Cummins Inc. (CMI) Earnings

Management highlights

- Key Strategic Updates & Milestones - Hosted 2026 Analyst Day in May, raised 2030 financial targets and reaffirmed commitment to returning capital to shareholders. - Announced expansion of global power generation capacity and development of a 130-liter natural gas genset to enter the growing prime power market for data centers. - Signed a multi-year agreement with a global hyperscaler, securing multi-gigawatt visibility into future backup power genset demand; also announced a behind-the-meter prime power project with Terce Energy for a Texas high-performance computing data center. - EPA released the proposed 2027 North America on-highway emissions rule, providing regulatory clarity. Management will use EPA implementation flexibilities for a phased transition to the new HELM engine platform, with limited production of 2027 model year X15 and X10 engines starting January 2027, full production by Q4 2027 and Q3 2027 respectively, and the next generation B platform launching January 2028. - Regional & End Market Performance - Delivered record Q2 2026 total sales of $9.5 billion, up 9% YoY, driven by higher demand in power generation (especially data centers) and international construction markets. Record Q2 EBITDA was $1.7 billion (17.5% of sales), up from $1.6 billion (18.4% of sales) YoY. - North America revenues up 8% YoY: heavy-duty truck industry production down 4% YoY, but Cummins unit sales up 2% YoY; medium-duty truck industry production up 8% YoY, Cummins unit sales up 19% YoY; North America Power Generation revenues up 19% YoY on strong data center demand. - International revenues up 12% YoY, led by China: including joint ventures, China revenues of $2.3 billion, up 30% YoY, with power generation sales up 88% on accelerating data center demand; China heavy/medium-duty truck industry demand up 24% YoY, excavator demand up 34% YoY. India revenues (including JVs) of $742 million, up 6% YoY. - Capital Return - Returned $501 million to shareholders in Q2 2026 ($225 million in share repurchases, $276 million in dividends); the board approved a 10% increase in the quarterly cash dividend, marking 17 consecutive years of dividend growth.

Guidance

- Full-year 2026 total company revenue growth guidance raised to 10% to 13%, up from the prior 8% to 11% range, reflecting stronger demand in North America on-highway, continued strength in power generation (data centers), and improved demand in China. - Full-year 2026 EBITDA guidance midpoint raised to 18% to 18.5%, with expectations of improving operating performance in the second half of 2026. - North America heavy-duty truck 2026 production forecast raised to 240,000 to 250,000 units, up from the prior 230,000 to 250,000 units; medium-duty truck forecast raised to 130,000 to 140,000 units, up from 125,000 to 135,000 units, on stronger-than-expected second half demand and modestly higher pre-buy activity after regulatory clarification. - China total 2026 revenue (including JVs) guidance raised to ~15% growth, up from the prior 10% growth expectation; China heavy/medium-duty truck demand guidance revised to down 5% to up 5%, from the prior down 10% to flat. - Global construction 2026 demand guidance revised to flat to up 10%, from the prior down 10% to flat; mining 2026 engine sales guidance revised to down 5% to up 5%, from the prior flat to up 10%. - Aftermarket 2026 growth guidance is 3% to 8%, a slight upward adjustment, supported by aging fleets and higher parts consumption. - Engine segment 2026 revenue growth raised to 9% to 14%, up from 7% to 12%; EBITDA margin 12.5% to 13.25%, down from 12.5% to 13.5% prior. Component segment 2026 revenue growth raised to 8% to 13%, from 7.5% at the prior midpoint; EBITDA margin 13.5% to 14.25%, down from 13.5% to 14.5% prior. Distribution segment 2026 revenue growth guidance maintained at 9% to 14%; EBITDA margin guidance revised to 13.5% to 14.25% from 14.25% at the prior midpoint. Power Systems 2026 revenue growth maintained at 14% to 19%; EBITDA margin guidance 25% to 25.75%, adjusted from 25.5% at the prior midpoint to reflect new product development investments. Accelera 2026 revenue guidance raised to $350 to $400 million, up from $300 to $350 million; expected net loss revised to $260 to $290 million, an improvement from the prior $270 to $300 million expected loss. - Full-year 2026 effective tax rate expected to be ~23% (excluding discrete items); capital investments expected to be $1.35 to $1.45 billion.

