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    Cummins Inc (CMI)

    Business Description

    Cummins Inc. is a global leader in power solutions, specializing in the design, manufacture, distribution, and servicing of a wide range of power solutions, including diesel, natural gas, electric, and hybrid powertrains, as well as powertrain-related components . The company operates through five main business segments: Components, Engine, Distribution, Power Systems, and Accelera, serving a diverse range of markets globally . Cummins' extensive network of service locations spans approximately 190 countries and territories, catering to OEMs, distributors, and dealers .

    1. Components - Designs and manufactures powertrain-related components such as axles, drivelines, brakes, suspension systems, filtration, aftertreatment, turbochargers, and fuel systems .
    2. Engine - Produces engines for both on-highway and off-highway markets, offering a variety of power solutions .
    3. Distribution - Manages the wholesaling of engines, generator sets, and service parts, ensuring a broad reach across various markets .
    4. Power Systems - Focuses on larger engines for industrial applications and power generation, providing robust solutions for heavy-duty needs .
    5. Accelera - Engages in hydrogen production technologies and electrified power systems, advancing sustainable energy solutions .

    Q3 2024 Summary

    Initial Price$279.00July 1, 2024
    Final Price$326.28October 1, 2024
    Price Change$47.28
    % Change+16.95%

    What went well

    • Strong Demand and Capacity Expansion in Power Generation: Cummins is experiencing robust demand in their power generation markets, particularly for the 95-liter engine. They have increased capacity by about 30% and plan to double capacity by late next year, indicating confidence in sustained demand.
    • Advancement in Low-Emission Engines with Positive Market Reception: The company started full production of the X15N natural gas engine, which helps fleets reduce their carbon footprint. Major fleets like UPS have purchased 250 Kenworth X15N powered trucks, showcasing strong market acceptance of their Destination Zero strategy.
    • Strategic Early Launch of Advanced Diesel Engines Ahead of Regulations: Cummins intends to launch the diesel version of the 15-liter helm platform in 2026, a year ahead of the 2027 emissions regulation. This engine will offer lower NOx emissions and significant fuel efficiency improvements, strengthening their market position and delivering value to customers.

    What went wrong

    • Cummins anticipates further softening in the heavy-duty truck market, which may lead to decreased revenues in this key segment .
    • Reduction in pickup truck engine production due to product changeover with Stellantis is expected to result in lower volumes and negatively impact earnings in the short term .
    • Increased sales of whole goods (power generation equipment) in the Distribution segment negatively impact margins due to unfavorable mix, as whole goods have lower margins compared to aftermarket parts .

    Q&A Summary

    1. EBITDA Outlook Amid Heavy-Duty Downturn
      Q: Can EBITDA grow next year despite heavy-duty truck downturn?
      A: Management expects EBITDA growth next year, offsetting heavy-duty truck market softening with strength in areas like Power Generation, which continues to perform strongly. They plan to focus on profitability and cost efficiencies to maintain margins.

    2. Emissions Regulations and Prebuy Impact
      Q: Will emissions regulations lead to prebuy and affect demand?
      A: Management anticipates a prebuy ahead of the 2027 emissions regulations, possibly starting in 2025, depending on economic conditions. Some states may delay enforcement of the California low NOx regulation, but overall regulatory impact remains ,. Cummins plans to launch a 2027-compliant diesel engine in 2026, which may influence prebuy behavior.

    3. Power Generation Momentum and Capacity
      Q: Will Power Generation growth continue next year?
      A: Demand for Power Generation remains strong, with no end in sight. The company increased capacity by about 30% on the 95-liter product this year and is investing to double capacity by late next year. They expect growth to persist into next year, leveraging both pricing and volume increases ,.

    4. Engine Segment Margins and Cost Efficiencies
      Q: Can Engine margins stay high despite lower sales?
      A: Strong margin performance in the Engine segment was driven by operational efficiencies, but management sees room for further improvement as they are not yet back to pre-COVID levels. They anticipate cost and efficiency focus will help maintain margins into next year, even with expected softening in heavy-duty truck production.

    5. Large Engine Capacity and 2025 Impact
      Q: Any changes to large engine capacity plans for 2025?
      A: Cummins increased capacity on the 95-liter engine by 30% this year and plans to double capacity by late next year. They are exploring opportunities to expand capacity further where market conditions are strong.

    6. Natural Gas Engine Demand and Market Share
      Q: What is the outlook for natural gas engine demand?
      A: Cummins anticipates the natural gas engine could achieve up to an 8% market share. The 15-liter natural gas engine is now in production, with strong interest from major fleets, offering both COâ‚‚ reduction and lower operating costs due to fuel price differentials.

    7. R&D Spending Direction Post-Peak Investments
      Q: Will R&D spending decrease after peak investments?
      A: Management expects R&D spending to normalize after the peak investments for new platforms and 2027 product launches. The exact trajectory depends on regulatory developments and technology transitions, but they anticipate R&D spend to decrease from current high levels.

    8. Incremental Margin Targets
      Q: Will you revisit long-term incremental margin targets?
      A: Despite strong incremental margins of nearly 50% in the third quarter, management is not currently revising long-term incremental EBITDA margin targets. They plan to provide specific updates and are focused on maintaining cost and efficiency discipline.

