CUMMINS INC — Call Transcript 2025

Greetings. Welcome to Cummins Inc. Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If you would like to join the queue, please press 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. Please note this conference is being recorded. I would now like to turn the call over to Nick Arens, Executive Director of Investor Relations. Thank you. You may begin. Thank you. Good morning everyone and welcome to our teleconference today to discuss Cummins results for the second quarter of 2025. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer. We will 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. Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future. 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 statement 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-K 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 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 cummins.com. With that out of the way, I will turn you over to our Chair and CEO Jennifer Rumsey to kick us off. Thank you, Nick. Good morning, everyone. We delivered impressive results in the second quarter, led by record performance in our Distribution and Power Systems segment that more than offset continued softening in the North America truck market. The record financial performance from these two segments, along with strong operational execution across our entire company, led to EBITDA increasing 310 basis points year over year despite North America heavy and medium-duty truck volumes declining 30% from a year ago. I am incredibly proud of our employees' continued focus on meeting customer commitment and delivering our priorities, and I'm confident that our efforts will allow us to continue to operate from a position of strength. Now I will move on to some highlights from our second quarter. I will discuss our sales and end market trends by region. Finally, I will provide an update on how uncertainties in our current environment may impact our end markets for the remainder of the year. Mark will then take you through more details of our second quarter financial performance. In the second quarter, we continued to make progress in the execution of our Destination Zero strategy with the introduction of a new product in our Power Systems segment. Expanding on the success of our acclaimed Centum Series generator sets, we launched the new 17-liter engine platform generator that produces up to 1 megawatt of power. The S17 Centum genset was developed to produce a larger power output within a compact footprint to meet the growing power demands in urban environments where compact design and high performance is critical. The new genset is designed to support a wide range of critical market segments such as commercial properties, healthcare facilities, and water treatment plants. In July, we also announced a 10% increase in our quarterly dividend from $1.82-$2 per share, the 16th consecutive year in which we have increased the dividend. During the quarter, we returned $251 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders. Now I'll comment on the overall company performance for the second quarter of 2025 and cover some of our key markets. Revenues for the second quarter were $8.6 billion, a decrease of 2% compared to the second quarter of 2024. EBITDA was $1.6 billion or 18.4% compared to $1.3 billion or 15.3% a year ago, and gross margin improved 150 basis points from a year ago. This improvement in profitability was driven by the benefits of higher power generation demand, operational efficiencies, pricing, and lower compensation expenses, which more than offset lower North America truck volumes and the unfavorable net impact from tariffs. We see a marked contrast in demand between longer cycle sectors such as power generation, which also continues to benefit from some well-established secular themes, and declining confidence in some of our more economically sensitive shorter cycle markets in North America, particularly truck, pickup, and consumer-related markets. We anticipate this contrast will become more pronounced in the second half of the year. Our second quarter revenues in North America decreased 6% compared to 2024. Industry production of heavy duty trucks in the second quarter was 57,000 units, down 27% from 2024 levels, while our heavy duty unit sales were 22,000, down 29% from a year ago. Industry production of medium duty trucks was 28,000 units in the second quarter of 2025, a decrease of 36%, while our unit sales were 25,000, down 35% from 2024. We shipped 34,000 engines to Stellantis for use in the RAM pickups in the second quarter of 2025, down 18% from 2024 levels. Revenues for North America power generation equipment increased by 25%, driven primarily by continued strong demand in data centers and mission critical applications. Our International revenues increased by 5% in the second quarter of 2025 compared to a year ago. Second quarter revenues in China, including joint ventures, were $1.8 billion, an increase of 9% as accelerating data center demand and higher domestic truck demand driven by government stimulus more than offset lower export demand. Industry demand for medium and heavy duty trucks in China was 304,000 units, an increase of 13% from last year. Our sales in units, including joint ventures, were 43,000, an increase of 31%. The increase in China market size was primarily due to higher than expected domestic demand driven by NS4 scrapping incentives. Industry demand for excavators in China in the second quarter was 59,000 units, an increase of 11% from 2024 levels. Our units sold were 11,000, an increase of 13%. An increase in the China market size is primarily due to domestic cyclical replacement demand, rural development, and farmland renovation demand. Sales of power generation equipment in China increased 32% in the second quarter due to accelerating data center demand. Second quarter revenues in India, including joint ventures, were $699 million, a decrease of 1% from the second quarter a year ago. Industry truck production increased 1% from 2024. Power generation revenues increased 31% in the second quarter, driven by increases in G drive and data center demand. To summarize, we achieved impressive results in the second quarter with record financial performance in our power systems and distribution segments. As we look ahead to the third quarter, we expect North America heavy and medium-duty truck volumes to decline 25%-30% from second quarter levels. We have seen truck orders recently reach multi-year lows, and OEMs have initiated reduced work weeks through the next three months. The duration of this reduced demand at North America truck markets will largely depend on the trajectory of the broader economy, the evolution of trade and tariff policies, and the pace at which regulatory clarity emerges. Despite the challenges in the North America truck market, we have the benefit of operating a diversified global business and expect continued strength in our power generation market. In addition to stability in our aftermarket and industrial businesses, tariffs are undoubtedly having an impact on Cummins Inc., our suppliers, customers, and end users, creating uncertainty over freight activity linked to the movement of goods and increasing costs. We did experience increasing tariff costs in the second quarter. However, as anticipated, we did not see the full impact of the current policies as supply chains worked through existing inventory. We've been active in our efforts to mitigate tariff exposures and negotiate agreements with customers that position us to enter fourth quarter near full recovery. Additionally, although we primarily produce engines and gensets in the markets where we sell them, we are further mitigating our efforts by continuing to evaluate and implement dual sourcing where possible and economically viable for our supply base and component manufacturing. As we navigate these uncertainties, we will continue to maintain discipline by managing our costs while continuing to invest to meet our critical priorities so that we are well positioned as markets recover. In summary, we had a strong second quarter performance that demonstrates the earnings potential of Cummins Inc. at a time when demand in North America and China truck market sits at weak levels. While we expect demand in North America truck markets to decline significantly in the third quarter from second quarter levels, we remain well positioned with an experienced leadership team that has demonstrated capability in managing through periods of uncertainty, and we will maintain our focus on our customers, employees, and shareholders. I'm confident that we will further raise our performance when markets recover and look forward to reinstating guidance when some of the uncertainty has subsided. Now let me turn it over to Mark. Thank you, Jen, and good morning everyone. The highlight of the second quarter is our strong profitability delivered in the face of global uncertainty. Our revenues were $8.6 billion, down 2% from a year ago. Sales in North America decreased 6% while international revenues increased 5%. EBITDA was $1.6 billion, or 18.4% of sales for the quarter, compared to $1.3 billion or 15.3% of sales a year ago. The higher EBITDA percentage was driven by higher power generation demand, strong operational efficiencies, positive pricing, and lower compensation expenses, which were partially offset by lower North America truck volumes and the unfavorable impact of tariffs on all of our operating segments. Now, I'll go into more detail by line item. Gross margin for the quarter was $2.3 billion, or 26.4% of sales, compared to $2.2 billion, or 24.9% last year. The improved margins were driven by favorable pricing and operational improvements, especially in power systems and distribution. Selling, administrative, and research expenses were $1.1 billion or 13.1% of sales compared to $1.2 billion or 13.7% of sales. Lower compensation costs, primarily variable compensation, benefited both gross margin and operating expenses and the financial performance of all operating segments year over year. Joint venture income of $118 million increased $15 million from the previous year, primarily driven by higher China volumes within our engine business as demand improved compared to a weak 2024. Other income increased to $49 million positive compared to negative $3 million from the prior year, driven by the positive impacts of foreign currency valuation and gains on investments related to company-owned life insurance. Interest expense was $87 million, a decrease of $22 million from prior year, primarily driven by lower weighted average interest rates partially offset by higher debt balances. The all-in effective tax rate in the first quarter was 24.2%, including $3 million or $0.02 per diluted share of favorable discrete tax items. All-in net earnings for the quarter were $890 million or $6.43 per diluted share compared to $726 million or $5.26 per diluted share a year ago. Operating cash flow was an inflow of $785 million compared to an outflow of $851 million a year ago, with the difference mainly driven by the $1.9 billion required by the previously disclosed settlement agreements with the regulatory agencies which flowed out in Q2 last year. Excluding the settlement, operating cash flow was an inflow of $1.1 billion a year ago. I will now comment on segment performance and provide some comments for the remainder of 2025. For the engine segment, first quarter revenues were $2.9 billion, a decrease of 8% from a year ago. EBITDA was 13.8%, a decrease from 14.1% a year ago as weaker North American truck volumes were partially offset by pricing related to the launch of updated products in light duty markets, operational efficiencies, and higher joint venture income in China. Components revenue was $2.7 billion, a decrease of 9% from a year ago. EBITDA was 14.7% compared to 13.6% of sales a year ago as lower product coverage costs, operational efficiencies, and pricing more than offset lower on-highway demand in North America. In the distribution segment, revenues increased 7% from a year ago to $3 billion. EBITDA was a record $445 million and improved as a percent of sales to 14.6% compared to 11.1% of sales a year ago, driven by higher power generation, strong parts demand, and overall improvements in gross margin. In the power systems segment, revenues were $1.9 billion, an increase of 19% from a year ago. EBITDA dollars were also a record at $433 million, rising from 18.9%-22.8% of sales, driven by strong volume, particularly in data center and other mission critical applications, favorable pricing, and a continued focus on productivity and other operational improvements. Accelera revenues decreased 5% to $105 million as increased E-mobility sales, mainly to bus customers, partially offset lower electrolyzer installations. Our EBITDA loss was $100 million compared to an EBITDA loss of $117 million a year ago, reflecting a lower cost base resulting from the actions we took in the fourth quarter of 2024. In summary, we delivered strong profitability for the second quarter as a result of improved operational execution across our business that more than offset weaker demand in North America truck markets. For the third quarter, we expect North America truck demand to sharply decline from second quarter levels as recent truck orders are at multi-year lows driven by uncertainty due to trade tariffs, product regulation, and caution about the prospects for freight. Since our last earnings call, we've seen a steady stream of updates from our OEM customers extending the number of production down days through the third quarter. We view current order levels as unsustainably low, but immediate catalysts for recovery are not yet clear. We have not yet felt the full impact from tariffs, and there is still uncertainty about duration and ongoing levels, which was highlighted again last week with the flurry of new announcements. It remains to be seen what this will impact. This will have on business confidence and the demand for capital goods beyond trucks. We've worked hard to mitigate the impact of tariffs, and while negative to profitability in the second quarter, we should enter the fourth quarter close to a price-cost neutral position with regard to tariffs. As you saw in our second quarter results, Cummins Inc. is in a strong position to navigate through this uncertainty. With our industry-leading portfolio of products and our global network, we are well placed to support our customers. While we expect the coming months to be much more challenging, primarily for the engine and components segment, we are staying focused on our strategic priorities whilst also taking actions in the short term to reduce costs and lower inventory. We look forward to reinstating our outlook when the economic picture becomes clearer, and we are confident as markets recover we will continue to raise our performance as we have clearly done in the first half of this year. Thanks for joining us today. Now let me turn it back over to Nick. Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have an additional question, please rejoin the queue. Operator, we are ready for our first question. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, we do ask that you please limit yourself to one question and one follow-up question. Our first questions come from the line of Stephen Volkmann with Jefferies. Please proceed with your questions. Great. Good morning, everybody. Thank you for taking the question. Seems like you have a little bit of feast and a little bit of famine here, so I'll focus on the feast, if that's all right. Power systems. Let's talk about power systems. Power systems. Let's talk about power systems. Big margin there, obviously much higher than I think we expected. I know you've been doing a lot of work on this over the past few years, Jen, but at the end of the day, I'm curious if you think that is sort of the right margin level that we should be thinking about as we start modeling forward. Is that sustainable, or was there anything in there that we should be aware of? Yeah, thanks Steve, for the question and really pleased with the performance of the power systems business. As you noted, we started a couple years ago on a journey to really improve operational performance and really coupled with the strong and growing demand and the power generation market has really benefited that business. We've made many of the steps that are leveraging the capacity that we have and trying to improve throughput and operational performance. Frankly, the team has outperformed in terms of the efforts for that and that has led to the really strong margin improvement that you've seen over the last couple of years. We're continuing to focus on areas where we can improve operational efficiency and performance. We're continuing our investment and doubling the capacity in that business, which we expect to be fully online by the beginning of next year. I think the pace of improvement has probably stabilized, but we will certainly continue to work on operational efficiencies and delivering value to our customers and being able to price for that and drive that mentality across all of our businesses. Okay, great. There's nothing unique in there other than demand strong for both generators and parts. There's no one timers in there or anything like that. Right, understood. I assume you must have pretty good backlog in that segment. Maybe you can comment on that. Do you have pricing flexibility in that backlog if you need it? Can you reprice this stuff if necessary before delivery? Yeah, we have backlog out about two years in that business and continue to see strong demand, strong backlog, and we've been working with customers where we have backlog on the tariff recovery and made some progress there. Typically, you know, we're not repricing beyond that, and existing orders that we've taken we price in aftermarket as the market moves, and as I said, working on tariff recovery across all of our businesses. Thank you. Our next questions come from the line of Angel Castillo with Morgan Stanley. Please proceed with your questions. Hi, good morning. Thanks for taking my question and congrats on another strong quarter here. I wanted to ask a little bit of a bigger picture sticking to the kind of power systems dynamic. Back at your investor day last year you quantified that total data center, I think business was $1.4 billion, I think in sales and that you were kind of 23% of, I think, $6 billion global market for data centers. I think at the time you also kind of noted that that would be a $2 billion sales for you in 2026 and maybe a $9 billion market. I know it's difficult to quantify and it's crazy 2026 starting next year. I guess could you just comment on that? How are you seeing your business growth and demand and market share ultimately evolve toward that kind of $2 billion top line and or kind of where are we in terms of the size of your business within data centers? Thanks for the question. We are continuing to be very well positioned. We think the combination of our products, and we've launched the Centum Series, we've continued to add some products, but the larger ones of those are quite popular in data centers. Coupled with our distribution business, this provides Cummins Inc. an advantage. We're a strong player in a growing backup power provider to data centers. We feel like we continue to maintain that position and take advantage of new products and capacity investment. We expect this year to be pretty stable in the second half with typical seasonality. As I said, we'll have some additional capacity coming online as we go into 2026. That's so fun. I guess is it fair to assume then that $2 billion is still kind of the way to think about 2026. Yes. Yeah. No change in enthusiasm for demand. Thank you. Our next question has come from the line of Jamie Cook with Truist Securities. Please proceed with your questions. Hi, good morning. I guess what struck me about the quarter is your margin performance, even with North America truck going through a correction. The two areas that stuck out to me besides power systems was your distribution margins, which I'm assuming is getting the benefit of power. Are margins moving structurally higher there just because of the benefit that you get through from the power system business? Also, on the component side, you were able to improve your margins despite sales declines. I think you noted lower product coverage. Is there any way you could quantify that? Just trying to think about the implications for margins in the back half. My second question, Jen, just relates to the cycle. In North America, obviously we're seeing a big correction in 2025. Lack of pre buy, based on what you're hearing from your customers, how are you thinking about North America in 2026 and in 2027? Thanks. Morning, Jamie. I'll start on the margin question. On distribution, yes, the benefits of power, the benefits of, yeah, strong parts business, and then we've got positive pricing in the distribution business as well. All of those have combined to make for very positive results in distribution overall. Yes, in component, it's not reasonable to expect on significant continuing declines in truck volumes that we can maintain margins in the short run. We expect obviously margins to improve over the long run in engines and components. You're right, we called out the product coverage numbers because that was a tougher quarter a year ago and a much cleaner quarter just within the components for the company. Overall, there really wasn't much difference in the product coverage numbers, but in the component segment, that was probably worth something like half a point. That was not a one-time. It was more the absence of a problem from a year ago than something that's special that happened in this quarter. Just to be clear, given the rates of decline here in the third quarter from second quarter in engines and components, we should expect that there's going to be a negative impact on the profitability of those two segments. Okay, thank you. Jen, just on the cycle. Yeah, on the cycle. Jamie, it's, you know, there's a number of typical factors and then some atypical factors that we see influencing the truck cycle. Spot rates continue to be low. Economic demand isn't really growing for customers. Interest rates are still higher. While the age of the fleet on average has gone up some, we still are seeing that kind of cyclical, normal cyclical down in the truck market which then had on top of it this uncertainty around tariff policy, the impact that's going to have on price of trucks and regulatory uncertainty, which means customers are really just holding, waiting to see what happens, get more stability and clarity on orders. In Q2 build rates held up okay. We saw some softening, but as Mark noted, we're seeing a lot more down days and our customers and us restructuring in our plants in anticipation of a much weaker Q3. How long will it last? Is a little bit hard to predict. The optimistic Jen would say we get more tariff clarity and stability in Q3 and more certainty on regulation. We still believe today that we'll have 2027 NOx regulation and if we do then that will likely drive demand back up. It's uncertain right now. We're working closely with the EPA to try to push for clarity and help them understand levers that they may have to reduce the total cost impact of that, in particular longer emissions warranty. It's really hard for me to predict. The pessimist says it drags out longer and that's part of why we're not giving guidance. It's just really difficult to predict. The pessimist sat next to her. We'll just point out that more years than not, Q4 is not particularly stronger than Q3. We're hoping for that. That would definitely help all industry participants. We need to see a significant change in the momentum. The momentum for orders to us for engine systems is down, obviously. Clearly down. Thank you. Our next questions come from the line of Rob Wertheimer with Melius Research. Please proceed with your questions. We lost Rob. Rob, could you please check if you're self muted? I beg your pardon? Sorry. You guys just touched on the engine margins. Mark, I take, I understand your comments on where things have to go given volumes. This quarter was pretty good. Last quarter was great. I wondered if you might comment on price that might influence that or anything else given a shallow margin decline. On lower revenues and engines. Jen just touched on EPA 2027. I wonder if you have any guess. As to when we have at least. Clarity on what the resolution will be. Thank you. A couple of factors on the engine margin we called out in prior quarters because it's been a running theme