Segment performance

1. Engine Segment: Q2 2026 revenues of $3.1 billion, up 6% year-over-year (YoY). EBITDA margin was 12.5%, down from 13.8% YoY. Revenue contribution to total company revenue was ~32.6%. 2. Component Segment: Q2 2026 revenues of $2.9 billion, up 7% YoY. EBITDA margin was 13.2%, down from 14.7% YoY. Revenue contribution was ~30.5%. 3. Distribution Segment: Q2 2026 revenues of $3.3 billion (record), up 9% YoY. EBITDA margin was 13.6%, down from 14.6% YoY. Revenue contribution was ~34.7%. 4. Power Systems Segment: Q2 2026 revenues of $2.3 billion (record), up 19% YoY. EBITDA margin increased from 22.8% to 24.5% YoY. Revenue contribution was ~24.2%. 5. Accelera Segment: Q2 2026 revenues of $145 million, up 38% YoY. EBITDA was a loss of $69 million, an improvement from a $100 million loss YoY. Revenue contribution was ~1.5%.

Risks & headwinds

- Global economic uncertainty, including ongoing tariff and interest rate volatility in North America, that could impact end market demand. - Capacity constraints in large power generation gensets that limit near-term growth despite strong customer demand. - Elevated fleet inventory levels in some mining markets that are expected to moderate 2026 demand. - Uncertainty around finalization of EPA 2027 emissions rule details, which could impact transition planning and customer demand dynamics. - Higher incentive compensation and product development costs that pressure near-term margins across multiple segments.

Analyst Q&A

• Q: With EPA 2027 regulatory clarity now available, how has the 2027 demand transition outlook changed, and what is driving the downward revision to distribution segment margin guidance? /

  A: Management states the long-term growth opportunity from new platform launches is unchanged, but the phased transition will make 2027 demand far less abrupt than previously anticipated, smoothing year-over-year volatility. For distribution margins, the downward revision is driven by higher incentive compensation tied to record full-year 2026 performance, which disproportionately impacts the people-focused distribution segment; margins are expected to improve next year when incentive plans reset, and the underlying business remains on track for ~10% earnings growth in 2026.

• Q: Power generation guidance remains at 15-25% growth despite capacity constraints — what drives this wide range, and how much upside could there be? /

  A: The range is tied to capacity constraints on large generator sets, with variation coming from how many smaller generator sets the company can sell to meet unmet demand. While the large genset segment will operate at full capacity, stronger-than-expected demand growth in China (above initial projections) creates upside if the supply chain can squeeze out additional output, though the 15-25% range is unlikely to see a full 10% swing from the midpoint in 2026.

• Q: How will the phased 2027 engine transition impact pricing, costs, margins, and market share versus prior expectations? /

  A: Management still expects to earn appropriate pricing for the value-added new engine platforms, matching prior Analyst Day projections. Any non-conforming penalties (NCPs) for existing products sold during the transition will be passed through to the market, so no material margin impact is expected. R&D costs will stay elevated slightly longer, but product launch costs will be lower than the full January 2027 launch that was previously planned, offsetting this impact. The staggered transition benefits the industry by allowing longer real-world testing of new products.

• Q: For backup diesel gensets, how far out are you currently booking 95-liter orders, and are lead times extending? What is the outlook for pricing? /

  A: Demand continues to grow with no signs of flattening, and current orders for new 95-liter gensets are booked out to the second half of 2028. Pricing remains consistent with prior trends, and management expects to continue expanding margins over time, supported by strong demand for Cummins' unique ability to deliver global full-service power solutions including product, installation, and service.