laid out our updated financial targets through 2,030. Our strong performance in 2024 represented encouraging progress towards those targets and despite a relatively flat revenue forecast and expected weakness in North American heavy duty truck, we expect to further improve profitability and cash flow in 2025. Thanks for joining us today and let me turn it back over to Chris.

[Chris Clulow, Vice President-Investor Relations at Cummins]

Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question

[Operator]

Our first question today is coming from Angel Castillo from Morgan Stanley. Your line is now live.

[Angel Castillo, Executive Director at Morgan Stanley]

Hi, thanks for taking my question and congrats on another strong quarter here. Just wanted to unpack the power generation guide of 5% to 15% a little bit more. Could you just split that out between kind of price and volume? And then maybe just tying into that, I think you mentioned a new investment of $200,000,000 in power gen. Can you just talk about maybe what's entailed in that?

[Angel Castillo, Executive Director at Morgan Stanley]

I thought, I guess, there was already an expansion of doubling capacity. So what is kind of the incremental being done?

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Yes. So as you said, we're currently in the midst of a $200,000,000 investment across our plants in Seymour and Minnesota, U. K. And India to ramp up capacity to meet what is a growing demand for our power generation products. And so you're seeing in that guide take up capacity.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

We're continuing to look at strategic pricing and where we can bring value to the customer. So you've got some price in there as well. But really it's about capacity ramp up and continued sales of larger engines in the power generation and data center market. It's really the 50, the 60 liter, the 78 and 95 liter. So these are large engines as we're able to bring more capacity online and our supply chain and our plants you see that flowing through in revenue.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

And we expect that trend to continue over time. And so we're tracking on plan or even slightly ahead of plan to double our capacity by end of this year, and looking forward to being able to meet what is a really strong demand from those customers.

[Angel Castillo, Executive Director at Morgan Stanley]

That's very helpful. And then maybe as a follow-up just on separate on the trucks. Can you just give us your latest thoughts on EPA-twenty seven? It sounds like you're still assuming some pre buy in the second half. But just given, I guess, what we've seen from the administration so far, any thoughts on the likelihood of any kind of challenges to the EPA-twenty seven rule?

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Yes. Our current view is that we expect the EPA-twenty seven regulations will stay in place and any companies, including us, have been investing over multiple years in those products to bring those products to market and we're looking forward to having a nationwide standard again in 'twenty seven. And with that, we are still anticipating some both economic recovery and pre buy happening in the North America trucking market that helps bring higher revenue in the second half this year and into next year. We do anticipate there'll be more discussion and potential challenge over the greenhouse gas regulations that we see out into the 2,030 and beyond timeframe.

[Operator]

Thank you. Next question is coming from Stephen Volcker from Jefferies. Your line is now live.

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

Great. Good morning, everyone. Maybe starting off, can you just talk a little bit more about the Accelera restructuring and how have you changed the focus of that business? And what are you doing less of or more of? Or just some color around that?

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Yes. I'll start and then Mark can add if he wants to share more detail. But really, this business has all along been about remaining agile and investing as we see technology advancing and market starting to move in these 0 emissions technologies and we formed it through a number of acquisitions as well. So what that meant was we had a distributed footprint and investment coming from those different acquisitions. And so we really looked at where we see a market moving.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

We expect that battery electric vehicles will be important in some of our commercial vehicle and industrial applications. And we feel well positioned with the battery cell joint venture and some of the wins that we have with customers as that market develops. So we're continuing to invest there. We're continuing to invest, but pace investment in electrolyzers as we've seen some slowing and customer demand and uncertainty around incentives there. And then being selective in fuel cells and some of the other technologies where adoption continues to push out.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

But we think we're well positioned. Frankly, the slower and messier this goes, my view is the better it is strategically for Cummins. And so, we're positioning ourselves in the places where we see that market and technology beginning to increase.

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

Okay, good. Sorry, I thought Mark was going to add something. Can

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

I ask

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

Well, you've been talking a lot as it is? Hopefully, you'll be doing less of that this year on all these adjustments.