as we've launched new models in the light duty segment. We have raised prices, product quality has been very stable and positive. China, I don't want to get people over excited on China, but stepped up a little bit from weaker levels. The engine business benefits a lot from the joint venture earnings in China which are a little bit higher. All those factors and when we say strong parts that's flowing through the engine business and power systems generally. All those were factors but the pricing primarily on new engines was around light duty. I'll just add, you know, we have had the focus, the focus on operational efficiency, you know, come in through a couple of years. We had a lot of supply disruption and high demand. We've had a focus on really just improving the fundamentals of how our business operates and how our plants operate. We did do some targeted restructuring last year to optimize how our business operates and took advantage of the softening that we started to see last year to do that. You're seeing some benefit of that across the company as well. Okay, thank you, Jennifer. Thank you, Mark. You're welcome. Thank you. Our next questions come from the line of Tim Thein with Raymond James. Please proceed with your questions. Thank you and good morning. The first question was on the power generation business and I guess more domestically this kind of speed to power theme is gaining a lot of momentum and traction in terms of operators that want to get up, you know, get power access quickly. Given the long lead times for industrial gas turbines, it seems like you're starting to see and hear a little bit more of operators that are looking to leverage recips as a way to kind of gain off grid primary power. I'm just curious if that's something that Cummins has seen or is expecting to see. Maybe just a comment on that. I think the trend certainly is need for more power, challenges of getting that power today. We are still primarily positioned in backup power. Certainly, strategically we're looking at where we want to position ourselves for the future as that demand for power continues to exist, but it's not really meaningfully impacting our business today or in the near future. Okay, all right, understood. Just on distribution, I can remember years ago when double digits was talked about as kind of the aspirational target there. I'm just curious, as the power generation business obviously has been growing for some time, are there more, just as the power demands increase and maybe as the data centers are consuming more and more power, is that bringing along more services and more kind of ancillary type revenues with those installations such that that business carries higher margins, or would that all be kind of reflected in power systems margins? I'm just curious, as the parts part of distribution as a percentage has continued to decline, which I would think would be dilutive to the margin. Maybe just to comment on that would be helpful, thank you. I think yes, you're right. Any of those services and other things would show in Distribution, not in Power Systems. I think what lies beneath the surface a little bit, Tim, is just a more broad-based improvement in our international operations. I do also remember vividly those double-digit margin targets when we set them. There have been dramatic improvements in areas like Africa where we had high growth aspirations that, quite frankly, had some risk management issues and execution issues early on. Those are long behind us. I think we've really more broadly improved the operational effectiveness and profitability focus outside North America in addition to improving North America. I think it's a more broad-based approach phenomenon that's really driven the results. Typically in the power generation market, if we're doing backup power, then there's minimal aftermarket parts demand. The distribution business can do additional content on the installation and benefit from that work with the customer. Thank you. Our next questions come from the line of David Raso with Evercore ISI. Please proceed with your questions. Hi. Thank you. I know you don't want to give guidance but I am curious just directly to ask the EBITDA margin for engine in third quarter, fourth quarter, how are you thinking about that relative to, you know, we've been above 13% now for a while, haven't been below 12%, 11% since I think late 2021. You mentioned the JV income maybe a little bit better as an offset. It's obviously more impactful the lower the consolidated revenues are just because people are going to look at sort of at least a thought process of a bottoming truck in the next few quarters when it comes to margins and then sort of go from there on how to think about 2026 earnings. Can you give us any quantification of how to think about the EBITDA margins and engines in the third quarter or back half of 2024, 2025? Thank you. Yep. We spend a lot of time staring at that as you can imagine. What I would say is I don't see a lot of momentum. China's improved off a very rough bottom, but we're going to come under pressure here in the second half. What I'd say is whilst the margins are going to go down clearly, there's nothing structural about that. We're just, the volumes are going to go down significantly. I think if we looked on a full year basis we might see. There's no reason to see why the decrementals are very different on a full year basis from prior cycles. Clearly for engines and components they're going to come under significant pressure. Just to give a bit more technical, not to be negative, just to give the fact we already know how many engines we produced in heavy and medium-duty truck in July. We can see the order build rate for August, it's going to be very depressed. As Jen said, down 25 to 30%. That's not surprising given how low the orders are. I think as we look forward, Dave, we're confident that we, you know, margins will rebound quickly as the volume comes through. The other complexity that we're dealing with is that a lack of clarity on the emissions regulations means we've got to retain flexibility on the engineering side. We said at our last analyst day, over time we expect engineering to come down as a percent of sales in engines and components. We're not able to execute that side of it yet because of this lingering uncertainty. Clear reduction, but nothing structural. No significant changes to market pricing which always could have an impact structurally. We're going to go down and then we're going to rebound in those two businesses and hopefully that's quicker rather than later. History says we don't have that many quarters of down. We're a few quarters in already, but we're waiting for more momentum on the order side. Yes, we're going to be tough, definitely a tough second half. The incremental margins, again, I know you're avoiding quantifying, but just so we can frame this a little bit, is the idea the decremental margins in EBITDA for engines for the third quarter, it's at 35%, 40% kind of range. We're just trying to get some sense of. They're going to be. Yeah, they're going to be. They're going to be pretty heavy. I'm not trying to hide from it, they're going to be pretty heavy. These are some of the largest declines we've seen. If you look at the orders in the past three or four months, they're amongst the weakest three or four month periods we've had in the last 20 years. That's going to show up in our numbers, but it's a cyclical business and it will rebound. Just to reinforce, it's going to be tough. When the volumes come back, which they inevitably will, quite when we can't say, we'd expect performance to rebound as well. Hopefully July is the trough. We started with a spreadsheet. Imagine a spreadsheet in front of you. I'm still old and I use spreadsheets where we've got customer down days by brand, by location. When we sat here three months ago, it was modest for the third quarter and now it's kind of a sea of red. We'll come through this period, but the margins will come under pressure. We're not going to hide from that. There's nothing structural changing. That's what I want investors, us, to leave. If there was something structural, we would tell you, but it's going to be volume based and it's going to be tough. The good news is we've got two businesses that are performing at record levels where demand is high. That's what we look for and stronger than they've done in prior cycles. We expect broadly demand for those businesses to remain stable for the remainder of the year. I hope that helps a bit. I know it's tough. The reason why we haven't given guidance is, as you can see, we withdrew guidance. It was nothing to do with our performance in the second quarter. The number of variables out there essentially remain the same from three months ago. Yes, we've got more visibility into Q3 and it's much worse than we would have imagined at the start of the year. It's worse than we would have imagined three months ago. We hope this is the bottoming period and then we're moving on. Hopefully the industry is set up for a better 2026 and we are well positioned with strong position in the markets, good relationships with excellent customers. We look forward to that. This is going to be one of those tougher periods. Thank you. Our next questions come from the line of Kyle Menges with Citi. Please proceed with your questions. Thank you. I was hoping, Mark, if you could just touch on your thoughts on capital allocation quickly and how you're thinking about leverage at current levels, appetite for share buybacks, and then I'm thinking you guys should be beneficiaries from the big beautiful bill and favorable cash taxes. Have you tried to quantify that impact and thoughts on where you might deploy that excess cash to? Yeah. We've had a pretty long track record of returning capital to shareholders. We set kind of this long-term benchmark of at least 50% and we've been living up to that even during a period where we made a major acquisition. You saw we had a healthy increase in the dividend here. We've been working hard to improve our leverage metrics, and I feel good about where they are now. The pace of capital allocation is really based on the economy. Yeah. Prospects for the business. When we do capital allocation, we're also looking at, you know, making sure we're doing that in the most effective way that we can. Yes, incrementally, we should be looking for more of that going forwards as a base case. Yes. If the taxes are the beautiful part, then the tariffs are definitely not right. The challenge is that the tariff costs have created great uncertainty. I'll just say a little bit about tariffs since I haven't been asked about that yet, that the cost of the tariffs to Cummins Inc., and I'll quantify the tax benefits in a moment, are multiples of the tax benefit, the pull forward of tax benefits that are allowed under accelerated depreciation. Whilst we've done a pretty good job in mitigating tariffs, it's placing a significant burden on the industries and all the participants that we play on. All that weighs into all this calculus of liquidity capital allocation. To answer you specifically on the tax bill, we've got some choices to make and what elections we want to make through the various dynamics of tax legislation. You could reasonably expect $125 million-$250 million of cash benefit, but we haven't finalized our choices in the third quarter. In taxes, inherently some strange trade offs where cash benefits today can be negative for long term tax rates. We are quite a relatively complex global business so we've got to think all of that through. I would say on the margin, could that be like 5%-8% of our operating cash flow for the year? Yes. Does it fundamentally change any of our business plans for this year? No. We've invested a lot in North America to meet the upcoming emissions regulations and quite frankly we're looking for some clarity to be able to deploy that capital effectively with our new products going forward. We're not rushing to spend more capital here. We're hoping for clarity on utilizing the capital. Sorry for the long little bit of whining there, but just to reinforce the complexity that we're facing. That's helpful. It sounds like you're fully expecting to completely offset tariff impacts and pass through to the customer. You commented a little bit on how the industry's handling it, but maybe you could just expand on what you're seeing and hearing from the customers and markets and how they're handling that pass through of the tariff costs. Is the plan still to roll out the EPA 2027 compliant engine in 2026, and you know that'll be additional pricing on that. I guess would love to hear your thoughts on how you're thinking about that and the industry's ability to handle even more pricing. Thank you. Tariffs were negative to profitability for Cummins Inc. in the second quarter. We did not fully recover. We're approximately $22 million negative net in the quarter. We've been working hard to mitigate the costs through managing when we're buying materials, where we're buying it from, resourcing where we can. We've done a lot. As you can imagine, making choices about supply chain is hard when the international tariff dynamic keeps changing. It's hard to make any decisions to shift when you're not sure that we've reached a period of stability. About $22 million negative. As we said three months ago, we didn't expect the full impact until the second half of the year. That's the case. Both the costs of Cummins Inc. and the degree of recoveries will be increasing in subsequent quarters. We expect to enter Q4 much closer to price cost neutral on tariffs starting in the fourth quarter. There's a gap in Q2 and there will be a gap in Q3. Q4 will get close. It's hard to underestimate the amount of resources and time that this has consumed amongst all industry participants. I do believe we don't know exactly what the end user prices are, but we do know that everybody's suffering with this. It doesn't help at a time when trucker orders in particular had already been slowing. That's maybe more than you wanted. I'll move on quickly from a very. Uncomfortable topic here and on the product launches. The regulations are still in place today. We're continuing to work towards launching and we have our new platforms, of course, the HELM engine platforms. Launching as a part of the 2027 regulations, we are no longer launching the X15 earlier in the year. At the end of next year, we'll be launching those new platforms to comply with the 2027 regulation and continue to keep the team focused on that. Just as a reminder, those engines are all made in the U.S. and we're investing $1 billion in our engine plants primarily because of the new platforms, which we believe will really position us with the most efficient, highest power density, best products in the market. Thank you. Our next questions come from the line of Tami Zakaria with JPMorgan. Please proceed with your question. Hey, good morning. Thank you so much. Yet one more question on Parsis. Should we expect better cost absorption and improved incremental margin versus what we are seeing now when the remaining capacity goes live next year? The premise of the question is whether you're currently seeing some inefficiencies as you're building capacity and firing on all cylinders against robust demand, and whether incremental margin could get even better once the new capacity is live and running at full rate. If you could comment on that. Perfectly reasonable question that makes the assumption that so many things are standing still. Right. I mean there's always a million and one things going on. If you ask us, do we have aspirations for the power systems margins over time to go high? Yes, we do. Yes, when capacity is fully installed and the demand is still there, usually that's better. You know, there's a lot of variation. We don't just make one engine in one facility. A lot of differences by end market and region. Just to be clear, do we expect over time not. You know what's been nice to see is this consistency now of higher performance quarter on quarter. Yes, we still think there's plenty of things to work on to take us high. We don't expect dramatic changes for the remainder of this year. Revenue should be relatively range bound. As we go forward, yes, after absorbing investments, we'd hope to do better, all other things being equal. Great, thank you. That's all I had. Thank you. Thank you. Our next questions come from the line of Stephen Fisher with UBS. Please proceed with your questions. Thanks. Good morning. Just wanted to start on Power Gen. You mentioned that you have backlog out two years. I'm assuming that's for the largest engines. Just curious what the lead times are on some of those, and obviously you have the capacity coming online fully next year. How does that affect the lead times? That you see there? Obviously, as we're taking orders, we're considering the incremental capacity that we'll have coming online next year. We are taking orders out in the 2027 time frame now from our customers. If we have any movement in terms of current order backlog and order demand, we reallocate those slots and work with our customers to do that. If you want in particular the larger engine orders today, I'm happy to put you in the queue in 2027 for that. Okay. Sorry to ask a follow up on the uncomfortable topic, but in terms of the Q4 tariffs, you mentioned that you expect to kind of be price versus cost neutral there from customers. Is that just contractually what you have embedded in these new agreements, or is there a negotiation that has to happen there? Just curious how that should play out. It is not contractual. In most cases we've been out actively negotiating with our customers on tariff recovery timeline. Thank you. Our next questions come from the line of Noah Kaye with Oppenheimer & Co. Inc. Please proceed with your questions. Thanks. Wanted to tie together a couple of points you mentioned earlier. I think, Mark, you highlighted that maybe engineering spend intensity is being negatively impacted by the uncertainty around the regs. Jen, you mentioned some actual launch pushouts. Can you help us understand just operationally how your engineering and technology strategy are being affected at this moment? Are you doing redundant or duplicative engineering development for a variety of outcomes, just trying to get a better handle on how you're navigating. The majority of the work we're doing is focused on these new product launches. You've got a peak of investment in research and development as well as capital going in ahead of that launch at the end of next year. We did delay by six months one of the product launches because, frankly, the uncertainty around regulation and tariffs was creating an environment where, even though it was more efficient products that we thought could bring some value to customers, the demand was the concern. We've delayed that. That then extends some of the R&D for that program. We're of course doing some additional work on contingency plans at a much lower level while keeping the team focused on the launches that we have beginning of 2027. We anticipate following that, that the level of R&D and capital investment in engine business and components will start coming down. Okay, great. Twenty-seven is really when we. Start to see some leverage there and then just quickly shifting gears to power, as you mentioned. I mean, your content is primarily today around the backup gen set. With the shift towards more on-site direct power, you have an entire division that can do battery backup and fuel cell power. You're obviously very familiar with natural gas generation and you've talked in the past including Investor Day about micro grids. Just can you give us any color on trends in wallet share expansion with the data center customers and if you're seeing that, where it's coming from. We have launched in the last year a stationary energy storage product in the market. We have some limited offerings, I would say, today in both natural gas and stationary energy storage. That's an area that we are continuing to evaluate—our position, the products that we have in our portfolio, and over time how we might want to participate and if that's an area we want to expand. No firm decisions or anything to give guidance on today, but that certainly is an area that could be interesting for Cummins, the microgrid space, given the growing demand for power and the challenges for customers to meet that. Thank you. Our next question has come from the line of Chad Dillard with Bernstein. Please proceed with your questions. All right. Morning guys. You commented about tariff or the price cost being neutral by the fourth quarter, and I was just wondering whether that's true on a segment by segment basis or is it biased towards one versus the other. Secondly, what was price cost in 2Q, and if you can share any thoughts on what it should look like in the third quarter, that'd be helpful. Thank you. Yeah, I mean, I think it's a challenge in all segments of our businesses. What I would say for tariffs. With. The engine business and components probably absorbing more than the rest of the company, but not dramatically different price cost overall when we weigh in. The actions that we've taken on parts, the actions that we've taken on light duty engines, some of the improvements in power systems, if I ignore tariffs, then we were about. We. We're about 1.2% improvement overall across all the businesses. Remembering that's a big step up in Power Systems and Distribution in particular. You can see that the Engine business and Components margins were down or flat. X product coverage not improve. Secondly, just on Accelera, just recognizing that we're in, I guess, a new regime when it comes to alternative powertrains. I guess, how are you thinking about the growth trajectory, maybe more so on the electrolyzer side, and then the path towards the long term profit targets that you set out, has that changed? Yeah, I mean it's fair to say that trajectory of growth in that business has slowed. You have seen us growing and reducing losses. We did a restructuring at the end of last year to try to focus on the areas, the technologies, and products that we think will grow. I do think it positions Cummins Inc. well because we're continuing to of course offer engine-based solutions. Startups are not surviving and many of our OEM customers don't really want to invest given the uncertainty. We're really trying to position ourselves to pace investments but be able to be the provider as the market starts to develop. We're continuing to move forward with our partners in the Amplify Cell joint venture here in the U.S. with commercial vehicle, cell, and pacing investment in that together as well. It's slowing but we're committed to continue to reduce losses over time and grow as the market grows. In the meantime, we'll sell some more engines which will be positive for our base business. Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Nick Arens for closing comments. Thank you. That concludes our teleconference for the day. Thank you all for participating and your continued interest. As always, the Investor Relations team will be available for questions after the call. Thank you. Ladies and gentlemen, that does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Speaker 10: Greetings. Welcome to Cummins Inc. Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If you would like to join the queue, please press 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. Please note this conference is being recorded. I would now like to turn the call over to Nick Arens, Executive Director of Investor Relations. Thank you. You may begin. Greetings. greetings Welcome to Cummins Inc. Second Quarter 2025 Earnings Conference Call. welcome to cummins inc second quarter 2025 earnings conference call At this time, all participants are in a listen-only mode. at this time all participants are in a listen-only mode The question and answer session will follow the formal presentation. the question and answer session will follow the formal presentation If you would like to join the queue, please press 1 on your telephone keypad. if you would like to join the queue please press 1 on your telephone keypad If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. if anyone should require operator assistance during the conference please press 0 on your telephone keypad Please note this conference is being recorded. please note this conference is being recorded I would now like to turn the call over to Nick Arens, Executive Director of Investor Relations. i would now like to turn the call over to nick arens executive director of investor relations Thank you. thank you You may begin. you may begin