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Jennifer RumseyChair and Chief Executive Officer2022Jennifer Rumsey became the President and CEO on August 1, 2022, and was elected as Chair of the Board effective August 1, 2023. She previously served as President and COO from 2021 to 2022 .
    Sharon R. BarnerVice President—Chief Administrative Officer2021Sharon R. Barner has been serving as Vice President—Chief Administrative Officer since 2021. She was previously Vice President—General Counsel and Corporate Secretary from 2020 to 2021 .
    Marvin BoakyeVice President—Chief Human Resources Officer2022Marvin Boakye was appointed as Vice President—Chief Human Resources Officer in 2022. He was previously Chief People and Diversity Officer at Papa John's International from 2019 to 2022 .
    Jenny M. BushVice President and President—Power Systems2022Jenny M. Bush has held the position of Vice President and President—Power Systems since 2022. She was Vice President—Cummins Sales & Service North America from 2017 to 2022 .
    Amy R. DavisVice President and President—Accelera and Components2023Amy R. Davis was appointed to her current position in 2023. She served as Vice President and President—Accelera from 2020 to 2023 .
    Bonnie FetchVice President and President—Distribution Business2024Bonnie Fetch assumed her role in 2024. She was Vice President—Global Supply Chain and Manufacturing from 2022 to 2023 .
    Nicole Y. Lamb-HaleVice President—Chief Legal Officer and Corporate Secretary2022Nicole Y. Lamb-Hale became Chief Legal Officer in 2022 and Corporate Secretary in 2023. She was Vice President—General Counsel from 2021 to 2022 .
    Brett MerrittVice President and President—Engine Business2024Brett Merritt assumed his position in 2024. He was Vice President of the On-Highway Engine Business from 2017 to 2023 .
    Srikanth PadmanabhanExecutive Vice President and President—Operations2024Srikanth Padmanabhan was appointed to his current position in 2024. He was Vice President and President of the Engine Business from 2016 to 2023 .
    Livingston L. SatterthwaiteSenior Vice President2022Livingston L. Satterthwaite has been Senior Vice President since 2022. He was Vice Chairman from 2021 to 2022 .
    Mark A. SmithVice President—Chief Financial Officer2019Mark A. Smith has served as Vice President—Chief Financial Officer since 2019. He was Vice President—Financial Operations from 2016 to 2019 .
    Nathan R. StonerVice President—China ABO2020Nathan R. Stoner has been Vice President—China ABO since 2020. He was General Manager—Partnerships and EBU China Joint Venture Business from 2018 to 2020 .
    Jeffrey T. WiltroutVice President—Corporate Strategy2022Jeffrey T. Wiltrout has held the position of Vice President—Corporate Strategy since 2022. He was Executive Director—Corporate Development from 2021 to 2022 .
    Jonathan WoodVice President—Chief Technical Officer2023Jonathan Wood was appointed as Vice President and Chief Technical Officer in 2023. He was Vice President of New Power Engineering from 2021 to 2023 .
    Tony SatterthwaiteSenior Vice President (retiring September 2024)2022Tony Satterthwaite has been with Cummins since 1988 and was appointed Senior Vice President in August 2022. He is set to retire in September 2024 .
    John H. StoneBoard of Directors Member2024John H. Stone joined the Board of Directors in 2024. He is also the President and CEO of Allegion plc and previously served as president of Deere & Company’s Worldwide Construction, Forestry and Power Systems .

    Questions to Ask Management

    1. Given the significant margin expansion in the Engine segment this quarter, how sustainable are these operational efficiencies, and what specific steps are you taking to maintain margins if demand softens in the heavy-duty truck market?
    2. With the expected softening in the heavy-duty truck market and further volume reductions in your pickup truck business, how confident are you in maintaining EBITDA growth over the next year, and what are the key risks that could impact your outlook?
    3. Considering the strong demand in Power Systems leading to high incremental margins this year, what factors could cause weaker incremental margins in 2025, and how are you planning to address potential margin pressures in this segment?
    4. Given that the mix in your Distribution business is shifting towards whole goods, which are margin negative compared to aftermarket, how do you plan to manage the impact on overall margins, and can you sustain operational efficiencies to offset the negative mix effect?
    5. With your ongoing investments in alternative power solutions like the X15N natural gas engine and the new electrolyzer plant in Spain, what is the expected timeline for these investments to significantly contribute to revenue and profitability, and what challenges do you anticipate in scaling up these technologies?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateDecember 2021
    End Date/DurationN/A
    Total additional amount$2.0 billion
    Remaining authorization amount$218 million
    DetailsEnhance shareholder value