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

Can I just follow-up

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

on the helm platform? Do you have targets relative to the types of unit volumes you might expect either on the natgas side or on any of the other engine sorry, any of the other fuel options that you can use with that platform?

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

We've got the rate of the beauty of the Helm platform is it's got that fuel flexibility. And so the reality is we're still going to sell a lot of the diesel version of that and it will be a higher efficiency version, which means lower CO2 and lower fuel costs for our customers. We've set a goal of getting to 8% on the natural gas version of that. We're starting to see customers adopt. PACCAR has launched it.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Daimler Trucks will launch that 15 liter natural gas this year. Fleets are testing it. I was with a big customer last week. They've finishing their field testing. They feel good about the product and they're looking to start to increase penetration, but it really depends on diesel fuel prices and regulation and customer CO2 goals.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

And so it's hard to give specific numbers on the rate of natural gas or hydrogen adoption because of that dependency on infrastructure cost and regulation.

[Operator]

Thank you. Next question today is coming from Jerry Revich from Goldman Sachs. Your line is now live.

[Jerry Revich, Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs]

Yes. Hi, good morning, everyone.

[Mark Smith, CFO & VP at Cummins]

Hi, Jerry.

[Mark Smith, CFO & VP at Cummins]

Hi, Jerry. Hi, Jerry. Hi, Jerry.

[Jerry Revich, Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs]

Hi. In Power Systems, you had really excellent 30% year over year growth in revenue per unit in the quarter. So the ramp in the supply base is progressing nicely. I'm wondering if you could just update us on how much more throughput you expect to get out of the supply base in 2025 for those large products? And I appreciate there could be a wide range of outcomes, but would love to get your updated views on that.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Well, I think it's important to remember that the revenue growth, in particular, for 2024 was also about launching those new Centum products. So we're seeing new products coming online that serve the market, in addition to ramping up capacity. And for this year, it really is focused on continuing to max out our capacity capability that we have while we're making the investment in more capacity across that range of products. And the team has done a really phenomenal job of doing that, improving operating efficiency, working with the supply base to try to get as much out of what we have. But there's some major investments that need to happen by the end of this year to really get to the full doubling of capacity.

[Mark Smith, CFO & VP at Cummins]

Unfortunately, those units I'd say unfortunately, Jerry, units are not a great indicator just because the size of the generator set we've been selling is going up, right. So the average selling price has gone up a lot over and above pricing just the size of the set that we're selling. So the revenue has outgrown the unit significantly.

[Jerry Revich, Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs]

Nice problem to have. And separately on the China truck market, as you mentioned in prepared remarks, there's some optimism in the market about potentially strong demand. Can you just calibrate us, I believe including the JV and wholly owned business, China truck profits are maybe 10% of total company profits at this point. And given we're at the trough of the cycle, is it fair to think about pretty attractive incremental margins if demand does indeed surprise to the upside?

[Mark Smith, CFO & VP at Cummins]

Yes, on the latter. I mean, China in total, maybe on a more normal run rate would be in the range of 15% to 20% of our earnings. And yes, on highway would typically be more than half of that. So you're in the ballpark, Gerry. Yes, and there's no massive structural investments going on there in the current year.

[Mark Smith, CFO & VP at Cummins]

So if we get more volume, we'd expect to convert that into more profits. There's also just some lumpiness around tech fees and other things, but I think the underlying operational business is well set as it's done in prior cycles when demand improves, we see that. And I think that just reinforces how well the engine business and components did in 2024, not just did we have weakening heavy duty truck in the second half of the year, but we had weaker China throughout the year. So hopefully at some point, confident China is going to turn. We don't have a lot of visibility into that right now.

[Mark Smith, CFO & VP at Cummins]

Hopefully, that's another leg to come.

[Operator]

Thank you. Next question today is coming from Tim Thein from Raymond James. Your line is now live.

[Tim Thein, Managing Director & Research Analyst at Raymond James Financial]

Thank you. Good morning. Maybe I'll ask one to start on components, Mark, just as you think about the margin outlook for 25% on kind of flat to down revenues, pretty nice improvement. I'm wondering how much of that is maybe a benefit from kind of lapping the Atmos spin or separation or is there obviously there's more to it than that. So maybe just a line or 2 in terms of what you're projecting there for components?