Speaker 5: Thank you. Good morning everyone and welcome to our teleconference today to discuss Cummins results for the second quarter of 2025. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer. We will 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. Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. Thank you. thank you Good morning everyone and welcome to our teleconference today to discuss Cummins results for the second quarter of 2025. good morning everyone and welcome to our teleconference today to discuss cummins results for the second quarter of 2025 Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer. participating with me today are jennifer rumsey our chair and chief executive officer and mark smith our chief financial officer We will be available to answer questions at the end of the teleconference. we will 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. 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 Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future. such statements express our forecasts expectations hopes beliefs and intentions on strategies regarding the future Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. 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 statement 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-K 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 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 cummins.com. With that out of the way, I will turn you over to our Chair and CEO Jennifer Rumsey to kick us off. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement 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-K and any subsequently filed quarterly reports on Form 10-Q. more information regarding such risks and uncertainties is available in the forward-looking disclosure statement 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-k 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 reconciliation of those measures to GAAP financial measures. during the course of this call we will be discussing certain non-gaap financial measures and we will refer you to our website for 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 cummins.com. 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 cummins.com With that out of the way, I will turn you over to our Chair and CEO Jennifer Rumsey to kick us off. with that out of the way i will turn you over to our chair and ceo jennifer rumsey to kick us off

Speaker 7: Thank you, Nick. Good morning, everyone. We delivered impressive results in the second quarter, led by record performance in our Distribution and Power Systems segment that more than offset continued softening in the North America truck market. The record financial performance from these two segments, along with strong operational execution across our entire company, led to EBITDA increasing 310 basis points year over year despite North America heavy and medium-duty truck volumes declining 30% from a year ago. I am incredibly proud of our employees' continued focus on meeting customer commitment and delivering our priorities, and I'm confident that our efforts will allow us to continue to operate from a position of strength. Now I will move on to some highlights from our second quarter. I will discuss our sales and end market trends by region. Thank you, Nick. thank you nick Good morning, everyone. good morning everyone We delivered impressive results in the second quarter, led by record performance in our Distribution and Power Systems segment that more than offset continued softening in the North America truck market. we delivered impressive results in the second quarter led by record performance in our distribution and power systems segment that more than offset continued softening in the north america truck market The record financial performance from these two segments, along with strong operational execution across our entire company, led to EBITDA increasing 310 basis points year over year despite North America heavy and medium-duty truck volumes declining 30% from a year ago. the record financial performance from these two segments along with strong operational execution across our entire company led to ebitda increasing 310 basis points year over year despite north america heavy and medium-duty truck volumes declining 30% from a year ago I am incredibly proud of our employees' continued focus on meeting customer commitment and delivering our priorities, and I'm confident that our efforts will allow us to continue to operate from a position of strength. i am incredibly proud of our employees' continued focus on meeting customer commitment and delivering our priorities and i'm confident that our efforts will allow us to continue to operate from a position of strength Now I will move on to some highlights from our second quarter. now i will move on to some highlights from our second quarter I will discuss our sales and end market trends by region. i will discuss our sales and end market trends by region Finally, I will provide an update on how uncertainties in our current environment may impact our end markets for the remainder of the year. Mark will then take you through more details of our second quarter financial performance. In the second quarter, we continued to make progress in the execution of our Destination Zero strategy with the introduction of a new product in our Power Systems segment. Expanding on the success of our acclaimed Centum Series generator sets, we launched the new 17-liter engine platform generator that produces up to 1 megawatt of power. The S17 Centum genset was developed to produce a larger power output within a compact footprint to meet the growing power demands in urban environments where compact design and high performance is critical. Finally, I will provide an update on how uncertainties in our current environment may impact our end markets for the remainder of the year. finally i will provide an update on how uncertainties in our current environment may impact our end markets for the remainder of the year Mark will then take you through more details of our second quarter financial performance. mark will then take you through more details of our second quarter financial performance In the second quarter, we continued to make progress in the execution of our Destination Zero strategy with the introduction of a new product in our Power Systems segment. in the second quarter we continued to make progress in the execution of our destination zero strategy with the introduction of a new product in our power systems segment Expanding on the success of our acclaimed Centum Series generator sets, we launched the new 17-liter engine platform generator that produces up to 1 megawatt of power. expanding on the success of our acclaimed centum series generator sets we launched the new 17-liter engine platform generator that produces up to 1 megawatt of power The S17 Centum genset was developed to produce a larger power output within a compact footprint to meet the growing power demands in urban environments where compact design and high performance is critical. the s17 centum genset was developed to produce a larger power output within a compact footprint to meet the growing power demands in urban environments where compact design and high performance is critical The new genset is designed to support a wide range of critical market segments such as commercial properties, healthcare facilities, and water treatment plants. In July, we also announced a 10% increase in our quarterly dividend from $1.82-$2 per share, the 16th consecutive year in which we have increased the dividend. During the quarter, we returned $251 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders. Now I'll comment on the overall company performance for the second quarter of 2025 and cover some of our key markets. Revenues for the second quarter were $8.6 billion, a decrease of 2% compared to the second quarter of 2024. EBITDA was $1.6 billion or 18.4% compared to $1.3 billion or 15.3% a year ago, and gross margin improved 150 basis points from a year ago. The new genset is designed to support a wide range of critical market segments such as commercial properties, healthcare facilities, and water treatment plants. the new genset is designed to support a wide range of critical market segments such as commercial properties healthcare facilities and water treatment plants In July, we also announced a 10% increase in our quarterly dividend from $1.82- $2 per share, the 16th consecutive year in which we have increased the dividend. in july we also announced a 10% increase in our quarterly dividend from $1.82- $2 per share the 16th consecutive year in which we have increased the dividend During the quarter, we returned $251 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders. during the quarter we returned $251 million to shareholders in the form of dividends consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders Now I'll comment on the overall company performance for the second quarter of 2025 and cover some of our key markets. now i'll comment on the overall company performance for the second quarter of 2025 and cover some of our key markets Revenues for the second quarter were $8.6 billion, a decrease of 2% compared to the second quarter of 2024. revenues for the second quarter were $8.6 billion a decrease of 2% compared to the second quarter of 2024 EBITDA was $1.6 billion or 18.4% compared to $1.3 billion or 15.3% a year ago, and gross margin improved 150 basis points from a year ago. ebitda was $1.6 billion or 18.4% compared to $1.3 billion or 15.3% a year ago and gross margin improved 150 basis points from a year ago This improvement in profitability was driven by the benefits of higher power generation demand, operational efficiencies, pricing, and lower compensation expenses, which more than offset lower North America truck volumes and the unfavorable net impact from tariffs. We see a marked contrast in demand between longer cycle sectors such as power generation, which also continues to benefit from some well-established secular themes, and declining confidence in some of our more economically sensitive shorter cycle markets in North America, particularly truck, pickup, and consumer-related markets. We anticipate this contrast will become more pronounced in the second half of the year. Our second quarter revenues in North America decreased 6% compared to 2024. Industry production of heavy duty trucks in the second quarter was 57,000 units, down 27% from 2024 levels, while our heavy duty unit sales were 22,000, down 29% from a year ago. This improvement in profitability was driven by the benefits of higher power generation demand, operational efficiencies, pricing, and lower compensation expenses, which more than offset lower North America truck volumes and the unfavorable net impact from tariffs. this improvement in profitability was driven by the benefits of higher power generation demand operational efficiencies pricing and lower compensation expenses which more than offset lower north america truck volumes and the unfavorable net impact from tariffs We see a marked contrast in demand between longer cycle sectors such as power generation, which also continues to benefit from some well-established secular themes, and declining confidence in some of our more economically sensitive shorter cycle markets in North America, particularly truck, pickup, and consumer-related markets. we see a marked contrast in demand between longer cycle sectors such as power generation which also continues to benefit from some well-established secular themes and declining confidence in some of our more economically sensitive shorter cycle markets in north america particularly truck pickup and consumer-related markets We anticipate this contrast will become more pronounced in the second half of the year. we anticipate this contrast will become more pronounced in the second half of the year Our second quarter revenues in North America decreased 6% compared to 2024. our second quarter revenues in north america decreased 6% compared to 2024 Industry production of heavy duty trucks in the second quarter was 57,000 units, down 27% from 2024 levels, while our heavy duty unit sales were 22,000, down 29% from a year ago. industry production of heavy duty trucks in the second quarter was 57,000 units down 27% from 2024 levels while our heavy duty unit sales were 22,000 down 29% from a year ago Industry production of medium duty trucks was 28,000 units in the second quarter of 2025, a decrease of 36%, while our unit sales were 25,000, down 35% from 2024. We shipped 34,000 engines to Stellantis for use in the RAM pickups in the second quarter of 2025, down 18% from 2024 levels. Revenues for North America power generation equipment increased by 25%, driven primarily by continued strong demand in data centers and mission critical applications. Our International revenues increased by 5% in the second quarter of 2025 compared to a year ago. Second quarter revenues in China, including joint ventures, were $1.8 billion, an increase of 9% as accelerating data center demand and higher domestic truck demand driven by government stimulus more than offset lower export demand. Industry demand for medium and heavy duty trucks in China was 304,000 units, an increase of 13% from last year. Industry production of medium duty trucks was 28,000 units in the second quarter of 2025, a decrease of 36%, while our unit sales were 25,000, down 35% from 2024. industry production of medium duty trucks was 28,000 units in the second quarter of 2025 a decrease of 36% while our unit sales were 25,000 down 35% from 2024 We shipped 34,000 engines to Stellantis for use in the RAM pickups in the second quarter of 2025, down 18% from 2024 levels. we shipped 34,000 engines to stellantis for use in the ram pickups in the second quarter of 2025 down 18% from 2024 levels Revenues for North America power generation equipment increased by 25%, driven primarily by continued strong demand in data centers and mission critical applications. revenues for north america power generation equipment increased by 25% driven primarily by continued strong demand in data centers and mission critical applications Our International revenues increased by 5% in the second quarter of 2025 compared to a year ago. our international revenues increased by 5% in the second quarter of 2025 compared to a year ago Second quarter revenues in China, including joint ventures, were $1.8 billion, an increase of 9% as accelerating data center demand and higher domestic truck demand driven by government stimulus more than offset lower export demand. second quarter revenues in china including joint ventures were $1.8 billion an increase of 9% as accelerating data center demand and higher domestic truck demand driven by government stimulus more than offset lower export demand Industry demand for medium and heavy duty trucks in China was 304,000 units, an increase of 13% from last year. industry demand for medium and heavy duty trucks in china was 304,000 units an increase of 13% from last year Our sales in units, including joint ventures, were 43,000, an increase of 31%. The increase in China market size was primarily due to higher than expected domestic demand driven by NS4 scrapping incentives. Industry demand for excavators in China in the second quarter was 59,000 units, an increase of 11% from 2024 levels. Our units sold were 11,000, an increase of 13%. An increase in the China market size is primarily due to domestic cyclical replacement demand, rural development, and farmland renovation demand. Sales of power generation equipment in China increased 32% in the second quarter due to accelerating data center demand. Second quarter revenues in India, including joint ventures, were $699 million, a decrease of 1% from the second quarter a year ago. Industry truck production increased 1% from 2024. Power generation revenues increased 31% in the second quarter, driven by increases in G drive and data center demand. Our sales in units, including joint ventures, were 43,000, an increase of 31%. our sales in units including joint ventures were 43,000 an increase of 31% The increase in China market size was primarily due to higher than expected domestic demand driven by NS4 scrapping incentives. the increase in china market size was primarily due to higher than expected domestic demand driven by ns4 scrapping incentives Industry demand for excavators in China in the second quarter was 59,000 units, an increase of 11% from 2024 levels. industry demand for excavators in china in the second quarter was 59,000 units an increase of 11% from 2024 levels Our units sold were 11,000, an increase of 13%. our units sold were 11,000 an increase of 13% An increase in the China market size is primarily due to domestic cyclical replacement demand, rural development, and farmland renovation demand. an increase in the china market size is primarily due to domestic cyclical replacement demand rural development and farmland renovation demand Sales of power generation equipment in China increased 32% in the second quarter due to accelerating data center demand. sales of power generation equipment in china increased 32% in the second quarter due to accelerating data center demand Second quarter revenues in India, including joint ventures, were $699 million, a decrease of 1% from the second quarter a year ago. second quarter revenues in india including joint ventures were $699 million a decrease of 1% from the second quarter a year ago Industry truck production increased 1% from 2024. industry truck production increased 1% from 2024 Power generation revenues increased 31% in the second quarter, driven by increases in G drive and data center demand. power generation revenues increased 31% in the second quarter driven by increases in g drive and data center demand To summarize, we achieved impressive results in the second quarter with record financial performance in our power systems and distribution segments. As we look ahead to the third quarter, we expect North America heavy and medium-duty truck volumes to decline 25%-30% from second quarter levels. We have seen truck orders recently reach multi-year lows, and OEMs have initiated reduced work weeks through the next three months. The duration of this reduced demand at North America truck markets will largely depend on the trajectory of the broader economy, the evolution of trade and tariff policies, and the pace at which regulatory clarity emerges. Despite the challenges in the North America truck market, we have the benefit of operating a diversified global business and expect continued strength in our power generation market. To summarize, we achieved impressive results in the second quarter with record financial performance in our power systems and distribution segments. to summarize we achieved impressive results in the second quarter with record financial performance in our power systems and distribution segments As we look ahead to the third quarter, we expect North America heavy and medium-duty truck volumes to decline 25%- 30% from second quarter levels. as we look ahead to the third quarter we expect north america heavy and medium-duty truck volumes to decline 25%- 30% from second quarter levels We have seen truck orders recently reach multi-year lows, and OEMs have initiated reduced work weeks through the next three months. we have seen truck orders recently reach multi-year lows and oems have initiated reduced work weeks through the next three months The duration of this reduced demand at North America truck markets will largely depend on the trajectory of the broader economy, the evolution of trade and tariff policies, and the pace at which regulatory clarity emerges. the duration of this reduced demand at north america truck markets will largely depend on the trajectory of the broader economy the evolution of trade and tariff policies and the pace at which regulatory clarity emerges Despite the challenges in the North America truck market, we have the benefit of operating a diversified global business and expect continued strength in our power generation market. despite the challenges in the north america truck market we have the benefit of operating a diversified global business and expect continued strength in our power generation market In addition to stability in our aftermarket and industrial businesses, tariffs are undoubtedly having an impact on Cummins Inc., our suppliers, customers, and end users, creating uncertainty over freight activity linked to the movement of goods and increasing costs. We did experience increasing tariff costs in the second quarter. However, as anticipated, we did not see the full impact of the current policies as supply chains worked through existing inventory. We've been active in our efforts to mitigate tariff exposures and negotiate agreements with customers that position us to enter fourth quarter near full recovery. Additionally, although we primarily produce engines and gensets in the markets where we sell them, we are further mitigating our efforts by continuing to evaluate and implement dual sourcing where possible and economically viable for our supply base and component manufacturing. In addition to stability in our aftermarket and industrial businesses, tariffs are undoubtedly having an impact on Cummins Inc., our suppliers, customers, and end users, creating uncertainty over freight activity linked to the movement of goods and increasing costs. in addition to stability in our aftermarket and industrial businesses tariffs are undoubtedly having an impact on cummins inc our suppliers customers and end users creating uncertainty over freight activity linked to the movement of goods and increasing costs We did experience increasing tariff costs in the second quarter. we did experience increasing tariff costs in the second quarter However, as anticipated, we did not see the full impact of the current policies as supply chains worked through existing inventory. however as anticipated we did not see the full impact of the current policies as supply chains worked through existing inventory We've been active in our efforts to mitigate tariff exposures and negotiate agreements with customers that position us to enter fourth quarter near full recovery. we've been active in our efforts to mitigate tariff exposures and negotiate agreements with customers that position us to enter fourth quarter near full recovery Additionally, although we primarily produce engines and gensets in the markets where we sell them, we are further mitigating our efforts by continuing to evaluate and implement dual sourcing where possible and economically viable for our supply base and component manufacturing. additionally although we primarily produce engines and gensets in the markets where we sell them we are further mitigating our efforts by continuing to evaluate and implement dual sourcing where possible and economically viable for our supply base and component manufacturing As we navigate these uncertainties, we will continue to maintain discipline by managing our costs while continuing to invest to meet our critical priorities so that we are well positioned as markets recover. In summary, we had a strong second quarter performance that demonstrates the earnings potential of Cummins Inc. at a time when demand in North America and China truck market sits at weak levels. While we expect demand in North America truck markets to decline significantly in the third quarter from second quarter levels, we remain well positioned with an experienced leadership team that has demonstrated capability in managing through periods of uncertainty, and we will maintain our focus on our customers, employees, and shareholders. I'm confident that we will further raise our performance when markets recover and look forward to reinstating guidance when some of the uncertainty has subsided. Now let me turn it over to Mark. As we navigate these uncertainties, we will continue to maintain discipline by managing our costs while continuing to invest to meet our critical priorities so that we are well positioned as markets recover. as we navigate these uncertainties we will continue to maintain discipline by managing our costs while continuing to invest to meet our critical priorities so that we are well positioned as markets recover In summary, we had a strong second quarter performance that demonstrates the earnings potential of Cummins Inc. at a time when demand in North America and China truck market sits at weak levels. in summary we had a strong second quarter performance that demonstrates the earnings potential of cummins inc at a time when demand in north america and china truck market sits at weak levels While we expect demand in North America truck markets to decline significantly in the third quarter from second quarter levels, we remain well positioned with an experienced leadership team that has demonstrated capability in managing through periods of uncertainty, and we will maintain our focus on our customers, employees, and shareholders. while we expect demand in north america truck markets to decline significantly in the third quarter from second quarter levels we remain well positioned with an experienced leadership team that has demonstrated capability in managing through periods of uncertainty and we will maintain our focus on our customers employees and shareholders I'm confident that we will further raise our performance when markets recover and look forward to reinstating guidance when some of the uncertainty has subsided. i'm confident that we will further raise our performance when markets recover and look forward to reinstating guidance when some of the uncertainty has subsided Now let me turn it over to Mark. now let me turn it over to mark

