CUMMINS INC (CMI) Q2 2025 Earnings Summary

Executive Summary

• Cummins delivered resilient Q2 2025 performance with revenue $8.64B, diluted EPS $6.43, and EBITDA margin 18.4%, driven by record profitability in Power Systems (22.8% margin) and Distribution (14.6%) despite a sharp downturn in North American truck markets .
• Versus consensus, EPS and revenue beat: EPS $6.43 vs $5.21 (+$1.22; +23%), revenue $8.64B vs $8.42B (+$0.22B; +2.6%); EBITDA also exceeded Street on reported basis. Management withheld full-year guidance amid tariff and regulatory uncertainty, but expects tariff price-cost to be near neutral by Q4 . Values retrieved from S&P Global.*
• Strength was led by power generation demand (data centers and mission critical), improving pricing and operational efficiencies; North America truck build rates are expected to decline sharply in Q3, pressuring Engine and Components in H2 .
• Corporate actions: quarterly dividend increased ~10% to $2.00/share (16th consecutive annual increase), and launch of new 17-liter Centum genset platform (up to 1MW) to address urban power needs; tax rate expected to ~24.5% in 2025 excluding discretes .

What Went Well and What Went Wrong

What Went Well

• Record segment performance: Power Systems revenue $1.89B (+19% YoY) with EBITDA margin 22.8%, and Distribution revenue $3.04B (+7% YoY) with EBITDA margin 14.6% due to strong generators, parts, pricing, and operational execution .
• Pricing and efficiency: Gross margin expanded ~150 bps YoY to 26.4% on favorable pricing and operational improvements; EBITDA rose to 18.4% of sales despite truck weakness and tariff headwinds .
• Management confidence and backlog: “We have backlog out about two years in [Power Systems]... demand strong for both generators and parts” (Rumsey); “Nothing unique in there... no one-times” (Smith) .

What Went Wrong

• Tariff drag and recovery lag: Q2 net tariff impact was approximately negative $22M; management expects a gap in Q3 with near-neutrality targeted for Q4, consuming significant resources across industry participants .
• Truck cycle deterioration: Heavy and medium-duty order momentum very weak; Q3 outlook implies 25–30% declines with many customer down days, pressuring Engine/Components margins in H2 (decrementals “pretty heavy”) .
• Accelera losses persist: Accelera sales $105M (-5% YoY) with EBITDA loss of $100M as the company paces zero-emission investments amid slowing adoption; growth trajectory has “slowed” though losses continue to decline over time .

Financial Results

Consolidated performance vs prior periods and estimates

Estimates comparison (Q2 2025):

• Revenue Consensus Mean: $8.42B vs actual $8.64B (+$0.22B)*
• Primary EPS Consensus Mean: $5.21 vs actual $6.43 (+$1.22)*
• EBITDA Consensus Mean: $1.34B vs reported EBITDA $1.59B*

Values retrieved from S&P Global.*

Segment breakdown (Q2 2025 vs Q2 2024)

KPIs and operating items

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We delivered strong second quarter results, driven by record profitability in our Power Systems and Distribution segments… robust demand for power generation… more economically sensitive markets, such as truck, where end-user confidence has declined” (Rumsey) .
• “Gross margin improved 150 basis points… driven by higher power generation demand, operational efficiencies, pricing and lower compensation expenses” (Smith) .
• “We have backlog out about two years in [Power Systems]… demand strong for both generators and parts… made progress on tariff recovery” (Rumsey) .
• “Tariffs were negative to profitability… approximately $22M negative net in the quarter… Q4 near price-cost neutral” (Smith) .
• “We’re investing $1B in our engine plants… new platforms launching to comply with the ’27 regulation” (Rumsey) .

Q&A Highlights

• Power Systems margin sustainability: Management sees continued operational improvements and capacity expansion coming online by early next year; no one-time items flagged, with aspirations to take margins higher over time .
• Engine/Components outlook: Expect significant margin pressure in H2 given 25–30% declines in heavy/medium-duty volumes; decrementals “pretty heavy,” but structural pricing intact and rebound expected with volume recovery .
• Tariffs and recovery: ~$22M Q2 drag, recovering through Q4; industry-wide complexity resourcing supply chains amid changing tariff regimes .
• Distribution dynamics: Broad-based international operational improvements beyond power generation; positive pricing and strong parts mix improved margins .
• Capital allocation/tax: Benefits expected from new U.S. tax law; continued focus on returning ~50% of operating cash flow; dividend increased to $2.00 .

Estimates Context

• Q2 2025: EPS beat ($6.43 vs $5.21), revenue beat ($8.64B vs $8.42B), reported EBITDA ahead of consensus ($1.59B vs $1.34B). Counts: 18 EPS estimates, 15 revenue estimates.*
• Implications: Street likely to raise Power Systems/Distribution profitability assumptions, while cutting H2 Engine/Components on weaker truck volumes and tariff recovery timing. Values retrieved from S&P Global.*

Values retrieved from S&P Global.*

Key Takeaways for Investors

• Mix shift to longer-cycle power generation is cushioning cyclical truck weakness; record Power Systems and Distribution margins are the near-term driver of consolidated profitability .
• EPS and revenue beats reflect pricing and operational execution; expect H2 pressure in Engine/Components as NA truck volumes roll over, with rebound hinging on order momentum and EPA ’27 clarity .
• Tariff headwinds are material but improving; near price-cost neutrality targeted by Q4, a potential catalyst for margin stabilization into early 2026 .
• Capital discipline intact: operating cash inflow $785MM, dividend raised to $2.00, and continued return of ~50% of operating cash flow supports shareholder yield through the cycle .
• Strategic product launches (17L Centum genset; HELM platforms for ’27) and $1B U.S. plant investments position CMI competitively for regulatory transition and secular power themes .
• Watch for estimate revisions: upward for Power Systems/Distribution margins; downward for H2 Engine/Components; monitor backlog conversion and tariff recovery pacing.*
• Trading lens: Strength in power generation themes and dividend support vs cyclical truck downdraft—stock likely to trade on H2 decrementals and visibility into tariff neutrality; any EPA ’27 clarity could be a sentiment lift .

Additional Q2 2025 Press Releases and Prior Quarter References

• Q2 2025 Results press release reiterating segment details and non-GAAP reconciliations .
• Dividend increase to $2.00/share (payable Sep 4, 2025; record Aug 22) .
• Board addition: Matthew Tsien, augmenting tech/electrification expertise .
• Q1 2025 Results: revenue $8.17B, diluted EPS $5.96, EBITDA margin 17.9%; guidance withdrawn due to tariffs .
• Q4 2024 Results: revenue $8.45B, diluted EPS $3.02, EBITDA margin 12.1%; initial FY25 ranges provided before later withdrawal .

Notes: All financial and segment data are sourced from Cummins’ Q2 2025 8-K and press release, and Q1 2025/Q4 2024 filings. Estimate figures marked with an asterisk are from S&P Global and may reflect differing EBITDA definitions.