[Mark Smith, CFO & VP at Cummins]

I think when you look across the company, we've done a lot on cost reduction that hasn't been enormous in any given quarter, but we've been working at it really since the Q4 of 2023 when we announced voluntary separation package. We did a lot of work internally during 2024 to look at how we weighted the amount of resources we put between lines of business, functions, regional structures and a lot of this work is paid off in terms of improving our cost structure and focus. So yes, the components business is going to benefit from some of that. We're not breaking it out separately, but what was formerly known as Meritor, Drivetrain and Braking Systems business, results have continued to improve their underlying. So I think there are a number of things, we're working incredibly hard on flattish revenue environment, drive cost and efficiency where we can.

[Tim Thein, Managing Director & Research Analyst at Raymond James Financial]

Okay. And then Mark on the Accelerate, just in light of the restructuring and given what's how the global kind of just backdrop is changing or has changed, the expectation to get that business to EBITDA breakeven by 'twenty seven, Is that still in the cards or are we thinking that maybe is a tougher one to hit? Yes.

[Mark Smith, CFO & VP at Cummins]

I think overall relative to our 2,030 targets for the total company, we feel like we've had a really good start in 2024 and on track. And we're doing a bit better on the core business and headwinds have come more frequently and more severely to Accelera. So we are committed to significant loss reduction. But right now, we are not on track towards that breakeven, but we do feel we're very much on track for the overall company targets. And that's really the reason why we took more pronounced actions or that the Accelera team did in the Q4, recognizing that we're not going to get enormous help from demand here in the near term, Tim.

[Mark Smith, CFO & VP at Cummins]

So we're managing what we can. And in the context of overall company results, we feel confident, but we are not right now on track to get to breakeven as we sit here today.

[Operator]

Thank you. Next question is coming from Kyle Mendez from Citi. Your line is now live.

[Kyle Menges, Vice President - Equity Research Analyst at Citi]

Thank you. I was hoping if you could just comment on how you're thinking about R and D spend in 2025 versus 2024, maybe more specifically within Engine and Components? And then just beyond 2025, how you're kind of thinking about that, how we should be thinking? Thank you.

[Mark Smith, CFO & VP at Cummins]

Yes. Good question. So I think beyond 2025 is where we should see more momentum to the downside on engineering expense. We did see some improvement through the year in the engine business. We've got a lot of new product launches both in engines and components in 2025.

[Mark Smith, CFO & VP at Cummins]

But we have to we get through those launches and through 2027. That's definitely part of our margin expansion story in those two businesses, but not a dramatic shift this year, some puts and takes between engines and components.

[Kyle Menges, Vice President - Equity Research Analyst at Citi]

Thanks. That's helpful. And then just could you comment a little bit on how you're thinking about the parts outlook for 2025? Thank you.

[Mark Smith, CFO & VP at Cummins]

Yes. Parts held up pretty well, in fact, pretty little bit better than expected in the Q4 across our businesses. And so we think in the range of flat to 5%, probably some pricing baked in there. So yes, growing in line with the economy, I would say, at least on par with the economy with what we know today.

[Operator]

Thank you. Next question is coming from Jamie Cook from Truist Securities. Your line is now live.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Hi, good morning. Nice quarter. I guess similar question that Tim asked on, I think it was the components business, just the margins mark in Power Systems are very good despite sort of what I would call a muted top line forecast.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

So is that just

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

pricing in some of the new products? And then I guess how do you think about margin targets relative to the ones you just gave us, I guess, last year? Is it looking conservative? And then my second question, obviously, lots of puts and takes around tariffs and who knows what happens. But are there any changes in your how your terms and conditions or contracts with your customers that if we do get into an environment where tariffs and that causes price increases that we're able to absorb costs or increase price more frequently relative to last time?

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Thank you. Within engines, I guess.