Speaker 15: Thank you, Jen, and good morning everyone. The highlight of the second quarter is our strong profitability delivered in the face of global uncertainty. Our revenues were $8.6 billion, down 2% from a year ago. Sales in North America decreased 6% while international revenues increased 5%. EBITDA was $1.6 billion, or 18.4% of sales for the quarter, compared to $1.3 billion or 15.3% of sales a year ago. The higher EBITDA percentage was driven by higher power generation demand, strong operational efficiencies, positive pricing, and lower compensation expenses, which were partially offset by lower North America truck volumes and the unfavorable impact of tariffs on all of our operating segments. Now, I'll go into more detail by line item. Gross margin for the quarter was $2.3 billion, or 26.4% of sales, compared to $2.2 billion, or 24.9% last year. Thank you, Jen, and good morning everyone. thank you jen and good morning everyone The highlight of the second quarter is our strong profitability delivered in the face of global uncertainty. the highlight of the second quarter is our strong profitability delivered in the face of global uncertainty Our revenues were $8.6 billion, down 2% from a year ago. our revenues were $8.6 billion down 2% from a year ago Sales in North America decreased 6% while international revenues increased 5%. sales in north america decreased 6% while international revenues increased 5% EBITDA was $1.6 billion, or 18.4% of sales for the quarter, compared to $1.3 billion or 15.3% of sales a year ago. ebitda was $1.6 billion or 18.4% of sales for the quarter compared to $1.3 billion or 15.3% of sales a year ago The higher EBITDA percentage was driven by higher power generation demand, strong operational efficiencies, positive pricing, and lower compensation expenses, which were partially offset by lower North America truck volumes and the unfavorable impact of tariffs on all of our operating segments. the higher ebitda percentage was driven by higher power generation demand strong operational efficiencies positive pricing and lower compensation expenses which were partially offset by lower north america truck volumes and the unfavorable impact of tariffs on all of our operating segments Now, I'll go into more detail by line item. now i'll go into more detail by line item Gross margin for the quarter was $2.3 billion, or 26.4% of sales, compared to $2.2 billion, or 24.9% last year. gross margin for the quarter was $2.3 billion or 26.4% of sales compared to $2.2 billion or 24.9% last year The improved margins were driven by favorable pricing and operational improvements, especially in power systems and distribution. Selling, administrative, and research expenses were $1.1 billion or 13.1% of sales compared to $1.2 billion or 13.7% of sales. Lower compensation costs, primarily variable compensation, benefited both gross margin and operating expenses and the financial performance of all operating segments year over year. Joint venture income of $118 million increased $15 million from the previous year, primarily driven by higher China volumes within our engine business as demand improved compared to a weak 2024. Other income increased to $49 million positive compared to negative $3 million from the prior year, driven by the positive impacts of foreign currency valuation and gains on investments related to company-owned life insurance. The improved margins were driven by favorable pricing and operational improvements, especially in power systems and distribution. the improved margins were driven by favorable pricing and operational improvements especially in power systems and distribution Selling, administrative, and research expenses were $1.1 billion or 13.1% of sales compared to $1.2 billion or 13.7% of sales. selling administrative and research expenses were $1.1 billion or 13.1% of sales compared to $1.2 billion or 13.7% of sales Lower compensation costs, primarily variable compensation, benefited both gross margin and operating expenses and the financial performance of all operating segments year over year. lower compensation costs primarily variable compensation benefited both gross margin and operating expenses and the financial performance of all operating segments year over year Joint venture income of $118 million increased $15 million from the previous year, primarily driven by higher China volumes within our engine business as demand improved compared to a weak 2024. joint venture income of $118 million increased $15 million from the previous year primarily driven by higher china volumes within our engine business as demand improved compared to a weak 2024 Other income increased to $49 million positive compared to negative $3 million from the prior year, driven by the positive impacts of foreign currency valuation and gains on investments related to company-owned life insurance. other income increased to $49 million positive compared to negative $3 million from the prior year driven by the positive impacts of foreign currency valuation and gains on investments related to company-owned life insurance Interest expense was $87 million, a decrease of $22 million from prior year, primarily driven by lower weighted average interest rates partially offset by higher debt balances. The all-in effective tax rate in the first quarter was 24.2%, including $3 million or $0.02 per diluted share of favorable discrete tax items. All-in net earnings for the quarter were $890 million or $6.43 per diluted share compared to $726 million or $5.26 per diluted share a year ago. Operating cash flow was an inflow of $785 million compared to an outflow of $851 million a year ago, with the difference mainly driven by the $1.9 billion required by the previously disclosed settlement agreements with the regulatory agencies which flowed out in Q2 last year. Excluding the settlement, operating cash flow was an inflow of $1.1 billion a year ago. Interest expense was $87 million, a decrease of $22 million from prior year, primarily driven by lower weighted average interest rates partially offset by higher debt balances. interest expense was $87 million a decrease of $22 million from prior year primarily driven by lower weighted average interest rates partially offset by higher debt balances The all-in effective tax rate in the first quarter was 24.2%, including $3 million or $0.02 per diluted share of favorable discrete tax items. the all-in effective tax rate in the first quarter was 24.2% including $3 million or $0.02 per diluted share of favorable discrete tax items All-in net earnings for the quarter were $890 million or $6.43 per diluted share compared to $726 million or $5.26 per diluted share a year ago. all-in net earnings for the quarter were $890 million or $6.43 per diluted share compared to $726 million or $5.26 per diluted share a year ago Operating cash flow was an inflow of $785 million compared to an outflow of $851 million a year ago, with the difference mainly driven by the $1.9 billion required by the previously disclosed settlement agreements with the regulatory agencies which flowed out in Q2 last year. operating cash flow was an inflow of $785 million compared to an outflow of $851 million a year ago with the difference mainly driven by the $1.9 billion required by the previously disclosed settlement agreements with the regulatory agencies which flowed out in q2 last year Excluding the settlement, operating cash flow was an inflow of $1.1 billion a year ago. excluding the settlement operating cash flow was an inflow of $1.1 billion a year ago I will now comment on segment performance and provide some comments for the remainder of 2025. For the engine segment, first quarter revenues were $2.9 billion, a decrease of 8% from a year ago. EBITDA was 13.8%, a decrease from 14.1% a year ago as weaker North American truck volumes were partially offset by pricing related to the launch of updated products in light duty markets, operational efficiencies, and higher joint venture income in China. Components revenue was $2.7 billion, a decrease of 9% from a year ago. EBITDA was 14.7% compared to 13.6% of sales a year ago as lower product coverage costs, operational efficiencies, and pricing more than offset lower on-highway demand in North America. In the distribution segment, revenues increased 7% from a year ago to $3 billion. I will now comment on segment performance and provide some comments for the remainder of 2025. i will now comment on segment performance and provide some comments for the remainder of 2025 For the engine segment, first quarter revenues were $2.9 billion, a decrease of 8% from a year ago. for the engine segment first quarter revenues were $2.9 billion a decrease of 8% from a year ago EBITDA was 13.8%, a decrease from 14.1% a year ago as weaker North American truck volumes were partially offset by pricing related to the launch of updated products in light duty markets, operational efficiencies, and higher joint venture income in China. ebitda was 13.8% a decrease from 14.1% a year ago as weaker north american truck volumes were partially offset by pricing related to the launch of updated products in light duty markets operational efficiencies and higher joint venture income in china Components revenue was $2.7 billion, a decrease of 9% from a year ago. components revenue was $2.7 billion a decrease of 9% from a year ago EBITDA was 14.7% compared to 13.6% of sales a year ago as lower product coverage costs, operational efficiencies, and pricing more than offset lower on-highway demand in North America. ebitda was 14.7% compared to 13.6% of sales a year ago as lower product coverage costs operational efficiencies and pricing more than offset lower on-highway demand in north america In the distribution segment, revenues increased 7% from a year ago to $3 billion. in the distribution segment revenues increased 7% from a year ago to $3 billion EBITDA was a record $445 million and improved as a percent of sales to 14.6% compared to 11.1% of sales a year ago, driven by higher power generation, strong parts demand, and overall improvements in gross margin. In the power systems segment, revenues were $1.9 billion, an increase of 19% from a year ago. EBITDA dollars were also a record at $433 million, rising from 18.9%-22.8% of sales, driven by strong volume, particularly in data center and other mission critical applications, favorable pricing, and a continued focus on productivity and other operational improvements. Accelera revenues decreased 5% to $105 million as increased E-mobility sales, mainly to bus customers, partially offset lower electrolyzer installations. Our EBITDA loss was $100 million compared to an EBITDA loss of $117 million a year ago, reflecting a lower cost base resulting from the actions we took in the fourth quarter of 2024. EBITDA was a record $445 million and improved as a percent of sales to 14.6% compared to 11.1% of sales a year ago, driven by higher power generation, strong parts demand, and overall improvements in gross margin. ebitda was a record $445 million and improved as a percent of sales to 14.6% compared to 11.1% of sales a year ago driven by higher power generation strong parts demand and overall improvements in gross margin In the power systems segment, revenues were $1.9 billion, an increase of 19% from a year ago. in the power systems segment revenues were $1.9 billion an increase of 19% from a year ago EBITDA dollars were also a record at $433 million, rising from 18.9%- 22.8% of sales, driven by strong volume, particularly in data center and other mission critical applications, favorable pricing, and a continued focus on productivity and other operational improvements. ebitda dollars were also a record at $433 million rising from 18.9%- 22.8% of sales driven by strong volume particularly in data center and other mission critical applications favorable pricing and a continued focus on productivity and other operational improvements Accelera revenues decreased 5% to $105 million as increased E-mobility sales, mainly to bus customers, partially offset lower electrolyzer installations. accelera revenues decreased 5% to $105 million as increased e-mobility sales mainly to bus customers partially offset lower electrolyzer installations Our EBITDA loss was $100 million compared to an EBITDA loss of $117 million a year ago, reflecting a lower cost base resulting from the actions we took in the fourth quarter of 2024. our ebitda loss was $100 million compared to an ebitda loss of $117 million a year ago reflecting a lower cost base resulting from the actions we took in the fourth quarter of 2024 In summary, we delivered strong profitability for the second quarter as a result of improved operational execution across our business that more than offset weaker demand in North America truck markets. For the third quarter, we expect North America truck demand to sharply decline from second quarter levels as recent truck orders are at multi-year lows driven by uncertainty due to trade tariffs, product regulation, and caution about the prospects for freight. Since our last earnings call, we've seen a steady stream of updates from our OEM customers extending the number of production down days through the third quarter. We view current order levels as unsustainably low, but immediate catalysts for recovery are not yet clear. We have not yet felt the full impact from tariffs, and there is still uncertainty about duration and ongoing levels, which was highlighted again last week with the flurry of new announcements. In summary, we delivered strong profitability for the second quarter as a result of improved operational execution across our business that more than offset weaker demand in North America truck markets. in summary we delivered strong profitability for the second quarter as a result of improved operational execution across our business that more than offset weaker demand in north america truck markets For the third quarter, we expect North America truck demand to sharply decline from second quarter levels as recent truck orders are at multi-year lows driven by uncertainty due to trade tariffs, product regulation, and caution about the prospects for freight. for the third quarter we expect north america truck demand to sharply decline from second quarter levels as recent truck orders are at multi-year lows driven by uncertainty due to trade tariffs product regulation and caution about the prospects for freight Since our last earnings call, we've seen a steady stream of updates from our OEM customers extending the number of production down days through the third quarter. since our last earnings call we've seen a steady stream of updates from our oem customers extending the number of production down days through the third quarter We view current order levels as unsustainably low, but immediate catalysts for recovery are not yet clear. we view current order levels as unsustainably low but immediate catalysts for recovery are not yet clear We have not yet felt the full impact from tariffs, and there is still uncertainty about duration and ongoing levels, which was highlighted again last week with the flurry of new announcements. we have not yet felt the full impact from tariffs and there is still uncertainty about duration and ongoing levels which was highlighted again last week with the flurry of new announcements It remains to be seen what this will impact. This will have on business confidence and the demand for capital goods beyond trucks. We've worked hard to mitigate the impact of tariffs, and while negative to profitability in the second quarter, we should enter the fourth quarter close to a price-cost neutral position with regard to tariffs. As you saw in our second quarter results, Cummins Inc. is in a strong position to navigate through this uncertainty. With our industry-leading portfolio of products and our global network, we are well placed to support our customers. While we expect the coming months to be much more challenging, primarily for the engine and components segment, we are staying focused on our strategic priorities whilst also taking actions in the short term to reduce costs and lower inventory. It remains to be seen what this will impact. it remains to be seen what this will impact This will have on business confidence and the demand for capital goods beyond trucks. this will have on business confidence and the demand for capital goods beyond trucks We've worked hard to mitigate the impact of tariffs, and while negative to profitability in the second quarter, we should enter the fourth quarter close to a price-cost neutral position with regard to tariffs. we've worked hard to mitigate the impact of tariffs and while negative to profitability in the second quarter we should enter the fourth quarter close to a price-cost neutral position with regard to tariffs As you saw in our second quarter results, Cummins Inc. is in a strong position to navigate through this uncertainty. as you saw in our second quarter results cummins inc is in a strong position to navigate through this uncertainty With our industry-leading portfolio of products and our global network, we are well placed to support our customers. with our industry-leading portfolio of products and our global network we are well placed to support our customers While we expect the coming months to be much more challenging, primarily for the engine and components segment, we are staying focused on our strategic priorities whilst also taking actions in the short term to reduce costs and lower inventory. while we expect the coming months to be much more challenging primarily for the engine and components segment we are staying focused on our strategic priorities whilst also taking actions in the short term to reduce costs and lower inventory We look forward to reinstating our outlook when the economic picture becomes clearer, and we are confident as markets recover we will continue to raise our performance as we have clearly done in the first half of this year. Thanks for joining us today. Now let me turn it back over to Nick. We look forward to reinstating our outlook when the economic picture becomes clearer, and we are confident as markets recover we will continue to raise our performance as we have clearly done in the first half of this year. we look forward to reinstating our outlook when the economic picture becomes clearer and we are confident as markets recover we will continue to raise our performance as we have clearly done in the first half of this year Thanks for joining us today. thanks for joining us today Now let me turn it back over to Nick. now let me turn it back over to nick

Speaker 5: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have an additional question, please rejoin the queue. Operator, we are ready for our first question. Thank you, Mark. thank you mark Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. out of consideration to others on the call i would ask that you limit yourself to one question and a related follow-up If you have an additional question, please rejoin the queue. if you have an additional question please rejoin the queue Operator, we are ready for our first question. operator we are ready for our first question

Speaker 10: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, we do ask that you please limit yourself to one question and one follow-up question. Our first questions come from the line of Stephen Volkmann with Jefferies. Please proceed with your questions. Thank you. thank you We will now be conducting a question and answer session. we will now be conducting a question and answer session If you would like to ask a question, please press star one on your telephone keypad. if you would like to ask a question please press star one on your telephone keypad A confirmation tone will indicate your line is in the question queue. a confirmation tone will indicate your line is in the question queue You may press star two if you would like to remove your question from the queue. you may press star two if you would like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. for participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys As a reminder, we do ask that you please limit yourself to one question and one follow-up question. as a reminder we do ask that you please limit yourself to one question and one follow-up question Our first questions come from the line of Stephen Volkmann with Jefferies. our first questions come from the line of stephen volkmann with jefferies Please proceed with your questions. please proceed with your questions

