Cummins Inc. (CMI) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Record Revenues in Q2 2024: Cummins achieved record sales of $8.8 billion in the second quarter, marking a 2% increase from the previous year, driven by high demand and improved pricing.
• Strong Partnerships and New Ventures: Announced significant partnerships and ventures, including a new engine for Isuzu's medium-duty trucks and a battery electric powertrain, marking Cummins' entry into the Japan on-highway market.
• Power Systems Segment Performance: Power generation in North America increased by 23%, contributing to record sales and profitability in the Power Systems segment.
• Increased EBITDA: EBITDA for Q2 was $1.35 billion or 15.3%, showing improvement from the previous year.
• Raised 2024 Guidance: Cummins raised its revenue guidance to down 3% to flat and increased its EBITDA guidance to 15% to 15.5% for 2024.

Pessimistic Highlights

• International Revenues Decrease: International revenues decreased by 2% compared to the previous year, with specific declines in China and India.
• North America Heavy-Duty Market Softening: Anticipated weakening in the North America heavy-duty truck market in the second half of the year.
• Accelera Business Adjustment: Full-year sales expectations for Accelera were reduced to $400 million to $450 million, reflecting a slower energy transition.

Company Outlook

• Moderate Expectations for H2 2024: While the first half of 2024 was strong, Cummins expects some market softening, particularly in the North America heavy-duty truck market, but remains well-positioned for growth.
• Increased Revenue and EBITDA Guidance for 2024: The company has raised its revenue and EBITDA guidance based on strong H1 performance and solid demand in core markets.
• Investment in Future Growth: Cummins plans to continue investing in new technologies and sustainable solutions, alongside returning cash to shareholders.

Q & A Highlights

• Q: On China truck market and new government incentives. (Steven Fisher, UBS)

  A: Cummins has seen consistent performance in China and does not anticipate significant changes in the industry due to government actions, with a focus on natural gas products and exports.

• Q: On Power Systems margins and 2025 market outlook. (Jamie Cook, Truist Securities)

  A: Power Systems margins are improving due to cost reduction, strong pricing, and operational efficiencies, with expectations for further improvement. The 2025 outlook depends on economic conditions and regulatory changes.

• Q: On pricing across segments. (Steve Volkmann, Jefferies)

  A: Cummins has seen an average price increase of 2.5% across the company, contributing to profitability in Power Systems and other segments.

• Q: On medium-duty engine platforms and global expansion. (Jerry Revich, Goldman Sachs)

  A: Cummins is expanding its medium-duty engine offerings globally, including new partnerships and entering new markets like Japan, with production localized to meet demand.

• Q: On distribution segment margins and price-cost dynamics. (Angel Castillo, Morgan Stanley)

  A: Distribution margins were impacted by mix headwinds from PowerGen and individual charges, with a slight improvement in price-cost dynamics expected.

• Q: On North America heavy-duty segment market share and parts business. (Tim Thein, Raymond James)

  A: Cummins expects to maintain strong demand in the medium-duty segment and sees steady demand in the parts business after adjusting for inventory destocking.

• Q: On demand and order books for the X15. (Noah Kaye, Oppenheimer)

  A: The X15 is launching with positive early demand, especially from fleets with sustainability goals, with expectations for market penetration to grow over time.

• Q: On engine segment guidance and political impacts on engines. (Jeff Kauffman, Vertical Research Partners)

  A: Cummins is prepared for a softening in the heavy-duty market and will navigate regulatory changes and political outcomes to continue its growth strategy.

• Q: On power systems capacity and unit outlook. (Kyle Menges, Citigroup)

  A: Capacity constraints in data center markets are being addressed with investments, and Cummins is confident in supporting revenue growth into 2025.