[Mark Smith, CFO & VP at Cummins]

Great. So yes, Power Systems doing well. I think continuing to focus on supply chain, efficient output, they did a great job last year. So I don't want to sound like we're dissatisfied, quite the opposite, very impressed, but still think there's more to come on raising volume, raising productivity and a little bit on price in Power Systems. So all of those things contribute to us raising the margin guidance for the year and quite a bit above the 4th quarter levels.

[Mark Smith, CFO & VP at Cummins]

And I guess if we really had a robust U. S. Economy, we could see growth in some of the smaller generator sets. We have high market share in some of the consumer segments that aren't particularly robust. So I guess that we don't see signs of that, but if we wanted to get on to the bullish side and saw more strength in the U.

[Mark Smith, CFO & VP at Cummins]

S. Economy that could be another leg to help. On tariffs, by and large, our strategy is to make most of our products in the market in which they're sold. But of course, we do have a global supply chain. And we of course, nobody knows exactly what the tariff situation is going to be.

[Mark Smith, CFO & VP at Cummins]

But to the extent that we do incur them, then we think it's important that the market feels those and we'll look to pass those on. Let's hope that's not significant for everybody involved. But really we're just focused on controlling what we can control. And I think yes, we've got secular tailwinds in Power Systems, but the biggest driver is being able to scale growth effectively and pushing out cost. And then you don't see it on the inside, but the work we've done inside to try and simplify our structure, improve the speed of decision making, all of those things help and have helped kind of raise the bar in 2024.

[Operator]

Thank you. Next question is coming from David Raso from Evercore. Your line is now live.

[David Raso, Senior Managing Director & Partner at Evercore]

Hi, thank you. I'm trying to better understand the margin expansion in engines and really for that matter components. First, the D and A, the growth in the D and A, is that mostly in engines or components? It's just the margin improvement is impressive. I'm just wondering, do I have to go to town a little bit, because it's more D and A than it is operational.

[David Raso, Senior Managing Director & Partner at Evercore]

But if you can

[Mark Smith, CFO & VP at Cummins]

Well, there is an increase in there because that's where we're investing most of the capital in North America, particularly in the engine business over the last couple of years.

[David Raso, Senior Managing Director & Partner at Evercore]

So of the 100 D and A increase, is it 50 engines, 25 components? Just some sense, so I can get a better sense of the underlying operating. Yes.

[Mark Smith, CFO & VP at Cummins]

I mean, it won't be significantly in distribution. Power Systems, whilst we're increasing investment, it's still modest relative to those two segments. And so on an incremental basis, most of it's going to go through engines and components, little bit in corporate, which ends up mostly in engines and components, yes.

[David Raso, Senior Managing Director & Partner at Evercore]

Okay. That's helpful. And then even with that, it looks like there still is some slight operating, let's say, non D and A margin improvement in engines. What's driving that? Is it a little bit of mix?

[David Raso, Senior Managing Director & Partner at Evercore]

Is it I'm just trying to think about maybe the new medium engines, you're outperforming the idea of trying to figure out where do you think engine margins are as we sort of move out of 25% and people start to pontificate about earnings power in 26% with a pre buy in the engine division? Yes.

[Mark Smith, CFO & VP at Cummins]

I think those are all really important questions and will be big contributors to the long term performance. In the near term, Dave, I think we continue to expect to do well in the aftermarket side of which the engine business is our biggest single driver. So that's probably where there's still some pricing opportunity in the 2025. And then yes, the engineering is start it's not coming down enormously, but I think we've come down off the peak there, components probably going up a little bit. But those would be the main drivers.

[Mark Smith, CFO & VP at Cummins]

And as you can see, we haven't factored a lot in from China yet. So really, it's cost control and aftermarket in the near term.

[Operator]

Thank you. Next question is coming from Avi Razovich from UBS. Your line is now live.

[Avi Jaroslawicz, Equity Research Associate at UBS Group]

Live. I guess in terms of your guidance for the market outlook for North America heavy duty trucks this year, it sounds like if for whatever reason you don't see it too much to materialize this year that you'd expect retail demand to maybe still be negative in the second half. So I guess, 1, am I interpreting that correctly? And 2, can you just discuss how you're thinking about it?