Speaker 9: Great. Good morning, everybody. Thank you for taking the question. Seems like you have a little bit of feast and a little bit of famine here, so I'll focus on the feast, if that's all right. Power systems. Let's talk about power systems. Power systems. Let's talk about power systems. Big margin there, obviously much higher than I think we expected. I know you've been doing a lot of work on this over the past few years, Jen, but at the end of the day, I'm curious if you think that is sort of the right margin level that we should be thinking about as we start modeling forward. Is that sustainable, or was there anything in there that we should be aware of? Great. great Good morning, everybody. good morning everybody Thank you for taking the question. S eems like you have a little bit of feast and a little bit of f amine here, so I'll focus on the feast, if that's all right. thank you for taking the question. s eems like you have a little bit of feast and a little bit of f amine here so i'll focus on the feast if that's all right Power systems. power systems Let's talk about power systems. let's talk about power systems Power systems. power systems let's talk about power systems Let's talk about power systems. let's talk about power systems Big margin there, obviously much higher than I think we expected. let's talk about power systems big margin there obviously much higher than i think we expected I know you've been doing a lot o f work on this over the past f ew years, Jen, but at the end of the day, I'm curious if you think that is sort of the right margin level that we should be thinking about as we start modeling forward. i know you've been doing a lot o f work on this over the past f ew years jen but at the end of the day i'm curious if you think that is sort of the right margin level that we should be thinking about as we start modeling forward Is that sustainable, or was there anything in there that we should be aware of? is that sustainable or was there anything in there that we should be aware of

Speaker 7: Yeah, thanks Steve, for the question and really pleased with the performance of the power systems business. As you noted, we started a couple years ago on a journey to really improve operational performance and really coupled with the strong and growing demand and the power generation market has really benefited that business. We've made many of the steps that are leveraging the capacity that we have and trying to improve throughput and operational performance. Frankly, the team has outperformed in terms of the efforts for that and that has led to the really strong margin improvement that you've seen over the last couple of years. We're continuing to focus on areas where we can improve operational efficiency and performance. We're continuing our investment and doubling the capacity in that business, which we expect to be fully online by the beginning of next year. Yeah, thanks Steve, for the question and really pleased with the performance of the power systems business. yeah thanks steve for the question and really pleased with the performance of the power systems business As you noted, we started a couple years ago on a journey to really improve operational performance and really coupled with the strong and growing demand and the power generation market has really benefited that business. as you noted we started a couple years ago on a journey to really improve operational performance and really coupled with the strong and growing demand and the power generation market has really benefited that business We've made many of the steps that are leveraging the capacity that we have and trying to improve throughput and operational performance. we've made many of the steps that are leveraging the capacity that we have and trying to improve throughput and operational performance Frankly, the team has outperformed in terms of the efforts for that and that has led to the really strong margin improvement that you've seen over the last couple of years. frankly the team has outperformed in terms of the efforts for that and that has led to the really strong margin improvement that you've seen over the last couple of years We're continuing to focus on areas where we can improve operational efficiency and performance. we're continuing to focus on areas where we can improve operational efficiency and performance We're continuing our investment and doubling the capacity in that business, which we expect to be fully online by the beginning of next year. we're continuing our investment and doubling the capacity in that business which we expect to be fully online by the beginning of next year I think the pace of improvement has probably stabilized, but we will certainly continue to work on operational efficiencies and delivering value to our customers and being able to price for that and drive that mentality across all of our businesses. I think the pace of improvement has probably stabilized, but we will certainly continue to work on operational efficiencies and delivering value to our customers and being able to price for that and drive that mentality across all of our businesses. i think the pace of improvement has probably stabilized but we will certainly continue to work on operational efficiencies and delivering value to our customers and being able to price for that and drive that mentality across all of our businesses

Speaker 9: Okay, great. Okay, great. okay great

Speaker 15: There's nothing unique in there other than demand strong for both generators and parts. There's no one timers in there or anything like that. There's nothing unique in there other than demand strong for both generators and parts. there's nothing unique in there other than demand strong for both generators and parts There's no one timers in there or anything like that. there's no one timers in there or anything like that

Speaker 9: Right, understood. I assume you must have pretty good backlog in that segment. Maybe you can comment on that. Do you have pricing flexibility in that backlog if you need it? Can you reprice this stuff if necessary before delivery? Right, understood. right understood I assume you must have pretty good backlog in that segment. i assume you must have pretty good backlog in that segment Maybe you can comment on that. maybe you can comment on that Do you have pricing flexibility in t hat backlog if you need it? do you have pricing flexibility in t hat backlog if you need it Can you reprice this stuff if necessary before delivery? can you reprice this stuff if necessary before delivery

Speaker 7: Yeah, we have backlog out about two years in that business and continue to see strong demand, strong backlog, and we've been working with customers where we have backlog on the tariff recovery and made some progress there. Typically, you know, we're not repricing beyond that, and existing orders that we've taken we price in aftermarket as the market moves, and as I said, working on tariff recovery across all of our businesses. Yeah, we have backlog out about two years in that business and continue to see strong demand, strong backlog, and we've been working with customers where we have backlog on the tariff recovery and made some progress there. yeah we have backlog out about two years in that business and continue to see strong demand strong backlog and we've been working with customers where we have backlog on the tariff recovery and made some progress there Typically, you know, we're not repricing beyond that, and existing orders that we've taken we price in aftermarket as the market moves, and as I said, working on tariff recovery across all of our businesses. typically you know we're not repricing beyond that and existing orders that we've taken we price in aftermarket as the market moves and as i said working on tariff recovery across all of our businesses

Speaker 10: Thank you. Our next questions come from the line of Angel Castillo with Morgan Stanley. Please proceed with your questions. Thank you. thank you Our next questions come from the line of Angel Castillo with Morgan Stanley. our next questions come from the line of angel castillo with morgan stanley Please proceed with your questions. please proceed with your questions

Speaker 11: Hi, good morning. Thanks for taking my question and congrats on another strong quarter here. I wanted to ask a little bit of a bigger picture sticking to the kind of power systems dynamic. Back at your investor day last year you quantified that total data center, I think business was $1.4 billion, I think in sales and that you were kind of 23% of, I think, $6 billion global market for data centers. I think at the time you also kind of noted that that would be a $2 billion sales for you in 2026 and maybe a $9 billion market. I know it's difficult to quantify and it's crazy 2026 starting next year. I guess could you just comment on that? Hi, good morning. hi good morning Thanks for taking my question and congrats on another strong quarter here. thanks for taking my question and congrats on another strong quarter here I wanted to ask a little bit of a bigger picture sticking to the kind of power systems dynamic. i wanted to ask a little bit of a bigger picture sticking to the kind of power systems dynamic Back at your investor day last year you quantified that total data center, I think business was $1.4 billion, I think in sales and that you were kind of 23% of, I think, $6 billion global market for data centers. back at your investor day last year you quantified that total data center i think business was $1.4 billion i think in sales and that you were kind of 23% of i think $6 billion global market for data centers I think at the time you also kind of noted that that would be a $2 billion sales for you in 2026 and maybe a $9 billion market. i think at the time you also kind of noted that that would be a $2 billion sales for you in 2026 and maybe a $9 billion market I know it's difficult to quantify and it's crazy 2026 starting next year. i know it's difficult to quantify and it's crazy 2026 starting next year I guess could you just comment on that? i guess could you just comment on that How are you seeing your business growth and demand and market share ultimately evolve toward that kind of $2 billion top line and or kind of where are we in terms of the size of your business within data centers? How are you seeing your business growth and demand and market share ultimately evolve toward that kind of $2 billion top line and or kind of where are we in terms of the size of your business within data centers? how are you seeing your business growth and demand and market share ultimately evolve toward that kind of $2 billion top line and or kind of where are we in terms of the size of your business within data centers

Speaker 7: Thanks for the question. We are continuing to be very well positioned. We think the combination of our products, and we've launched the Centum Series, we've continued to add some products, but the larger ones of those are quite popular in data centers. Coupled with our distribution business, this provides Cummins Inc. an advantage. We're a strong player in a growing backup power provider to data centers. We feel like we continue to maintain that position and take advantage of new products and capacity investment. We expect this year to be pretty stable in the second half with typical seasonality. As I said, we'll have some additional capacity coming online as we go into 2026. Thanks for the question. thanks for the question We are continuing to be very well positioned. we are continuing to be very well positioned We think the combination of our products, and we've launched the Centum Series, we've continued to add some products, but the larger ones of those are quite popular in data centers. we think the combination of our products and we've launched the centum series we've continued to add some products but the larger ones of those are quite popular in data centers Coupled with our distribution business, this provides Cummins Inc. an advantage. coupled with our distribution business this provides cummins inc an advantage We're a strong player in a growing backup power provider to data centers. we're a strong player in a growing backup power provider to data centers We feel like we continue to maintain that position and take advantage of new products and capacity investment. We expect this year to be pretty stable in the second half with typical seasonality. we feel like we continue to maintain that position and take advantage of new products and capacity investment. we expect this year to be pretty stable in the second half with typical seasonality As I said, we'll have some additional capacity coming online as we go into 2026. as i said we'll have some additional capacity coming online as we go into 2026

Speaker 11: That's so fun. I guess is it fair to assume then that $2 billion is still kind of the way to think about 2026. That's so fun. that's so fun I guess is it fair to assume then that $2 billion is still kind of the way to think about 2026. i guess is it fair to assume then that $2 billion is still kind of the way to think about 2026

Speaker 7: Yes. Yes. yes

Speaker 15: Yeah. No change in enthusiasm for demand. Yeah. yeah No change in enthusiasm for demand. no change in enthusiasm for demand

Speaker 10: Thank you. Our next question has come from the line of Jamie Cook with Truist Securities. Please proceed with your questions. Thank you. thank you Our next question has come from the line of Jamie Cook with Truist Securities. our next question has come from the line of jamie cook with truist securities Please proceed with your questions. please proceed with your questions

Speaker 8: Hi, good morning. I guess what struck me about the quarter is your margin performance, even with North America truck going through a correction. The two areas that stuck out to me besides power systems was your distribution margins, which I'm assuming is getting the benefit of power. Are margins moving structurally higher there just because of the benefit that you get through from the power system business? Also, on the component side, you were able to improve your margins despite sales declines. I think you noted lower product coverage. Is there any way you could quantify that? Just trying to think about the implications for margins in the back half. My second question, Jen, just relates to the cycle. In North America, obviously we're seeing a big correction in 2025. Hi, good morning. hi good morning I guess what struck me about the quarter is your margin performance, even with North America truck going through a correction. i guess what struck me about the quarter is your margin performance even with north america truck going through a correction The two areas that stuck out to me besides power systems was your distribution margins, which I'm assuming is getting the benefit of power. the two areas that stuck out to me besides power systems was your distribution margins which i'm assuming is getting the benefit of power Are margins moving structurally higher there just because of the benefit that you get through from the power system business? are margins moving structurally higher there just because of the benefit that you get through from the power system business Also, on the component side, you were able to improve your margins despite sales declines. also on the component side you were able to improve your margins despite sales declines I think you noted lower product coverage. i think you noted lower product coverage Is there any way you could quantify that? is there any way you could quantify that Just trying to think about the implications for margins in the back half. just trying to think about the implications for margins in the back half My second question, Jen, just relates to the cycle. my second question jen just relates to the cycle In North America, obviously we're seeing a big correction in 2025. in north america obviously we're seeing a big correction in 2025 Lack of pre buy, based on what you're hearing from your customers, how are you thinking about North America in 2026 and in 2027? Thanks. Lack of pre buy, based on what you're hearing from your customers, how are you thinking about North America in 2026 and in 2027? lack of pre buy based on what you're hearing from your customers how are you thinking about north america in 2026 and in 2027 Thanks. thanks

Speaker 15: Morning, Jamie. I'll start on the margin question. On distribution, yes, the benefits of power, the benefits of, yeah, strong parts business, and then we've got positive pricing in the distribution business as well. All of those have combined to make for very positive results in distribution overall. Yes, in component, it's not reasonable to expect on significant continuing declines in truck volumes that we can maintain margins in the short run. We expect obviously margins to improve over the long run in engines and components. You're right, we called out the product coverage numbers because that was a tougher quarter a year ago and a much cleaner quarter just within the components for the company. Overall, there really wasn't much difference in the product coverage numbers, but in the component segment, that was probably worth something like half a point. That was not a one-time. Morning, Jamie. morning jamie I'll start on the margin question. i'll start on the margin question On distribution, yes, the benefits of power, the benefits of, yeah, strong parts business, and then we've got positive pricing in the distribution business as well. on distribution yes the benefits of power the benefits of yeah strong parts business and then we've got positive pricing in the distribution business as well All of those have combined to make for very positive results in distribution overall. all of those have combined to make for very positive results in distribution overall Yes, in component, it's not reasonable to expect on significant continuing declines in truck volumes that we can maintain margins in the short run. yes in component it's not reasonable to expect on significant continuing declines in truck volumes that we can maintain margins in the short run We expect obviously margins to improve over the long run in engines and components. we expect obviously margins to improve over the long run in engines and components You're right, we called out the product coverage numbers because that was a tougher quarter a year ago and a much cleaner quarter just within the components for the company. you're right we called out the product coverage numbers because that was a tougher quarter a year ago and a much cleaner quarter just within the components for the company Overall, there really wasn't much difference in the product coverage numbers, but in the component segment, that was probably worth something like half a point. overall there really wasn't much difference in the product coverage numbers but in the component segment that was probably worth something like half a point That was not a one-time. that was not a one-time It was more the absence of a problem from a year ago than something that's special that happened in this quarter. Just to be clear, given the rates of decline here in the third quarter from second quarter in engines and components, we should expect that there's going to be a negative impact on the profitability of those two segments. It was more the absence of a problem from a year ago than something that's special that happened in this quarter. it was more the absence of a problem from a year ago than something that's special that happened in this quarter Just to be clear, given the rates of decline here in the third quarter from second quarter in engines and components, we should expect that there's going to be a negative impact on the profitability of those two segments. just to be clear given the rates of decline here in the third quarter from second quarter in engines and components we should expect that there's going to be a negative impact on the profitability of those two segments

Speaker 8: Okay, thank you. Jen, just on the cycle. Okay, thank you. okay thank you Jen, just on the cycle. jen just on the cycle

Speaker 7: Yeah, on the cycle. Jamie, it's, you know, there's a number of typical factors and then some atypical factors that we see influencing the truck cycle. Spot rates continue to be low. Economic demand isn't really growing for customers. Interest rates are still higher. While the age of the fleet on average has gone up some, we still are seeing that kind of cyclical, normal cyclical down in the truck market which then had on top of it this uncertainty around tariff policy, the impact that's going to have on price of trucks and regulatory uncertainty, which means customers are really just holding, waiting to see what happens, get more stability and clarity on orders. In Q2 build rates held up okay. Yeah, on the cycle. yeah on the cycle Jamie, it's, you know, there's a number of typical factors and then some atypical factors that we see influencing the truck cycle. jamie it's you know there's a number of typical factors and then some atypical factors that we see influencing the truck cycle Spot rates continue to be low. spot rates continue to be low Economic demand isn't really growing for customers. economic demand isn't really growing for customers Interest rates are still higher. interest rates are still higher While the age of the fleet on average has gone up some, we still are seeing that kind of cyclical, normal cyclical down in the truck market which then had on top of it this uncertainty around tariff policy, the impact that's going to have on price of trucks and regulatory uncertainty, which means customers are really just holding, waiting to see what happens, get more stability and clarity on orders. while the age of the fleet on average has gone up some we still are seeing that kind of cyclical normal cyclical down in the truck market which then had on top of it this uncertainty around tariff policy the impact that's going to have on price of trucks and regulatory uncertainty which means customers are really just holding waiting to see what happens get more stability and clarity on orders In Q2 build rates held up okay. in q2 build rates held up okay We saw some softening, but as Mark noted, we're seeing a lot more down days and our customers and us restructuring in our plants in anticipation of a much weaker Q3. How long will it last? Is a little bit hard to predict. The optimistic Jen would say we get more tariff clarity and stability in Q3 and more certainty on regulation. We still believe today that we'll have 2027 NOx regulation and if we do then that will likely drive demand back up. It's uncertain right now. We're working closely with the EPA to try to push for clarity and help them understand levers that they may have to reduce the total cost impact of that, in particular longer emissions warranty. It's really hard for me to predict. The pessimist says it drags out longer and that's part of why we're not giving guidance. We saw some softening, but as Mark noted, we're seeing a lot more down days and our customers and us restructuring in our plants in anticipation of a much weaker Q3. we saw some softening but as mark noted we're seeing a lot more down days and our customers and us restructuring in our plants in anticipation of a much weaker q3 How long will it last? how long will it last Is a little bit hard to predict. is a little bit hard to predict The optimistic Jen would say we get more tariff clarity and stability in Q3 and more certainty on regulation. the optimistic jen would say we get more tariff clarity and stability in q3 and more certainty on regulation We still believe today that we'll have 2027 NOx regulation and if we do then that will likely drive demand back up. we still believe today that we'll have 2027 nox regulation and if we do then that will likely drive demand back up It's uncertain right now. it's uncertain right now We're working closely with the EPA to try to push for clarity and help them understand levers that they may have to reduce the total cost impact of that, in particular longer emissions warranty. we're working closely with the epa to try to push for clarity and help them understand levers that they may have to reduce the total cost impact of that in particular longer emissions warranty It's really hard for me to predict. it's really hard for me to predict The pessimist says it drags out longer and that's part of why we're not giving guidance. the pessimist says it drags out longer and that's part of why we're not giving guidance It's just really difficult to predict. It's just really difficult to predict. it's just really difficult to predict

Speaker 15: The pessimist sat next to her. We'll just point out that more years than not, Q4 is not particularly stronger than Q3. We're hoping for that. That would definitely help all industry participants. We need to see a significant change in the momentum. The momentum for orders to us for engine systems is down, obviously. Clearly down. The pessimist sat next to her. the pessimist sat next to her We'll just point out that more years than not, Q4 is not particularly stronger than Q3. we'll just point out that more years than not q4 is not particularly stronger than q3 We're hoping for that. we're hoping for that That would definitely help all industry participants. that would definitely help all industry participants We need to see a significant change in the momentum. we need to see a significant change in the momentum The momentum for orders to us for engine systems is down, obviously. the momentum for orders to us for engine systems is down obviously Clearly down. clearly down

