Cummins Inc. 2026 Q2 Earnings Call

Please go ahead. Thank you, Paul.

Good morning, everyone. Welcome to our teleconference today to discuss Cummins results for the second quarter of 2026. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer. We will all 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 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 the several 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 this call, we will be discussing certain non-GAAP financial measures. We will refer you to our website for the 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. I will start with a summary of our second quarter accomplishments and financial results, then discuss our sales and end market trends by region. I will finish with a discussion of our outlook for 2026. Mark will walk you through additional details on our second quarter performance and our full year forecast. Before getting into the details of our performance, I want to highlight a few major events from the quarter. In May, we hosted our 2026 Analyst Day, where we raised our 2030 financial targets and reinforced our commitment to returning capital to shareholders. This reflects that our strategy is working. We are advancing our position in key markets and experiencing increasing demand for our products.

In response to growing global investments in data centers, we also announced plans to further expand our global capacity and broaden our power generation portfolio with integrated power solutions and the development of 130-liter natural gas genset, extending our reach into the growing prime power market. Since Analyst Day, we have continued to build momentum in the data center market. We recently signed a multi-year agreement with a global hyperscaler, expanding a long-standing partnership and securing visibility into several gigawatts of future backup power genset demand. This agreement reinforces our confidence in our growth outlook and supports the capacity expansion already underway. In June, we announced an agreement with Circe Energy to provide QSK60 and HSK78 natural gas generator sets and integrated microgrid technology for a behind-the-meter prime power solution supporting a high-performance computing data center in Texas.

The project highlights our ability to deliver integrated power solutions, deepen customer partnerships, and expand our presence in the growing prime power market. The EPA released its much-awaited proposed rule last month that provides greater clarity on the implementation of the North America On-Highway 2027 emissions regulations for our industry. Based on the proposed rule, we announced our intention to use the implementation flexibilities outlined by the EPA to support a measured transition to our new HELM engine platforms. This approach is designed to satisfy the proposed regulatory framework and support OEM customer production schedules while providing additional real-world operating experience to help build end-user confidence in our new engines. This balanced approach also helps maintain product availability, continue bringing new innovative products to market, and support a successful industry transition.

As a part of our phase transition, we plan to begin limited production of the model year 2027 X15 engine in January 2027 based on individual OEM launch plans, with production ramping progressively and full production expected to begin in the fourth quarter of 2027. We also plan to begin limited production of the model year 2027 X10 in January 2027, with full production expected by the third quarter of 2027 based on OEM launch plans. During the transition, the current X12 and L9 engines used in truck and transit bus applications are expected to remain available under EPA's proposed rule. Consistent with our previous announcement, our next generation B platform is expected to launch in January 2028, and the current B platform will be available for all of 2027.

As we execute this phase transition, we will continue to work closely with our OEM partners, dealers, fleets, and other end customers to align product availability and launch timing. We will also continue to stay actively engaged with the EPA and monitor its rulemaking and implementation flexibilities to support a successful transition for our customers and the industry. These actions reflect our commitment to deliver for our customers, execute with discipline, and invest in products and technologies that will support long-term profitable growth. I will turn to our overall company performance for the second quarter of 2026 and cover some of our key markets. We delivered record second quarter sales of $9.5 billion, an increase of 9% compared to the second quarter of 2025. Growth was driven primarily by higher global demand in power generation markets, particularly from data centers and international construction markets.

EBITDA for the quarter was a record $1.7 billion, or 17.5% of sales, compared to $1.6 billion, or 18.4% of sales a year ago. The increase in EBITDA was primarily due to higher volumes, increased joint venture earnings, and positive pricing, partially offset by tariffs and higher variable compensation expenses associated with our projections for record full-year earnings. Our second quarter revenues in North America increased 8% compared to the second quarter of 2025. Industry production of heavy-duty trucks in the second quarter was 60,000 units, down 4% from 2025 levels, while our heavy-duty unit sales were 23,000, up 2% year-over-year. Industry production of medium-duty trucks was 32,000 units in the second quarter of 2026, an increase of 8% from 2025 levels, while our unit sales were up 29,000, up 19% year-over-year.

We shipped 33,000 engines to Stellantis for use in their Ram pickups in the second quarter of 2026, down 2% from a year ago. Revenues for North America Power Systems increased by 19%, driven primarily by continued strong data center demand and supported by the additional manufacturing capacity we brought online at the end of 2025 to meet that growing customer demand. Our international revenues increased 12% during the second quarter compared to a year ago. Second quarter revenues in China, including joint ventures, were $2.3 billion, an increase of 30% year-over-year, driven by accelerating data center demand, as well as improving on-highway and construction markets.

Industry demand for medium and heavy-duty trucks in China was 378,000 units, an increase of 24% from last year, driven by strong export demand, particularly in Africa and Southeast Asia, as well as improving domestic replacement demand and increase in battery electric-powered trucks. Our sales in units, including joint ventures, were 53,000 units, an increase of 2%. Industry demand for excavators in China in the second quarter was 79,000 units, an increase of 34% from 2025 levels. We sold 15,000 units, up 35%, driven by export demand associated with mining investments in Africa and Indonesia. Results also benefited from OEM inventory stocking to mitigate potential logistics risks in the Middle East, as well as continued domestic demand supported by rural development projects. Sales of power generation equipment in China increased 88% in the second quarter due to accelerating data center demand.

Second quarter revenues in India, including joint ventures, was $742 million, an increase of 6% from a year ago. Industry truck production increased 5% from 2025, driven by increased freight availability, infrastructure, and mining activity. Let me provide our outlook for 2026, including comments on several of our key markets. We have raised our full-year outlook once again as demand continues to build across several key markets. We now expect total company revenues to increase 10%-13% in 2026 compared to our prior guidance of 8%-11%. This improved outlook reflects higher demand in North America on-highway markets, continued strength in power generation driven by data center markets, and improved on and off-highway demand in China. We are raising the midpoint of our 2026 North America heavy-duty truck forecast to a range of 240,000-250,000 units, up from our prior guidance of 230,000-250,000 units.

This reflects strong recent order activity and improving fleet profitability, which drove better than expected second quarter production and improved visibility into demand in the second half of the year. In the North America medium-duty truck market, we are increasing our forecast to 130,000 to 140,000 units in 2026 compared to our prior guidance of 125,000 to 135,000 units. This reflects stronger than expected demand in the second half of the year, supported by improving OEM outlooks and a modestly higher pre-buy following the recent regulatory clarification. For both heavy and medium-duty trucks, we anticipate that industry production is largely set for the second half of this year. Consistent with our prior guidance, our engine shipments for pickup trucks in North America are expected to be 125,000 to 140,000 units in 2026.