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Yes. I mean, I think if you look at the underlying performance in the heavy duty market, spot rates dropped early in 'twenty three. So truckload carriers have really had challenges now for 2 years. And I think there's a very real chance that we'll see improvement in that over the course of this year just depending on what the underlying economy and interest rates do. So there's some potential upside in the second half for that in addition to this pre buy phenomenon that we would anticipate would lead to stronger second half versus first half.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

The range is quite wide because how high that goes is really dependent on the pre buy and when that starts.

[Avi Jaroslawicz, Equity Research Associate at UBS Group]

Got it. Okay.

[Avi Jaroslawicz, Equity Research Associate at UBS Group]

And then in terms of medium duty, just breaking down kind of market share gains versus market growth for 2024. How did those net against each other? And then in terms of your sales guidance for this year within Engine, are we thinking about further share gains this year or not as much?

[Mark Smith, CFO & VP at Cummins]

I think really, I think we're talking about following the market in 2025. There's been a long track record of significant market share gains in that market. Our engines clearly are leader in that market. And there was some share gains. But going forwards, it's very much primarily going to be tracking the market.

[Mark Smith, CFO & VP at Cummins]

There can be some modest changes around that from where we are now.

[Operator]

Thank you. Next question.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

So the guide down for the year is reflective of what we've seen in order later in backlog.

[Mark Smith, CFO & VP at Cummins]

Yes.

[Mark Smith, CFO & VP at Cummins]

It's industry the industry orders, we will feel that, yes.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

From a product perspective, we continue to feel really positive about how our products performing in the market and our position across Medioban Heavy Duty.

[Operator]

Thank you. Our next question is coming from Rob Wertheimer from Melius Research. Your line is now live.

[Rob Wertheimer, Director of Research at Melius Research LLC]

Thank you. I had two questions around power systems, if I may. And one is, as this data center market continues to develop, historically, at least, I suppose, selling an engine is one thing and then servicing is another. And if you have backup power, it doesn't get turned on that much and it's not as profitable. But obviously, this is high uptime, high criticality kind of operations.

[Rob Wertheimer, Director of Research at Melius Research LLC]

Do you see any opportunity to change that profit algorithm such that you'll be making more recurring revenue or otherwise on that massive build out of engines that you're going to do? And secondly, if I can just wrap it in, you've had excellent results in Power Systems. I'm not sure if all of that's really this surge in data center or maybe the stuff you've touched on a couple of times in the call already, operational improvements. I wonder if you could just expand on how you've made that business better? Thank you.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

Sure. So first on the data center market. So with power generation and data centers, we have Engen, Genset and then a good portion of that business also flows through the distribution business. So the strong performance you see in the distribution business last year and the outlook is reflecting the strength in power generation as well as aftermarket. But as you noted, they don't today run a lot for backup power.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

So typically parts revenue is relatively low as we look at shortage of power availability and how do you meet power demand in the U. S. And around the world. There's a potential for some shift in that. And so strategically, we're considering how we think about our role in that, which was part of the discussion on microgrids and what we do there today.

[Jennifer Rumsey, President & Chief Executive Officer at Cummins]

But today, still very much heavily backup power, and because of the high reliability demand for those applications. In terms of the power systems performance, we undertook now 2 years ago focused effort to really look at operating performance structure, how we made sure we were investing in the right products and getting returns on the investments we were making for our customers and working through some of the supply challenges that have built up through the pandemic and then the rebound in the market after that. And so that really has come together at exactly the time when this data center trend has also happened. And so we really had strong underlying operating structure and performance in the business that we continue to drive improvement in as we're also taking up volumes. And so both of those are contributing to really the remarkable profitability improvement that you've seen in Power Systems.

[Mark Smith, CFO & VP at Cummins]

Just to

[Mark Smith, CFO & VP at Cummins]

add Rob, the distribution of course adds that extra slice of revenue on data centers. And in fact is fundamental to winning and support in this data center business around the world. I think that's one of the strengths we have and few others have. And that's why you see that the market demand is concentrated amongst a couple of large engine manufacturers like us because of that service capability. But just to underline what you said Rob and your intuition, it would be very wrong to attribute Power Systems improvement just to data centers.