Speaker 10: Thank you. Our next questions come from the line of Rob Wertheimer with Melius Research. Please proceed with your questions. Thank you. thank you Our next questions come from the line of Rob Wertheimer with Melius Research. our next questions come from the line of rob wertheimer with melius research Please proceed with your questions. please proceed with your questions

Speaker 15: We lost Rob. We lost Rob. we lost rob

Speaker 10: Rob, could you please check if you're self muted? Rob, could you please check if you're self muted? rob could you please check if you're self muted

Speaker 4: I beg your pardon? Sorry. You guys just touched on the engine margins. Mark, I take, I understand your comments on where things have to go given volumes. I beg your pardon? i beg your pardon Sorry. sorry You guys just touched on the engine margins. you guys just touched on the engine margins Mark, I take, I understand your comments on where things have to go given volumes. mark i take i understand your comments on where things have to go given volumes This quarter was pretty good. This quarter was pretty good. this quarter was pretty good Last quarter was great. I wondered if you might comment on price that might influence that or anything else given a shallow margin decline. Last quarter was great. last quarter was great I wondered if you might comment on price that might influence that or anything else given a shallow margin decline. i wondered if you might comment on price that might influence that or anything else given a shallow margin decline On lower revenues and engines. On lower revenues and engines. on lower revenues and engines Jen just touched on EPA 2027. I wonder if you have any guess. Jen just touched on EPA 2027. jen just touched on epa 2027 I wonder if you have any guess. i wonder if you have any guess As to when we have at least. As to when we have at least. as to when we have at least Clarity on what the resolution will be. Clarity on what the resolution will be. clarity on what the resolution will be Thank you. Thank you. thank you

Speaker 15: A couple of factors on the engine margin we called out in prior quarters because it's been a running theme as we've launched new models in the light duty segment. We have raised prices, product quality has been very stable and positive. China, I don't want to get people over excited on China, but stepped up a little bit from weaker levels. The engine business benefits a lot from the joint venture earnings in China which are a little bit higher. All those factors and when we say strong parts that's flowing through the engine business and power systems generally. All those were factors but the pricing primarily on new engines was around light duty. A couple of factors on the engine margin we called out in prior quarters because it's been a running theme as we've launched new models in the light duty segment. a couple of factors on the engine margin we called out in prior quarters because it's been a running theme as we've launched new models in the light duty segment We have raised prices, product quality has been very stable and positive. we have raised prices product quality has been very stable and positive China, I don't want to get people over excited on China, but stepped up a little bit from weaker levels. china i don't want to get people over excited on china but stepped up a little bit from weaker levels The engine business benefits a lot from the joint venture earnings in China which are a little bit higher. the engine business benefits a lot from the joint venture earnings in china which are a little bit higher All those factors and when we say strong parts that's flowing through the engine business and power systems generally. all those factors and when we say strong parts that's flowing through the engine business and power systems generally All those were factors but the pricing primarily on new engines was around light duty. all those were factors but the pricing primarily on new engines was around light duty

Speaker 7: I'll just add, you know, we have had the focus, the focus on operational efficiency, you know, come in through a couple of years. We had a lot of supply disruption and high demand. We've had a focus on really just improving the fundamentals of how our business operates and how our plants operate. We did do some targeted restructuring last year to optimize how our business operates and took advantage of the softening that we started to see last year to do that. You're seeing some benefit of that across the company as well. I'll just add, you know, we have had the focus, the focus on operational efficiency, you know, come in through a couple of years. i'll just add you know we have had the focus the focus on operational efficiency you know come in through a couple of years We had a lot of supply disruption and high demand. we had a lot of supply disruption and high demand We've had a focus on really just improving the fundamentals of how our business operates and how our plants operate. we've had a focus on really just improving the fundamentals of how our business operates and how our plants operate We did do some targeted restructuring last year to optimize how our business operates and took advantage of the softening that we started to see last year to do that. we did do some targeted restructuring last year to optimize how our business operates and took advantage of the softening that we started to see last year to do that You're seeing some benefit of that across the company as well. you're seeing some benefit of that across the company as well

Speaker 4: Okay, thank you, Jennifer. Thank you, Mark. Okay, thank you, Jennifer. okay thank you jennifer Thank you, Mark. thank you mark

Speaker 15: You're welcome. You're welcome. you're welcome

Speaker 10: Thank you. Our next questions come from the line of Tim Thein with Raymond James. Please proceed with your questions. Thank you. thank you Our next questions come from the line of Tim Thein with Raymond James. our next questions come from the line of tim thein with raymond james Please proceed with your questions. please proceed with your questions

Speaker 13: Thank you and good morning. The first question was on the power generation business and I guess more domestically this kind of speed to power theme is gaining a lot of momentum and traction in terms of operators that want to get up, you know, get power access quickly. Given the long lead times for industrial gas turbines, it seems like you're starting to see and hear a little bit more of operators that are looking to leverage recips as a way to kind of gain off grid primary power. I'm just curious if that's something that Cummins has seen or is expecting to see. Maybe just a comment on that. Thank you and good morning. thank you and good morning The first question was on the power generation business and I guess more domestically this kind of speed to power theme is gaining a lot of momentum and traction in terms of operators that want to get up, you know, get power access quickly. the first question was on the power generation business and i guess more domestically this kind of speed to power theme is gaining a lot of momentum and traction in terms of operators that want to get up you know get power access quickly Given the long lead times for industrial gas turbines, it seems like you're starting to see and hear a little bit more of operators that are looking to leverage recips as a way to kind of gain off grid primary power. given the long lead times for industrial gas turbines it seems like you're starting to see and hear a little bit more of operators that are looking to leverage recips as a way to kind of gain off grid primary power I'm just curious if that's something that Cummins has seen or is expecting to see. i'm just curious if that's something that cummins has seen or is expecting to see Maybe just a comment on that. maybe just a comment on that

Speaker 7: I think the trend certainly is need for more power, challenges of getting that power today. We are still primarily positioned in backup power. Certainly, strategically we're looking at where we want to position ourselves for the future as that demand for power continues to exist, but it's not really meaningfully impacting our business today or in the near future. I think the trend certainly is need for more power, challenges of getting that power today. i think the trend certainly is need for more power challenges of getting that power today We are still primarily positioned in backup power. we are still primarily positioned in backup power Certainly, strategically we're looking at where we want to position ourselves for the future as that demand for power continues to exist, but it's not really meaningfully impacting our business today or in the near future. certainly strategically we're looking at where we want to position ourselves for the future as that demand for power continues to exist but it's not really meaningfully impacting our business today or in the near future

Speaker 13: Okay, all right, understood. Just on distribution, I can remember years ago when double digits was talked about as kind of the aspirational target there. I'm just curious, as the power generation business obviously has been growing for some time, are there more, just as the power demands increase and maybe as the data centers are consuming more and more power, is that bringing along more services and more kind of ancillary type revenues with those installations such that that business carries higher margins, or would that all be kind of reflected in power systems margins? I'm just curious, as the parts part of distribution as a percentage has continued to decline, which I would think would be dilutive to the margin. Maybe just to comment on that would be helpful, thank you. Okay, all right, understood. okay all right understood Just on distribution, I can remember years ago when double digits was talked about as kind of the aspirational target there. just on distribution i can remember years ago when double digits was talked about as kind of the aspirational target there I'm just curious, as the power generation business obviously has been growing for some time, are there more, just as the power demands increase and maybe as the data centers are consuming more and more power, is that bringing along more services and more kind of ancillary type revenues with those installations such that that business carries higher margins, or would that all be kind of reflected in power systems margins? i'm just curious as the power generation business obviously has been growing for some time are there more just as the power demands increase and maybe as the data centers are consuming more and more power is that bringing along more services and more kind of ancillary type revenues with those installations such that that business carries higher margins or would that all be kind of reflected in power systems margins I'm just curious, as the parts part of distribution as a percentage has continued to decline, which I would think would be dilutive to the margin. i'm just curious as the parts part of distribution as a percentage has continued to decline which i would think would be dilutive to the margin Maybe just to comment on that would be helpful, thank you. maybe just to comment on that would be helpful thank you

Speaker 15: I think yes, you're right. Any of those services and other things would show in Distribution, not in Power Systems. I think what lies beneath the surface a little bit, Tim, is just a more broad-based improvement in our international operations. I do also remember vividly those double-digit margin targets when we set them. There have been dramatic improvements in areas like Africa where we had high growth aspirations that, quite frankly, had some risk management issues and execution issues early on. Those are long behind us. I think we've really more broadly improved the operational effectiveness and profitability focus outside North America in addition to improving North America. I think it's a more broad-based approach phenomenon that's really driven the results. I think yes, you're right. i think yes you're right Any of those services and other things would show in Distribution, not in Power Systems. any of those services and other things would show in distribution not in power systems I think what lies beneath the surface a little bit, Tim, is just a more broad-based improvement in our international operations. i think what lies beneath the surface a little bit tim is just a more broad-based improvement in our international operations I do also remember vividly those double-digit margin targets when we set them. There have been dramatic improvements in areas like Africa where we had high growth aspirations that, quite frankly, had some risk management issues and execution issues early on. i do also remember vividly those double-digit margin targets when we set them. there have been dramatic improvements in areas like africa where we had high growth aspirations that quite frankly had some risk management issues and execution issues early on Those are long behind us. those are long behind us I think we've really more broadly improved the operational effectiveness and profitability focus outside North America in addition to improving North America. i think we've really more broadly improved the operational effectiveness and profitability focus outside north america in addition to improving north america I think it's a more broad-based approach phenomenon that's really driven the results. i think it's a more broad-based approach phenomenon that's really driven the results

Speaker 7: Typically in the power generation market, if we're doing backup power, then there's minimal aftermarket parts demand. The distribution business can do additional content on the installation and benefit from that work with the customer. Typically in the power generation market, if we're doing backup power, then there's minimal aftermarket parts demand. typically in the power generation market if we're doing backup power then there's minimal aftermarket parts demand The distribution business can do additional content on the installation and benefit from that work with the customer. the distribution business can do additional content on the installation and benefit from that work with the customer

Speaker 10: Thank you. Our next questions come from the line of David Raso with Evercore ISI. Please proceed with your questions. Thank you. thank you Our next questions come from the line of David Raso with Evercore ISI. our next questions come from the line of david raso with evercore isi Please proceed with your questions. please proceed with your questions

Speaker 1: Hi. Thank you. I know you don't want to give guidance but I am curious just directly to ask the EBITDA margin for engine in third quarter, fourth quarter, how are you thinking about that relative to, you know, we've been above 13% now for a while, haven't been below 12%, 11% since I think late 2021. You mentioned the JV income maybe a little bit better as an offset. It's obviously more impactful the lower the consolidated revenues are just because people are going to look at sort of at least a thought process of a bottoming truck in the next few quarters when it comes to margins and then sort of go from there on how to think about 2026 earnings. Hi. hi Thank you. thank you I know you don't want to give guidance but I am curious just directly to ask the EBITDA margin for engine in third quarter, fourth quarter, how are you thinking about that relative to, you know, we've been above 13% now for a while, haven't been below 12%, 11% since I think late 2021. i know you don't want to give guidance but i am curious just directly to ask the ebitda margin for engine in third quarter fourth quarter how are you thinking about that relative to you know we've been above 13% now for a while haven't been below 12% 11% since i think late 2021 You mentioned the JV income maybe a little bit better as an offset. you mentioned the jv income maybe a little bit better as an offset It's obviously more impactful the lower the consolidated revenues are just because people are going to look at sort of at least a thought process of a bottoming truck in the next few quarters when it comes to margins and then sort of go from there on how to think about 2026 earnings. it's obviously more impactful the lower the consolidated revenues are just because people are going to look at sort of at least a thought process of a bottoming truck in the next few quarters when it comes to margins and then sort of go from there on how to think about 2026 earnings Can you give us any quantification of how to think about the EBITDA margins and engines in the third quarter or back half of 2024, 2025? Can you give us any quantification of how to think about the EBITDA margins and engines in the third quarter or back half of 2024, 2025? can you give us any quantification of how to think about the ebitda margins and engines in the third quarter or back half of 2024 2025 Thank you. Thank you. thank you

Speaker 15: Yep. Yep. yep We spend a lot of time staring at that as you can imagine. What I would say is I don't see a lot of momentum. China's improved off a very rough bottom, but we're going to come under pressure here in the second half. What I'd say is whilst the margins are going to go down clearly, there's nothing structural about that. We're just, the volumes are going to go down significantly. I think if we looked on a full year basis we might see. There's no reason to see why the decrementals are very different on a full year basis from prior cycles. Clearly for engines and components they're going to come under significant pressure. Just to give a bit more technical, not to be negative, just to give the fact we already know how many engines we produced in heavy and medium-duty truck in July. We spend a lot of time staring at that as you can imagine. we spend a lot of time staring at that as you can imagine What I would say is I don't see a lot of momentum. what i would say is i don't see a lot of momentum China's improved off a very rough bottom, but we're going to come under pressure here in the second half. china's improved off a very rough bottom but we're going to come under pressure here in the second half What I'd say is whilst the margins are going to go down clearly, there's nothing structural about that. what i'd say is whilst the margins are going to go down clearly there's nothing structural about that We're just, the volumes are going to go down significantly. we're just the volumes are going to go down significantly I think if we looked on a full year basis we might see. i think if we looked on a full year basis we might see There's no reason to see why the decrementals are very different on a full year basis from prior cycles. there's no reason to see why the decrementals are very different on a full year basis from prior cycles Clearly for engines and components they're going to come under significant pressure. clearly for engines and components they're going to come under significant pressure Just to give a bit more technical, not to be negative, just to give the fact we already know how many engines we produced in heavy and medium-duty truck in July. just to give a bit more technical not to be negative just to give the fact we already know how many engines we produced in heavy and medium-duty truck in july We can see the order build rate for August, it's going to be very depressed. As Jen said, down 25 to 30%. That's not surprising given how low the orders are. I think as we look forward, Dave, we're confident that we, you know, margins will rebound quickly as the volume comes through. The other complexity that we're dealing with is that a lack of clarity on the emissions regulations means we've got to retain flexibility on the engineering side. We said at our last analyst day, over time we expect engineering to come down as a percent of sales in engines and components. We're not able to execute that side of it yet because of this lingering uncertainty. Clear reduction, but nothing structural. No significant changes to market pricing which always could have an impact structurally. We can see the order build rate for August, it's going to be very depressed. we can see the order build rate for august it's going to be very depressed As Jen said, down 25 to 30%. as jen said down 25 to 30% That's not surprising given how low the orders are. that's not surprising given how low the orders are I think as we look forward, Dave, we're confident that we, you know, margins will rebound quickly as the volume comes through. i think as we look forward dave we're confident that we you know margins will rebound quickly as the volume comes through The other complexity that we're dealing with is that a lack of clarity on the emissions regulations means we've got to retain flexibility on the engineering side. the other complexity that we're dealing with is that a lack of clarity on the emissions regulations means we've got to retain flexibility on the engineering side We said at our last analyst day, over time we expect engineering to come down as a percent of sales in engines and components. we said at our last analyst day over time we expect engineering to come down as a percent of sales in engines and components We're not able to execute that side of it yet because of this lingering uncertainty. we're not able to execute that side of it yet because of this lingering uncertainty Clear reduction, but nothing structural. clear reduction but nothing structural No significant changes to market pricing which always could have an impact structurally. no significant changes to market pricing which always could have an impact structurally We're going to go down and then we're going to rebound in those two businesses and hopefully that's quicker rather than later. History says we don't have that many quarters of down. We're a few quarters in already, but we're waiting for more momentum on the order side. Yes, we're going to be tough, definitely a tough second half. We're going to go down and then we're going to rebound in those two businesses and hopefully that's quicker rather than later. we're going to go down and then we're going to rebound in those two businesses and hopefully that's quicker rather than later History says we don't have that many quarters of down. history says we don't have that many quarters of down We're a few quarters in already, but we're waiting for more momentum on the order side. we're a few quarters in already but we're waiting for more momentum on the order side Yes, we're going to be tough, definitely a tough second half. yes we're going to be tough definitely a tough second half

Speaker 1: The incremental margins, again, I know you're avoiding quantifying, but just so we can frame this a little bit, is the idea the decremental margins in EBITDA for engines for the third quarter, it's at 35%, 40% kind of range. We're just trying to get some sense of. The incremental margins, again, I know you're avoiding quantifying, but just so we can frame this a little bit, is the idea the decremental margins in EBITDA for engines for the third quarter, it's at 35%, 40% kind of range. the incremental margins again i know you're avoiding quantifying but just so we can frame this a little bit is the idea the decremental margins in ebitda for engines for the third quarter it's at 35% 40% kind of range We're just trying to get some sense of. we're just trying to get some sense of

