CUMMINS INC (CMI) Q3 2025 Earnings Summary

Executive Summary

Q3 delivered a clean top-line and S&P EPS beat, powered by record Power Systems and robust Distribution, while GAAP EPS was weighed by $240M non‑cash Accelera electrolyzer charges ($1.73/sh) and a higher 32.7% tax rate tied partly to new U.S. tax law . On an S&P “Primary EPS” basis, EPS was 5.03 vs. 4.83 consensus; revenue was $8.32B vs. $7.99B consensus (see Estimates Context). Values retrieved from S&P Global.*
Mix shift toward data-center backup power drove record Power Systems revenue ($2.0B, +18% YoY) and margins (22.9%), with Distribution also at record revenue ($3.2B, +7% YoY) and margin (15.5%) .
On-highway cycles softened as expected: Engine (-11% sales, 10.0% EBITDA) and Components (-15% sales, 12.5% EBITDA) absorbed sharp North America heavy/medium-duty declines; management sees Q4 on‑highway shipments ~15% below Q3 and “close to bottoming” for the cycle .
Guidance: no 2025 revenue/profit outlook; tax ETR now ~26.5% ex-discrete for 2025; dividend set at $2.00 per share (paid Dec 4; 16th consecutive annual increase) . Reinstating full outlook expected in February with 2026 view .

What Went Well and What Went Wrong

What Went Well
- Power Systems outperformed: revenue $2.0B (+18% YoY) with 22.9% EBITDA margin (up ~350 bps YoY), reflecting data-center demand and effective capacity additions; record segment EBITDA dollars ($457M) . CEO: “record performance… due in part to continued rising demand for backup power for data centers” .
- Distribution strength: revenue $3.2B (+7% YoY) and 15.5% EBITDA (vs. 12.5% LY), benefiting from power generation and aftermarket . CFO: “sales growth… converted into EBITDA margin expansion” .
- Cost control and pricing offset headwinds: ex-Accelera charges, EBITDA margin reached 17.2% vs. 16.4% LY (80 bps improvement), supported by pricing, efficiency, and lower compensation . CFO quantified ex‑charge net earnings at $812M, $5.85/sh (ex new tax law impact), essentially flat YoY despite a ~40% U.S. truck volume decline .
What Went Wrong
- Accelera electrolyzer reset: $240M non‑cash charges (goodwill impairment $210M; inventory write‑down $30M), reflecting weaker hydrogen incentives and demand; strategic review underway .
- North America on‑highway downturn: Engine (-11% sales, 10% EBITDA) and Components (-15% sales, 12.5% EBITDA) pressured by sharp heavy/medium-duty declines; Q4 on‑highway shipments expected to fall ~15% sequentially .
- Tariff drag: Net impact negative and growing in Q3; company increased recovery through pricing/mitigation, expects near price‑cost neutral on pre‑Q3 tariffs by Q4, but visibility on newly announced measures remains low .

Financial Results

Overall P&L (GAAP) and Margins by Quarter

Metric	Q1 2025	Q2 2025	Q3 2025
Revenue ($B)	$8.17	$8.64	$8.32
Diluted EPS (GAAP)	$5.96	$6.43	$3.86
EBITDA Margin %	17.9%	18.4%	14.3%

Q3 vs Estimates (S&P Global) and Prior Periods

Metric	Actual Q3 2025	S&P Consensus Q3 2025	Surprise	Q/Q (vs Q2)	Y/Y (vs Q3’24)
Revenue ($B)	$8.32	$7.99*	+$0.33B / +4.1%*	-3.7%	-2%
Primary EPS ($)	5.03*	4.83*	+$0.20 / +4.0%*	—	—

Note: GAAP diluted EPS was $3.86, including $1.73/sh non‑cash Accelera charges and $0.26/sh tax from new U.S. tax law . Values retrieved from S&P Global.*

Segment Performance (Q3 2025 vs Q3 2024)

Segment	Sales Q3’24 ($B)	Sales Q3’25 ($B)	EBITDA % Q3’24	EBITDA % Q3’25
Engine	2.91	2.61	14.7%	10.0%
Components	2.72	2.33	12.9%	12.5%
Distribution	2.95	3.17	12.5%	15.5%
Power Systems	1.69	2.00	19.4%	22.9%
Accelera	0.11	0.12	NM	NM (EBITDA loss $336M incl. charges)

Selected KPIs (cycle and mix indicators)

KPI	Q3 2024	Q3 2025
Gross margin ($M)	2,171	2,129
Effective Tax Rate (quarter)	19.2%	32.7%
Operating Cash Flow ($M)	640	1,305
Engines to Stellantis (units)	—	40,000 (RAM pickups)
China M&H truck industry (units)	—	311k (+50% YoY)
Accelera special items ($M)	—	240 (non‑cash)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue/Profit Outlook	FY 2025	Withdrawn earlier in 2025	No outlook; to reinstate in Feb with 2026 view	Maintained “no outlook”
Effective Tax Rate (ex-discrete)	FY 2025	~24.5% (as of Q2)	~26.5% (ex-discrete; higher given new tax law and non‑deductible charges)	Raised
On‑highway shipments	Q4 2025	—	~15% below Q3 levels	New color
Tariff recovery	Q4 2025	—	Near price‑cost neutral for tariffs announced pre‑Q3; new measures uncertain	New color
Dividend	Ongoing	Increased to $2.00 per share in July	$2.00 declared payable Dec 4 (record Nov 21)	Maintained new level