[Mark Smith, CFO & VP at Cummins]

That's a journey that's still got legs left, but the tide, the performance level has been elevated across that segment, including in the alternator business, which supplies across really across that supply chain. So we're incredibly pleased with the way that business has improved.

[Operator]

Thank you. Our final question is coming from Tami Zakaria from JPMorgan. Your line is now live.

[Tami Zakaria, Executive Director at JP Morgan]

Hi, good morning. Thank you so much. So the distribution segment guide 2% to 7%, it seems quite healthy. Given the underlying truck market outlook. Are you able to comment on the core distribution outlook versus the power generation related services?

[Tami Zakaria, Executive Director at JP Morgan]

The reason I ask if power generation demand holds at these levels, it seems like distribution could see another double digit growth year in 2025. So any comments there would be helpful.

[Mark Smith, CFO & VP at Cummins]

Yes, I think you're typically seeing parts growth maybe slightly above the rate of economic growth. And then in this cycle, you're right, the power generation demand in data centers and in some other applications has really provided that extra leg. So I would say in the short run, yes, PowerGen will be the main swing factor. I would say that some of the other segments, mining, oil and gas, if we look beyond this year, we'd expect to see more growth in the future. There's not enormous momentum in those businesses, but they're also important end markets for distribution.

[Mark Smith, CFO & VP at Cummins]

But yes, one of the reasons that we like distribution, it generates a lot of cash. It's less volatile than other parts of the business and has that really strong aftermarket piece, which doesn't get the certain extraordinary growth rates, but underpins the kind of year to year level of performance. So yes, distribution is doing well. And hopefully, the global economy strengthens and then all of our businesses will do well.

[Tami Zakaria, Executive Director at JP Morgan]

And then one follow-up question on that comment that you expect some pre buy in the back half, but the timing is uncertain. I'm curious what pre buy lift is embedded in the current heavy duty and medium duty outlook for North America? I'm just trying to understand what the market could look like, let's say, if there's no pre buy?

[Mark Smith, CFO & VP at Cummins]

Well, there's so many factors at play, but that's one of the factors we believe can help. We're going to start off at a fairly modest level in the Q1. Although orders here yet in the Q4 of 'twenty four were little better than expected, I would say. But it's really we're anticipating that strength in the second half to come somewhat from demand ahead of the regulations and understanding of how flexible the supply chain is for that industry. Again, I think we've all got fairly consistent views of the market at this point.

[Mark Smith, CFO & VP at Cummins]

We'll see how it plays out. A big factor, of course, is going to be the strength of the U. S. Economy and spot rates and freight activity, all these factors weigh in. The main thing to know is we've got a stronger second half in heavy duty truck built into our forecasts.

[Mark Smith, CFO & VP at Cummins]

Q1, yes, is going to probably be the low point of the year with what we expect right now. The question is will we get the improvement in the second half.

[Operator]

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

[Chris Clulow, Vice President-Investor Relations at Cummins]

Thank you everyone for joining our teleconference today. That concludes the question and answer session. As always, the Investor Relations team will be available for questions after the call. Thank you.

[Operator]

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Participants

Executives

• Chris Clulow, Vice President-Investor Relations
• Jennifer Rumsey, President & Chief Executive Officer
• Mark Smith, CFO & VP

Analysts

• Angel Castillo, Executive Director at Morgan Stanley
• Stephen Volkmann, Equity Analyst at Jefferies & Company Inc
• Jerry Revich, Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs
• Tim Thein, Managing Director & Research Analyst at Raymond James Financial
• Kyle Menges, Vice President - Equity Research Analyst at Citi
• Jamie Cook, Managing Director - Equity Research at Truist Securities
• David Raso, Senior Managing Director & Partner at Evercore
• Avi Jaroslawicz, Equity Research Associate at UBS Group
• Rob Wertheimer, Director of Research at Melius Research LLC
• Tami Zakaria, Executive Director at JP Morgan