Speaker 15: They're going to be. Yeah, they're going to be. They're going to be pretty heavy. I'm not trying to hide from it, they're going to be pretty heavy. These are some of the largest declines we've seen. If you look at the orders in the past three or four months, they're amongst the weakest three or four month periods we've had in the last 20 years. That's going to show up in our numbers, but it's a cyclical business and it will rebound. Just to reinforce, it's going to be tough. When the volumes come back, which they inevitably will, quite when we can't say, we'd expect performance to rebound as well. Hopefully July is the trough. We started with a spreadsheet. Imagine a spreadsheet in front of you. I'm still old and I use spreadsheets where we've got customer down days by brand, by location. They're going to be. they're going to be Yeah, they're going to be. yeah they're going to be They're going to be pretty heavy. they're going to be pretty heavy I'm not trying to hide from it, they're going to be pretty heavy. i'm not trying to hide from it they're going to be pretty heavy These are some of the largest declines we've seen. these are some of the largest declines we've seen If you look at the orders in the past three or four months, they're amongst the weakest three or four month periods we've had in the last 20 years. if you look at the orders in the past three or four months they're amongst the weakest three or four month periods we've had in the last 20 years That's going to show up in our numbers, but it's a cyclical business and it will rebound. that's going to show up in our numbers but it's a cyclical business and it will rebound Just to reinforce, it's going to be tough. just to reinforce it's going to be tough When the volumes come back, which they inevitably will, quite when we can't say, we'd expect performance to rebound as well. when the volumes come back which they inevitably will quite when we can't say we'd expect performance to rebound as well Hopefully July is the trough. hopefully july is the trough We started with a spreadsheet. we started with a spreadsheet Imagine a spreadsheet in front of you. imagine a spreadsheet in front of you I'm still old and I use spreadsheets where we've got customer down days by brand, by location. i'm still old and i use spreadsheets where we've got customer down days by brand by location When we sat here three months ago, it was modest for the third quarter and now it's kind of a sea of red. We'll come through this period, but the margins will come under pressure. We're not going to hide from that. There's nothing structural changing. That's what I want investors, us, to leave. If there was something structural, we would tell you, but it's going to be volume based and it's going to be tough. The good news is we've got two businesses that are performing at record levels where demand is high. That's what we look for and stronger than they've done in prior cycles. We expect broadly demand for those businesses to remain stable for the remainder of the year. I hope that helps a bit. I know it's tough. The reason why we haven't given guidance is, as you can see, we withdrew guidance. When we sat here three months ago, it was modest for the third quarter and now it's kind of a sea of red. when we sat here three months ago it was modest for the third quarter and now it's kind of a sea of red We'll come through this period, but the margins will come under pressure. we'll come through this period but the margins will come under pressure We're not going to hide from that. we're not going to hide from that There's nothing structural changing. there's nothing structural changing That's what I want investors, us, to leave. that's what i want investors us to leave If there was something structural, we would tell you, but it's going to be volume based and it's going to be tough. if there was something structural we would tell you but it's going to be volume based and it's going to be tough The good news is we've got two businesses that are performing at record levels where demand is high. the good news is we've got two businesses that are performing at record levels where demand is high That's what we look for and stronger than they've done in prior cycles. that's what we look for and stronger than they've done in prior cycles We expect broadly demand for those businesses to remain stable for the remainder of the year. we expect broadly demand for those businesses to remain stable for the remainder of the year I hope that helps a bit. i hope that helps a bit I know it's tough. i know it's tough The reason why we haven't given guidance is, as you can see, we withdrew guidance. the reason why we haven't given guidance is as you can see we withdrew guidance It was nothing to do with our performance in the second quarter. The number of variables out there essentially remain the same from three months ago. Yes, we've got more visibility into Q3 and it's much worse than we would have imagined at the start of the year. It's worse than we would have imagined three months ago. We hope this is the bottoming period and then we're moving on. Hopefully the industry is set up for a better 2026 and we are well positioned with strong position in the markets, good relationships with excellent customers. We look forward to that. This is going to be one of those tougher periods. It was nothing to do with our performance in the second quarter. it was nothing to do with our performance in the second quarter The number of variables out there essentially remain the same from three months ago. the number of variables out there essentially remain the same from three months ago Yes, we've got more visibility into Q3 and it's much worse than we would have imagined at the start of the year. yes we've got more visibility into q3 and it's much worse than we would have imagined at the start of the year It's worse than we would have imagined three months ago. it's worse than we would have imagined three months ago We hope this is the bottoming period and then we're moving on. we hope this is the bottoming period and then we're moving on Hopefully the industry is set up for a better 2026 and we are well positioned with strong position in the markets, good relationships with excellent customers. hopefully the industry is set up for a better 2026 and we are well positioned with strong position in the markets good relationships with excellent customers We look forward to that. we look forward to that This is going to be one of those tougher periods. this is going to be one of those tougher periods

Speaker 10: Thank you. Our next questions come from the line of Kyle Menges with Citi. Please proceed with your questions. Thank you. thank you Our next questions come from the line of Kyle Menges with Citi. our next questions come from the line of kyle menges with citi Please proceed with your questions. please proceed with your questions

Speaker 2: Thank you. I was hoping, Mark, if you could just touch on your thoughts on capital allocation quickly and how you're thinking about leverage at current levels, appetite for share buybacks, and then I'm thinking you guys should be beneficiaries from the big beautiful bill and favorable cash taxes. Have you tried to quantify that impact and thoughts on where you might deploy that excess cash to? Yeah. Thank you. thank you I was hoping, Mark, if you could just touch on your thoughts on capital allocation quickly and how you're thinking about leverage at current levels, appetite for share buybacks, and then I'm thinking you guys should be beneficiaries from the big beautiful bill and favorable cash taxes. i was hoping mark if you could just touch on your thoughts on capital allocation quickly and how you're thinking about leverage at current levels appetite for share buybacks and then i'm thinking you guys should be beneficiaries from the big beautiful bill and favorable cash taxes Have you tried to quantify that impact and thoughts on where you might deploy that excess cash to? have you tried to quantify that impact and thoughts on where you might deploy that excess cash to Yeah. yeah

Speaker 15: We've had a pretty long track record of returning capital to shareholders. We set kind of this long-term benchmark of at least 50% and we've been living up to that even during a period where we made a major acquisition. You saw we had a healthy increase in the dividend here. We've been working hard to improve our leverage metrics, and I feel good about where they are now. The pace of capital allocation is really based on the economy. We've had a pretty long track record of returning capital to shareholders. we've had a pretty long track record of returning capital to shareholders We set kind of this long-term benchmark of at least 50% and we've been living up to that even during a period where we made a major acquisition. we set kind of this long-term benchmark of at least 50% and we've been living up to that even during a period where we made a major acquisition You saw we had a healthy increase in the dividend here. you saw we had a healthy increase in the dividend here We've been working hard to improve our leverage metrics, and I feel good about where they are now. we've been working hard to improve our leverage metrics and i feel good about where they are now The pace of capital allocation is really based on the economy. the pace of capital allocation is really based on the economy Yeah. Yeah. yeah Prospects for the business. When we do capital allocation, we're also looking at, you know, making sure we're doing that in the most effective way that we can. Yes, incrementally, we should be looking for more of that going forwards as a base case. Yes. If the taxes are the beautiful part, then the tariffs are definitely not right. The challenge is that the tariff costs have created great uncertainty. I'll just say a little bit about tariffs since I haven't been asked about that yet, that the cost of the tariffs to Cummins Inc., and I'll quantify the tax benefits in a moment, are multiples of the tax benefit, the pull forward of tax benefits that are allowed under accelerated depreciation. Whilst we've done a pretty good job in mitigating tariffs, it's placing a significant burden on the industries and all the participants that we play on. Prospects for the business. prospects for the business When we do capital allocation, we're also looking at, you know, making sure we're doing that in the most effective way that we can. when we do capital allocation we're also looking at you know making sure we're doing that in the most effective way that we can Yes, incrementally, we should be looking for more of that going forwards as a base case. yes incrementally we should be looking for more of that going forwards as a base case Yes. yes If the taxes are the beautiful part, then the tariffs are definitely not right. if the taxes are the beautiful part then the tariffs are definitely not right The challenge is that the tariff costs have created great uncertainty. the challenge is that the tariff costs have created great uncertainty I'll just say a little bit about tariffs since I haven't been asked about that yet, that the cost of the tariffs to Cummins Inc., and I'll quantify the tax benefits in a moment, are multiples of the tax benefit, the pull forward of tax benefits that are allowed under accelerated depreciation. i'll just say a little bit about tariffs since i haven't been asked about that yet that the cost of the tariffs to cummins inc and i'll quantify the tax benefits in a moment are multiples of the tax benefit the pull forward of tax benefits that are allowed under accelerated depreciation Whilst we've done a pretty good job in mitigating tariffs, it's placing a significant burden on the industries and all the participants that we play on. whilst we've done a pretty good job in mitigating tariffs it's placing a significant burden on the industries and all the participants that we play on All that weighs into all this calculus of liquidity capital allocation. To answer you specifically on the tax bill, we've got some choices to make and what elections we want to make through the various dynamics of tax legislation. You could reasonably expect $125 million-$250 million of cash benefit, but we haven't finalized our choices in the third quarter. In taxes, inherently some strange trade offs where cash benefits today can be negative for long term tax rates. We are quite a relatively complex global business so we've got to think all of that through. I would say on the margin, could that be like 5%-8% of our operating cash flow for the year? Yes. Does it fundamentally change any of our business plans for this year? No. All that weighs into all this calculus of liquidity capital allocation. all that weighs into all this calculus of liquidity capital allocation To answer you specifically on the tax bill, we've got some choices to make and what elections we want to make through the various dynamics of tax legislation. to answer you specifically on the tax bill we've got some choices to make and what elections we want to make through the various dynamics of tax legislation You could reasonably expect $125 million- $250 million of cash benefit, but we haven't finalized our choices in the third quarter. you could reasonably expect $125 million- $250 million of cash benefit but we haven't finalized our choices in the third quarter In taxes, inherently some strange trade offs where cash benefits today can be negative for long term tax rates. in taxes inherently some strange trade offs where cash benefits today can be negative for long term tax rates We are quite a relatively complex global business so we've got to think all of that through. we are quite a relatively complex global business so we've got to think all of that through I would say on the margin, could that be like 5%- 8% of our operating cash flow for the year? i would say on the margin could that be like 5%- 8% of our operating cash flow for the year Yes. yes Does it fundamentally change any of our business plans for this year? does it fundamentally change any of our business plans for this year No. no We've invested a lot in North America to meet the upcoming emissions regulations and quite frankly we're looking for some clarity to be able to deploy that capital effectively with our new products going forward. We're not rushing to spend more capital here. We're hoping for clarity on utilizing the capital. Sorry for the long little bit of whining there, but just to reinforce the complexity that we're facing. We've invested a lot in North America to meet the upcoming emissions regulations and quite frankly we're looking for some clarity to be able to deploy that capital effectively with our new products going forward. we've invested a lot in north america to meet the upcoming emissions regulations and quite frankly we're looking for some clarity to be able to deploy that capital effectively with our new products going forward We're not rushing to spend more capital here. we're not rushing to spend more capital here We're hoping for clarity on utilizing the capital. we're hoping for clarity on utilizing the capital Sorry for the long little bit of whining there, but just to reinforce the complexity that we're facing. sorry for the long little bit of whining there but just to reinforce the complexity that we're facing

Speaker 5: That's helpful. It sounds like you're fully expecting to completely offset tariff impacts and pass through to the customer. You commented a little bit on how the industry's handling it, but maybe you could just expand on what you're seeing and hearing from the customers and markets and how they're handling that pass through of the tariff costs. Is the plan still to roll out the EPA 2027 compliant engine in 2026, and you know that'll be additional pricing on that. I guess would love to hear your thoughts on how you're thinking about that and the industry's ability to handle even more pricing. Thank you. That's helpful. that's helpful It sounds like you're fully expecting to completely offset tariff impacts and pass through to the customer. it sounds like you're fully expecting to completely offset tariff impacts and pass through to the customer You commented a little bit on how the industry's handling it, but maybe you could just expand on what you're seeing and hearing from the customers and markets and how they're handling that pass through of the tariff costs. you commented a little bit on how the industry's handling it but maybe you could just expand on what you're seeing and hearing from the customers and markets and how they're handling that pass through of the tariff costs Is the plan still to roll out the EPA 2027 compliant engine in 2026, and you know that'll be additional pricing on that. is the plan still to roll out the epa 2027 compliant engine in 2026 and you know that'll be additional pricing on that I guess would love to hear your thoughts on how you're thinking about that and the industry's ability to handle even more pricing. i guess would love to hear your thoughts on how you're thinking about that and the industry's ability to handle even more pricing Thank you. thank you

Speaker 15: Tariffs were negative to profitability for Cummins Inc. in the second quarter. We did not fully recover. We're approximately $22 million negative net in the quarter. We've been working hard to mitigate the costs through managing when we're buying materials, where we're buying it from, resourcing where we can. We've done a lot. As you can imagine, making choices about supply chain is hard when the international tariff dynamic keeps changing. It's hard to make any decisions to shift when you're not sure that we've reached a period of stability. About $22 million negative. As we said three months ago, we didn't expect the full impact until the second half of the year. That's the case. Both the costs of Cummins Inc. and the degree of recoveries will be increasing in subsequent quarters. Tariffs were negative to profitability for Cummins Inc. in the second quarter. tariffs were negative to profitability for cummins inc in the second quarter We did not fully recover. we did not fully recover We're approximately $22 million negative net in the quarter. we're approximately $22 million negative net in the quarter We've been working hard to mitigate the costs through managing when we're buying materials, where we're buying it from, resourcing where we can. we've been working hard to mitigate the costs through managing when we're buying materials where we're buying it from resourcing where we can We've done a lot. we've done a lot As you can imagine, making choices about supply chain is hard when the international tariff dynamic keeps changing. as you can imagine making choices about supply chain is hard when the international tariff dynamic keeps changing It's hard to make any decisions to shift when you're not sure that we've reached a period of stability. it's hard to make any decisions to shift when you're not sure that we've reached a period of stability About $22 million negative. about $22 million negative As we said three months ago, we didn't expect the full impact until the second half of the year. as we said three months ago we didn't expect the full impact until the second half of the year That's the case. that's the case Both the costs of Cummins Inc. and the degree of recoveries will be increasing in subsequent quarters. both the costs of cummins inc and the degree of recoveries will be increasing in subsequent quarters We expect to enter Q4 much closer to price cost neutral on tariffs starting in the fourth quarter. There's a gap in Q2 and there will be a gap in Q3. Q4 will get close. It's hard to underestimate the amount of resources and time that this has consumed amongst all industry participants. I do believe we don't know exactly what the end user prices are, but we do know that everybody's suffering with this. It doesn't help at a time when trucker orders in particular had already been slowing. That's maybe more than you wanted. I'll move on quickly from a very. We expect to enter Q4 much closer to price cost neutral on tariffs starting in the fourth quarter. we expect to enter q4 much closer to price cost neutral on tariffs starting in the fourth quarter There's a gap in Q2 and there will be a gap in Q3. there's a gap in q2 and there will be a gap in q3 Q4 will get close. q4 will get close It's hard to underestimate the amount of resources and time that this has consumed amongst all industry participants. it's hard to underestimate the amount of resources and time that this has consumed amongst all industry participants I do believe we don't know exactly what the end user prices are, but we do know that everybody's suffering with this. i do believe we don't know exactly what the end user prices are but we do know that everybody's suffering with this It doesn't help at a time when trucker orders in particular had already been slowing. it doesn't help at a time when trucker orders in particular had already been slowing That's maybe more than you wanted. that's maybe more than you wanted I'll move on quickly from a very. i'll move on quickly from a very

Speaker 7: Uncomfortable topic here and on the product launches. The regulations are still in place today. We're continuing to work towards launching and we have our new platforms, of course, the HELM engine platforms. Launching as a part of the 2027 regulations, we are no longer launching the X15 earlier in the year. At the end of next year, we'll be launching those new platforms to comply with the 2027 regulation and continue to keep the team focused on that. Just as a reminder, those engines are all made in the U.S. and we're investing $1 billion in our engine plants primarily because of the new platforms, which we believe will really position us with the most efficient, highest power density, best products in the market. Uncomfortable topic here and on the product launches. uncomfortable topic here and on the product launches The regulations are still in place today. the regulations are still in place today We're continuing to work towards launching and we have our new platforms, of course, the HELM engine platforms. we're continuing to work towards launching and we have our new platforms of course the helm engine platforms Launching as a part of the 2027 regulations, we are no longer launching the X15 earlier in the year. launching as a part of the 2027 regulations we are no longer launching the x15 earlier in the year At the end of next year, we'll be launching those new platforms to comply with the 2027 regulation and continue to keep the team focused on that. at the end of next year we'll be launching those new platforms to comply with the 2027 regulation and continue to keep the team focused on that Just as a reminder, those engines are all made in the U.S. and we're investing $1 billion in our engine plants primarily because of the new platforms, which we believe will really position us with the most efficient, highest power density, best products in the market. just as a reminder those engines are all made in the u.s and we're investing $1 billion in our engine plants primarily because of the new platforms which we believe will really position us with the most efficient highest power density best products in the market

Speaker 10: Thank you. Our next questions come from the line of Tami Zakaria with JPMorgan. Please proceed with your question. Thank you. thank you Our next questions come from the line of Tami Zakaria with JPMorgan. our next questions come from the line of tami zakaria with jpmorgan Please proceed with your question. please proceed with your question

Speaker 3: Hey, good morning. Thank you so much. Yet one more question on Parsis. Should we expect better cost absorption and improved incremental margin versus what we are seeing now when the remaining capacity goes live next year? The premise of the question is whether you're currently seeing some inefficiencies as you're building capacity and firing on all cylinders against robust demand, and whether incremental margin could get even better once the new capacity is live and running at full rate. If you could comment on that. Hey, good morning. hey good morning Thank you so much. thank you so much Yet one more question on Parsis. yet one more question on parsis Should we expect better cost absorption and improved incremental margin versus what we are seeing now when the remaining capacity goes live next year? should we expect better cost absorption and improved incremental margin versus what we are seeing now when the remaining capacity goes live next year The premise of the question is whether you're currently seeing some inefficiencies as you're building capacity and firing on all cylinders against robust demand, and whether incremental margin could get even better once the new capacity is live and running at full rate. the premise of the question is whether you're currently seeing some inefficiencies as you're building capacity and firing on all cylinders against robust demand and whether incremental margin could get even better once the new capacity is live and running at full rate If you could comment on that. if you could comment on that