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2025)	Current Period (Q3 2025)	Trend
Data-center demand / Power Systems	Record Power Systems, strong data-center backup demand (Q1/Q2 PRs)	Record Power Systems revenue/margins; record order intake; evaluating further capacity/prime-power options; 2025 data-center revenue +30–35% vs 2024’s $2.6B	Strengthening
North America on‑highway	Anticipated sharp H2 decline; withdrawn outlook due to tariffs (Q1); Q3 slowdown starting (Q2)	Heavy-duty -38% units YoY; Medium-duty -55% units YoY; Q4 shipments ~15% below Q3; “close to bottoming”	Bottoming
Tariffs	Source of uncertainty; recovery via pricing noted (Q1/Q2)	Net negative grew in Q3; recovery improving; Q4 near neutral on earlier tariffs; new measures uncertain	Still headwind; visibility low
Accelera electrolyzers	Investment pacing; mixed installs (Q1/Q2)	$240M non‑cash charges; strategic review; outlook “sharp and dramatic” decline	Deteriorating
Regulatory (EPA 2027) / R&D	Launch prep; spend stable (Q1/Q2)	Unprecedented uncertainty; pushing for clarity; R&D flat into 2026; ready to launch in 2027	Awaiting clarity
China	Improving vs weak prior year (Q2 PR)	Revenues (incl. JVs) +16% YoY; truck market +50% to 311k units; power gen +26%	Improving

Management Commentary

CEO framing: “Cummins delivered strong operating results… driven by profitable growth in our Power Systems and Distribution segments, due in part to continued rising demand for backup power for data centers… we recorded non-cash charges related to our electrolyzer business… undertaking a strategic review” .
Mix and execution: “Excluding [Accelera] charges, EBITDA was $1.4B, or 17.2%… higher… as the benefits of higher power generation and light-duty truck volume, pricing, operational efficiencies… offset declines… and tariffs” .
Power Systems strategy: “Record order intake in Q3… demand remains strong, in particular for data centers… we will continue to invest… I would not expect [incrementals] to stay at that trajectory” .
Tariffs: “We expect to enter the fourth quarter close to a price‑cost‑neutral position for [earlier] tariffs… ongoing addition and adjustment… present challenges” .
Accelera outlook: “Decline in revenue outlook [for electrolyzers]… sharp and dramatic and merits further close review” .

Q&A Highlights

Engine margins outlook: CFO does not expect Engine EBITDA to fall to 8% in Q4 despite lower volumes; sustained cost control and tariff recovery to mitigate headwinds .
Tariff P&L impact: Net headwind “tens of millions” per quarter YTD; company focused on recovery/mitigation; will not frame tariffs as a margin opportunity .
Power Systems capacity and prime power: Capacity doubling for large engines essentially complete; evaluating further capacity and potential natural gas/prime-power options for data centers; no decisions yet .
Accelera portfolio: Non‑cash goodwill impairment signals weaker electrolyzer outlook; additional cost actions under review to reduce losses into 2026 .
Aftermarket dynamics: Limited aftermarket for data-center backup sets (low run-hours), though Distribution sees broader aftermarket tailwinds as conditions normalize .

Estimates Context

Q3 2025 vs S&P Global consensus: Revenue $8.32B vs $7.99B consensus; Primary EPS 5.03 vs 4.83; both beats. GAAP diluted EPS was $3.86, including $1.73/sh Accelera charges and $0.26/sh tax from new law . Values retrieved from S&P Global.*
Forward estimates: Q4 2025 consensus revenue $8.08B and Primary EPS 5.05; Q1 2026 revenue $7.97B and Primary EPS 5.50. Values retrieved from S&P Global.*
Implications: Street likely to lift Power Systems/Distribution margin assumptions and data-center run-rate, while trimming Accelera/Engine near-term given electrolyzer reset and Q4 shipment guide. Values retrieved from S&P Global.*

Estimates detail (S&P Global)

Period	Revenue Consensus ($B)	Primary EPS (Consensus)
Q3 2025	7.99* (actual $8.32 )	4.83* (actual 5.03*)
Q4 2025	8.08*	5.05*
Q1 2026	7.97*	5.50*

Values retrieved from S&P Global.*

Key Takeaways for Investors

Mix shift is powerful: Data-center secular tailwind is driving record Power Systems/Distribution results and higher group ex‑charge margins; this remains the core upside narrative into 2026 .
Cycle nearing trough: Management expects Q4 on‑highway shipments ~15% below Q3 and “close to bottoming,” positioning Engine/Components for operating leverage on recovery .
Tariff risk moderating (but not gone): Recovery actions improve into Q4 (near neutral on earlier tariffs), yet new measures are uncertain; any policy stability is a catalyst for orders and margins .
Hydrogen reset reduces near-term drag: Electrolyzer impairment and strategic review suggest tighter capital focus; further actions could narrow Accelera losses in 2026+ .
Cash and capital allocation: $1.3B Q3 operating cash flow supports dividend ($2.00/sh) and strategic investment in high-return power-gen capacity .
Estimate revisions: Street likely to raise Power Systems/Distribution margins and total EBITDA ex‑specials, while keeping near-term Engine cautious; GAAP/adjusted EPS reconciliation matters given Accelera charges .
Stock reaction catalysts: Continued data-center order momentum, clarity on tariffs and 2027 EPA rules, and February 2026 guidance reinstatement are the next narrative drivers .

Sources: Q3 2025 press release and 8‑K exhibit ; 8‑K 2.02 filing ; Q3 2025 earnings call transcript ; Prior quarters Q1/Q2 2025 press releases ; Dividend release .

S&P Global estimates: Revenue and EPS (Primary) consensus/actuals and forward periods. Values retrieved from S&P Global.*