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue: Down 3% to flat.
      2. EBITDA Margin: Approximately 15.5%.
      3. North America Medium-Duty Truck Market: 150,000 to 160,000 units.
      4. Engine Shipments for Pickup Trucks in North America: 135,000 to 145,000 units.
      5. China Revenue: Decrease 4%.
      6. India Revenue: Increase 1%.
      7. Global Construction: Down 10% to flat.
      8. Global Power Generation Markets: Up 15% to 20%.
      9. Sales of Mining Engines: Down 5% to up 5%.
      10. Aftermarket: Flat to up 5%.
      11. North America Heavy-Duty Truck Market: 255,000 to 275,000 units.
      12. Components Segment: Revenue decrease 12% to 15%, EBITDA margins 13.3% to 13.8%.
      13. Engine Segment: Revenue down 2% to 1%, EBITDA 13.7% to 14.2%.
      14. Distribution Segment: Revenue up 8% to 11%, EBITDA margins 11.5% to 12%.
      15. Power Systems Segment: Revenue up 8% to 11%, EBITDA margins 18.3% to 18.8%.
      16. Accelera Segment: Revenue $400 million to $450 million, net losses $400 million to $430 million.
      17. Effective Tax Rate: Approximately 23.5%.
      18. Capital Investments: $1.2 billion to $1.3 billion .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue Guidance: Down 3% to flat.
      2. EBITDA Guidance: 15% to 15.5%.
      3. Tax Rate: Approximately 24%.
      4. Capital Investments: $1.2 billion to $1.3 billion.
      5. Market-Specific Guidance:
        • North America Medium-Duty Truck Market: 150,000 to 160,000 units.
        • North America Heavy-Duty Truck Market: 255,000 to 275,000 units.
        • China Revenue: Increase 3%.
        • India Revenue: Increase 8%.
        • Global Power Generation Market: Up 15% to 20%.
        • Sales of Mining Engines: Down 5% to up 5%.
        • Aftermarket: Flat to up 5%.
      6. Dividend: Increase from $1.68 to $1.82 per share .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Consolidated Company Revenues: Down 2% to 5%.
      2. EBITDA Margins: 14.5% to 15.5%.
      3. Effective Tax Rate: 24%.
      4. Capital Investments: $1.2 billion to $1.3 billion.
      5. Engine Segment: Revenue down 5% to flat, EBITDA 12.7% to 13.7%.
      6. Distribution Segment: Revenue flat to up 5%, EBITDA 11.5% to 12.5%.
      7. Power Systems Segment: Revenue flat to up 5%, EBITDA 16% to 17%.
      8. Accelera Segment: Revenue $450 million to $500 million, net losses $400 million to $433 million.
      9. Components Segment: Revenue decrease 9% to 14%, EBITDA 13.5% to 14.5%.
      10. Industry Demand: Truck demand flat to up 5%, global construction down 10% to flat, power generation up 10% to 15%, mining engines down 5% to up 5%, oil and gas engines down 40% to 50%.
      11. North America Truck Market: Heavy-duty 255,000 to 275,000 units, medium-duty 140,000 to 150,000 units, engine shipments for pickup trucks 135,000 to 145,000.
      12. China Market: Revenue increase 3%, heavy- and medium-duty truck demand down 5% to up 10%, light-duty truck market down 5% to up 5%.
      13. India Market: Revenue increase 9% .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Total Company Revenue: Decrease 2% to 5%.
      2. EBITDA Margin: 14.4% to 15.4%.
      3. North America Heavy-Duty Truck Market: 245,000 to 265,000 units.
      4. North America Medium-Duty Truck Market: 140,000 to 150,000 units.
      5. Engine Shipments for Pickup Trucks: 135,000 to 145,000 units.
      6. China Revenue: Increase 3%.
      7. India Revenue: Increase 9%.
      8. Global Construction Market: Decline 5% to 15%.
      9. Global Power Generation Market: Increase 5% to 10%.
      10. Sales of Mining Engines: Down 5% to up 5%.
      11. Oil and Gas Engines Demand: Decrease 40% to 50%.
      12. Aftermarket Sales: Flat to up 5%.
      13. Accelera Sales: $450 million to $500 million.
      14. Components Business Revenue: Decrease 2% to 7%, EBITDA 13.9% to 14.9%.
      15. Engine Business Revenue: Decrease 2% to 7%, EBITDA 12.5% to 13.5%.
      16. Distribution Business Revenue: Down 3% to up 2%, EBITDA 11.4% to 12.4%.
      17. Power Systems Revenue: Down 3% to up 2%, EBITDA 15.2% to 16.2%.
      18. Effective Tax Rate: Approximately 24%.
      19. Capital Investments: $1.2 billion to $1.3 billion .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Weichai Power Co. Ltd. - Independent engine manufacturer
    • Deutz AG - Independent engine manufacturer
    • Daimler - Truck OEM that produces some or all of their own engines
    • PACCAR - Truck OEM that produces some or all of their own engines
    • Traton - Truck OEM that produces some or all of their own engines
    • Volvo Powertrain - Truck OEM that produces some or all of their own engines
    • Ford Motor Company - Truck OEM that produces some or all of their own engines
    • China First Auto Works - Truck OEM that produces some or all of their own engines
    • Dongfeng Motor Corporation - Truck OEM that produces some or all of their own engines
    • CNH Industrial - Truck OEM that produces some or all of their own engines
    • Isuzu - Truck OEM that produces some or all of their own engines