Speaker 15: Perfectly reasonable question that makes the assumption that so many things are standing still. Right. I mean there's always a million and one things going on. If you ask us, do we have aspirations for the power systems margins over time to go high? Yes, we do. Yes, when capacity is fully installed and the demand is still there, usually that's better. You know, there's a lot of variation. We don't just make one engine in one facility. A lot of differences by end market and region. Just to be clear, do we expect over time not. You know what's been nice to see is this consistency now of higher performance quarter on quarter. Yes, we still think there's plenty of things to work on to take us high. We don't expect dramatic changes for the remainder of this year. Revenue should be relatively range bound. Perfectly reasonable question that makes the assumption that so many things are standing still. perfectly reasonable question that makes the assumption that so many things are standing still Right. right I mean there's always a million and one things going on. i mean there's always a million and one things going on If you ask us, do we have aspirations for the power systems margins over time to go high? if you ask us do we have aspirations for the power systems margins over time to go high Yes, we do. yes we do Yes, when capacity is fully installed and the demand is still there, usually that's better. yes when capacity is fully installed and the demand is still there usually that's better You know, there's a lot of variation. you know there's a lot of variation We don't just make one engine in one facility. we don't just make one engine in one facility A lot of differences by end market and region. a lot of differences by end market and region Just to be clear, do we expect over time not. just to be clear do we expect over time not You know what's been nice to see is this consistency now of higher performance quarter on quarter. you know what's been nice to see is this consistency now of higher performance quarter on quarter Yes, we still think there's plenty of things to work on to take us high. yes we still think there's plenty of things to work on to take us high We don't expect dramatic changes for the remainder of this year. we don't expect dramatic changes for the remainder of this year Revenue should be relatively range bound. revenue should be relatively range bound As we go forward, yes, after absorbing investments, we'd hope to do better, all other things being equal. As we go forward, yes, after absorbing investments, we'd hope to do better, all other things being equal. as we go forward yes after absorbing investments we'd hope to do better all other things being equal

Speaker 3: Great, thank you. That's all I had. Great, thank you. great thank you That's all I had. that's all i had

Speaker 15: Thank you. Thank you. thank you

Speaker 10: Thank you. Our next questions come from the line of Stephen Fisher with UBS. Please proceed with your questions. Thank you. thank you Our next questions come from the line of Stephen Fisher with UBS. our next questions come from the line of stephen fisher with ubs Please proceed with your questions. please proceed with your questions

Speaker 12: Thanks. Thanks. thanks Good morning. Just wanted to start on Power Gen. You mentioned that you have backlog out two years. I'm assuming that's for the largest engines. Just curious what the lead times are on some of those, and obviously you have the capacity coming online fully next year. How does that affect the lead times? Good morning. good morning Just wanted to start on Power Gen. just wanted to start on power gen You mentioned that you have backlog out two years. you mentioned that you have backlog out two years I'm assuming that's for the largest engines. i'm assuming that's for the largest engines Just curious what the lead times are on some of those, and obviously you have the capacity coming online fully next year. just curious what the lead times are on some of those and obviously you have the capacity coming online fully next year How does that affect the lead times? how does that affect the lead times That you see there? That you see there? that you see there

Speaker 7: Obviously, as we're taking orders, we're considering the incremental capacity that we'll have coming online next year. We are taking orders out in the 2027 time frame now from our customers. If we have any movement in terms of current order backlog and order demand, we reallocate those slots and work with our customers to do that. If you want in particular the larger engine orders today, I'm happy to put you in the queue in 2027 for that. Obviously, as we're taking orders, we're considering the incremental capacity that we'll have coming online next year. obviously as we're taking orders we're considering the incremental capacity that we'll have coming online next year We are taking orders out in the 2027 time frame now from our customers. we are taking orders out in the 2027 time frame now from our customers If we have any movement in terms of current order backlog and order demand, we reallocate those slots and work with our customers to do that. if we have any movement in terms of current order backlog and order demand we reallocate those slots and work with our customers to do that If you want in particular the larger engine orders today, I'm happy to put you in the queue in 2027 for that. if you want in particular the larger engine orders today i'm happy to put you in the queue in 2027 for that

Speaker 12: Okay. Sorry to ask a follow up on the uncomfortable topic, but in terms of the Q4 tariffs, you mentioned that you expect to kind of be price versus cost neutral there from customers. Is that just contractually what you have embedded in these new agreements, or is there a negotiation that has to happen there? Just curious how that should play out. Okay. okay Sorry to ask a follow up on the uncomfortable topic, but in terms of the Q4 tariffs, you mentioned that you expect to kind of be price versus cost neutral there from customers. sorry to ask a follow up on the uncomfortable topic but in terms of the q4 tariffs you mentioned that you expect to kind of be price versus cost neutral there from customers Is that just contractually what you have embedded in these new agreements, or is there a negotiation that has to happen there? is that just contractually what you have embedded in these new agreements or is there a negotiation that has to happen there Just curious how that should play out. just curious how that should play out

Speaker 7: It is not contractual. In most cases we've been out actively negotiating with our customers on tariff recovery timeline. It is not contractual. it is not contractual In most cases we've been out actively negotiating with our customers on tariff recovery timeline. in most cases we've been out actively negotiating with our customers on tariff recovery timeline

Speaker 10: Thank you. Our next questions come from the line of Noah Kaye with Oppenheimer & Co. Inc. Please proceed with your questions. Thank you. thank you Our next questions come from the line of Noah Kaye with Oppenheimer & Co. Inc. Please proceed with your questions. our next questions come from the line of noah kaye with oppenheimer & co inc please proceed with your questions

Speaker 6: Thanks. Thanks. thanks Wanted to tie together a couple of points you mentioned earlier. I think, Mark, you highlighted that maybe engineering spend intensity is being negatively impacted by the uncertainty around the regs. Jen, you mentioned some actual launch pushouts. Can you help us understand just operationally how your engineering and technology strategy are being affected at this moment? Are you doing redundant or duplicative engineering development for a variety of outcomes, just trying to get a better handle on how you're navigating. Wanted to tie together a couple of points you mentioned earlier. wanted to tie together a couple of points you mentioned earlier I think, Mark, you highlighted that maybe engineering spend intensity is being negatively impacted by the uncertainty around the regs. i think mark you highlighted that maybe engineering spend intensity is being negatively impacted by the uncertainty around the regs Jen, you mentioned some actual launch pushouts. jen you mentioned some actual launch pushouts Can you help us understand just operationally how your engineering and technology strategy are being affected at this moment? can you help us understand just operationally how your engineering and technology strategy are being affected at this moment Are you doing redundant or duplicative engineering development for a variety of outcomes, just trying to get a better handle on how you're navigating. are you doing redundant or duplicative engineering development for a variety of outcomes just trying to get a better handle on how you're navigating

Speaker 7: The majority of the work we're doing is focused on these new product launches. You've got a peak of investment in research and development as well as capital going in ahead of that launch at the end of next year. We did delay by six months one of the product launches because, frankly, the uncertainty around regulation and tariffs was creating an environment where, even though it was more efficient products that we thought could bring some value to customers, the demand was the concern. We've delayed that. That then extends some of the R&D for that program. We're of course doing some additional work on contingency plans at a much lower level while keeping the team focused on the launches that we have beginning of 2027. We anticipate following that, that the level of R&D and capital investment in engine business and components will start coming down. The majority of the work we're doing is focused on these new product launches. the majority of the work we're doing is focused on these new product launches You've got a peak of investment in research and development as well as capital going in ahead of that launch at the end of next year. you've got a peak of investment in research and development as well as capital going in ahead of that launch at the end of next year We did delay by six months one of the product launches because, frankly, the uncertainty around regulation and tariffs was creating an environment where, even though it was more efficient products that we thought could bring some value to customers, the demand was the concern. we did delay by six months one of the product launches because frankly the uncertainty around regulation and tariffs was creating an environment where even though it was more efficient products that we thought could bring some value to customers the demand was the concern We've delayed that. we've delayed that That then extends some of the R&D for that program. that then extends some of the r&d for that program We're of course doing some additional work on contingency plans at a much lower level while keeping the team focused on the launches that we have beginning of 2027. we're of course doing some additional work on contingency plans at a much lower level while keeping the team focused on the launches that we have beginning of 2027 We anticipate following that, that the level of R&D and capital investment in engine business and components will start coming down. we anticipate following that that the level of r&d and capital investment in engine business and components will start coming down

Speaker 6: Okay, great. Twenty-seven is really when we. Okay, great. okay great Twenty-seven is really when we. twenty-seven is really when we Start to see some leverage there and then just quickly shifting gears to power, as you mentioned. I mean, your content is primarily today around the backup gen set. With the shift towards more on-site direct power, you have an entire division that can do battery backup and fuel cell power. You're obviously very familiar with natural gas generation and you've talked in the past including Investor Day about micro grids. Just can you give us any color on trends in wallet share expansion with the data center customers and if you're seeing that, where it's coming from. Start to see some leverage there and then just quickly shifting gears to power, as you mentioned. start to see some leverage there and then just quickly shifting gears to power as you mentioned I mean, your content is primarily today around the backup gen set. i mean your content is primarily today around the backup gen set With the shift towards more on-site direct power, you have an entire division that can do battery backup and fuel cell power. with the shift towards more on-site direct power you have an entire division that can do battery backup and fuel cell power You're obviously very familiar with natural gas generation and you've talked in the past including Investor Day about micro grids. you're obviously very familiar with natural gas generation and you've talked in the past including investor day about micro grids Just can you give us any color on trends in wallet share expansion with the data center customers and if you're seeing that, where it's coming from. just can you give us any color on trends in wallet share expansion with the data center customers and if you're seeing that where it's coming from

Speaker 7: We have launched in the last year a stationary energy storage product in the market. We have some limited offerings, I would say, today in both natural gas and stationary energy storage. That's an area that we are continuing to evaluate—our position, the products that we have in our portfolio, and over time how we might want to participate and if that's an area we want to expand. No firm decisions or anything to give guidance on today, but that certainly is an area that could be interesting for Cummins, the microgrid space, given the growing demand for power and the challenges for customers to meet that. We have launched in the last year a stationary energy storage product in the market. we have launched in the last year a stationary energy storage product in the market We have some limited offerings, I would say, today in both natural gas and stationary energy storage. we have some limited offerings i would say today in both natural gas and stationary energy storage That's an area that we are continuing to evaluate—our position, the products that we have in our portfolio, and over time how we might want to participate and if that's an area we want to expand. that's an area that we are continuing to evaluate—our position the products that we have in our portfolio and over time how we might want to participate and if that's an area we want to expand No firm decisions or anything to give guidance on today, but that certainly is an area that could be interesting for Cummins, the microgrid space, given the growing demand for power and the challenges for customers to meet that. no firm decisions or anything to give guidance on today but that certainly is an area that could be interesting for cummins the microgrid space given the growing demand for power and the challenges for customers to meet that

Speaker 10: Thank you. Our next question has come from the line of Chad Dillard with Bernstein. Please proceed with your questions. Thank you. thank you Our next question has come from the line of Chad Dillard with Bernstein. our next question has come from the line of chad dillard with bernstein Please proceed with your questions. please proceed with your questions

Speaker 14: All right. All right. all right Morning guys. You commented about tariff or the price cost being neutral by the fourth quarter, and I was just wondering whether that's true on a segment by segment basis or is it biased towards one versus the other. Secondly, what was price cost in 2Q, and if you can share any thoughts on what it should look like in the third quarter, that'd be helpful. Thank you. Morning guys. morning guys You commented about tariff or the price cost being neutral by the fourth quarter, and I was just wondering whether that's true on a segment by segment basis or is it biased towards one versus the other. you commented about tariff or the price cost being neutral by the fourth quarter and i was just wondering whether that's true on a segment by segment basis or is it biased towards one versus the other Secondly, what was price cost in 2Q, and if you can share any thoughts on what it should look like in the third quarter, that'd be helpful. secondly what was price cost in 2q and if you can share any thoughts on what it should look like in the third quarter that'd be helpful Thank you. thank you

Speaker 15: Yeah, I mean, I think it's a challenge in all segments of our businesses. What I would say for tariffs. Yeah, I mean, I think it's a challenge in all segments of our businesses. yeah i mean i think it's a challenge in all segments of our businesses What I would say for tariffs. what i would say for tariffs With. With. with The engine business and components probably absorbing more than the rest of the company, but not dramatically different price cost overall when we weigh in. The actions that we've taken on parts, the actions that we've taken on light duty engines, some of the improvements in power systems, if I ignore tariffs, then we were about. The engine business and components probably absorbing more than the rest of the company, but not dramatically different price cost overall when we weigh in. the engine business and components probably absorbing more than the rest of the company but not dramatically different price cost overall when we weigh in The actions that we've taken on parts, the actions that we've taken on light duty engines, some of the improvements in power systems, if I ignore tariffs, then we were about. the actions that we've taken on parts the actions that we've taken on light duty engines some of the improvements in power systems if i ignore tariffs then we were about We. We. we We're about 1.2% improvement overall across all the businesses. Remembering that's a big step up in Power Systems and Distribution in particular. You can see that the Engine business and Components margins were down or flat. X product coverage not improve. We're about 1.2% improvement overall across all the businesses. we're about 1.2% improvement overall across all the businesses Remembering that's a big step up in Power Systems and Distribution in particular. remembering that's a big step up in power systems and distribution in particular You can see that the Engine business and Components margins were down or flat. you can see that the engine business and components margins were down or flat X product coverage not improve. x product coverage not improve

Speaker 14: Secondly, just on Accelera, just recognizing that we're in, I guess, a new regime when it comes to alternative powertrains. I guess, how are you thinking about the growth trajectory, maybe more so on the electrolyzer side, and then the path towards the long term profit targets that you set out, has that changed? Secondly, just on Accelera, just recognizing that we're in, I guess, a new regime when it comes to alternative powertrains. secondly just on accelera just recognizing that we're in i guess a new regime when it comes to alternative powertrains I guess, how are you thinking about the growth trajectory, maybe more so on the electrolyzer side, and then the path towards the long term profit targets that you set out, has that changed? i guess how are you thinking about the growth trajectory maybe more so on the electrolyzer side and then the path towards the long term profit targets that you set out has that changed

Speaker 7: Yeah, I mean it's fair to say that trajectory of growth in that business has slowed. You have seen us growing and reducing losses. We did a restructuring at the end of last year to try to focus on the areas, the technologies, and products that we think will grow. I do think it positions Cummins Inc. well because we're continuing to of course offer engine-based solutions. Startups are not surviving and many of our OEM customers don't really want to invest given the uncertainty. We're really trying to position ourselves to pace investments but be able to be the provider as the market starts to develop. We're continuing to move forward with our partners in the Amplify Cell joint venture here in the U.S. with commercial vehicle, cell, and pacing investment in that together as well. Yeah, I mean it's fair to say that trajectory of growth in that business has slowed. yeah i mean it's fair to say that trajectory of growth in that business has slowed You have seen us growing and reducing losses. you have seen us growing and reducing losses We did a restructuring at the end of last year to try to focus on the areas, the technologies, and products that we think will grow. we did a restructuring at the end of last year to try to focus on the areas the technologies and products that we think will grow I do think it positions Cummins Inc. well because we're continuing to of course offer engine-based solutions. i do think it positions cummins inc well because we're continuing to of course offer engine-based solutions Startups are not surviving and many of our OEM customers don't really want to invest given the uncertainty. startups are not surviving and many of our oem customers don't really want to invest given the uncertainty We're really trying to position ourselves to pace investments but be able to be the provider as the market starts to develop. we're really trying to position ourselves to pace investments but be able to be the provider as the market starts to develop We're continuing to move forward with our partners in the Amplify Cell joint venture here in the U.S. with commercial vehicle, cell, and pacing investment in that together as well. we're continuing to move forward with our partners in the amplify cell joint venture here in the u.s with commercial vehicle cell and pacing investment in that together as well It's slowing but we're committed to continue to reduce losses over time and grow as the market grows. In the meantime, we'll sell some more engines which will be positive for our base business. It's slowing but we're committed to continue to reduce losses over time and grow as the market grows. it's slowing but we're committed to continue to reduce losses over time and grow as the market grows In the meantime, we'll sell some more engines which will be positive for our base business. in the meantime we'll sell some more engines which will be positive for our base business

Speaker 10: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Nick Arens for closing comments. Thank you. thank you We have reached the end of our question and answer session. we have reached the end of our question and answer session I would now like to turn the floor back over to Nick Arens for closing comments. i would now like to turn the floor back over to nick arens for closing comments

Speaker 5: Thank you. Thank you. thank you That concludes our teleconference for the day. Thank you all for participating and your continued interest. As always, the Investor Relations team will be available for questions after the call. That concludes our teleconference for the day. that concludes our teleconference for the day Thank you all for participating and your continued interest. thank you all for participating and your continued interest As always, the Investor Relations team will be available for questions after the call. as always the investor relations team will be available for questions after the call

Speaker 10: Thank you. Ladies and gentlemen, that does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day. Thank you. thank you Ladies and gentlemen, that does now conclude today's teleconference. ladies and gentlemen that does now conclude today's teleconference We appreciate your participation. we appreciate your participation You may disconnect your lines at this time. you may disconnect your lines at this time Enjoy the rest of your day. enjoy the rest of your day