The paragraph is an introduction to the Q3 2024 Cummins Inc. Earnings Conference Call. It features Chris Clulow, Vice President of Investor Relations, starting the call and introducing key participants, including Jennifer Rumsey, Chair and CEO, and Mark Smith, CFO. It mentions that the call will include forward-looking statements subject to risks and uncertainties, with more details on these available in Cummins' filings with the SEC. The discussion will also involve non-GAAP financial measures, with reconciliations provided on the company's website. The press release and webcast presentation are also available in the Investor Relations section of cummins.com. Jennifer Rumsey will then lead the main discussion.

In the third quarter, the company achieved significant milestones, including the start of full production of the X15N natural gas engine at their Jamestown Engine plant, marking an advancement in their Destination Zero strategy aimed at reducing carbon emissions. Major clients like UPS have begun adopting these engines for their fleets. Additionally, the company showcased its diverse, cleaner power solutions, including integrated powertrain concepts, at the IAA transportation event in Germany, reinforcing its commitment to helping customers with decarbonization strategies. Mark will provide further details on financial performance and forecasts.

The paragraph highlights Cummins and Accelera's capabilities to meet evolving customer needs and mentions Accelera's new electrolyzer manufacturing plant in Spain, which aims to produce up to 1 gigawatt of electrolyzers annually and generate up to 200 jobs. It also expresses sympathy for those affected by Hurricanes Helene and Milton in the U.S., acknowledging minor impacts on financial results but commending the company's response. In the third quarter of 2024, Cummins maintained strong demand across various markets, despite decreased heavy-duty truck sales in North America, achieving $8.5 billion in sales, similar to the previous year, due to high demand in power generation and improved pricing.

In the third quarter of 2024, the company's EBITDA rose to $1.4 billion, or 16.4%, from $1.2 billion, or 14.6%, the previous year. This improvement came despite $26 million in costs from the Atmus separation, with higher power generation volumes and efficiency gains outweighing margin reductions. North American revenues fell by 1% to $5.2 billion due to a softening heavy-duty market and reduced Atmus-related sales, although medium-duty truck and power generation demand increased. Heavy-duty truck production was down 10%, while medium-duty production rose 12%. International revenues were up by 2%, but China saw a 4% decline in revenues due to weaker truck and construction demand. Overall, power generation performed strongly, contributing to record sales and profitability in the Power Systems segment.

The China truck market remains weak, with declining demand for both diesel and natural gas vehicles. The light-duty market in China fell by 4% compared to 2023, although the company's sales, including joint ventures, rose by 14%. Excavator demand increased by 10%, with the company's sales up by 14% due to new partner penetration and export growth. Power generation equipment sales surged, driven by data center demand. In India, third-quarter revenue dropped by 12% due to reduced manufacturing and infrastructure spending, while truck production and shipments decreased. However, power generation revenue rose by 49% due to emissions regulation changes and data center demand. For 2024, the company anticipates stable revenue, with an EBITDA guidance improvement to 15.5%, balancing higher revenue in Power Systems and Distribution against lower in Components. The forecast for North American heavy-duty trucks remains steady.

In the third quarter, industry demand softened as expected, with further softening anticipated in the fourth quarter. In North America, the medium-duty truck market forecast remains at 150,000 to 160,000 units, potentially up 5% from 2023, aided by a strong backlog and vocational orders. Engine shipments for pickup trucks are expected to be 135,000 to 145,000 units in 2024, with a temporary production decline in Q4 due to a model year changeover. In China, total revenue is projected to decline by 4% in 2024, affected by a weak diesel truck market but offset by higher power generation demand. Despite little immediate impact from stimulus actions, demand-side policy emphasis is seen positively. In India, a 1% revenue increase is expected, driven by power generation demand. Truck industry demand is forecasted to fluctuate by 5%. Global construction demand is projected down 10% to flat due to weaker demand in China. Power generation markets are expected to increase by 15% to 20%, driven by data center needs. Mining engine sales are expected to fluctuate by 5%. Aftermarket guidance is flat to up 5% for 2024, with some decline in rebuild demand in Q4. Overall, the sales outlook is down 3% to flat, with an improved EBITDA guidance of approximately 15.5%.

In the third quarter, the company achieved strong profitability in its Power Systems and Distribution segments despite a weakening North American heavy-duty truck market. They maintained their commitment to returning cash to shareholders, distributing $250 million in dividends, aligning with their plan to return 50% of operating cash flow. The company's strong performance and improved full-year guidance position it well for future growth and decarbonization efforts. Mark Smith highlighted the maintenance of full-year revenue guidance and increased expectations for EBITDA, reporting third-quarter revenues of $8.5 billion, flat year-over-year, with a slight decrease in North American sales and a 2% increase internationally. EBITDA increased to $1.4 billion or 16.4% of sales, up from $1.2 billion or 14.6% of sales the previous year, which included $26 million in costs for the Atmus separation.

The paragraph discusses improved profitability driven by favorable pricing, operational efficiency, and the avoidance of Atmus separation costs. Gross margin improved to $2.2 billion or 25.7% of sales, compared to the previous year's $2.1 billion or 24.6%. Selling, admin, and research expenses remained at $1.2 billion but fell as a percentage of sales due to the absence of Atmus-related costs. Joint venture income decreased by $19 million due to lower technology fees and start-up costs for AMPLIFY Cell Technologies. Other income rose by $29 million due to mark-to-market gains. Interest expenses declined by $14 million due to lower interest rates. The effective tax rate was 19.2%, benefiting from $36 million in favorable discrete items. Net earnings increased to $809 million or $5.86 per diluted share, aided by fewer shares post-Atmus separation. Operating cash flow was $640 million for the quarter and $65 million year-to-date, despite $1.9 billion in settlement payments.

In the third quarter, the company's operating cash flow decreased to $2 billion from $2.5 billion last year due to higher inventory levels, but improved cash flow is expected in the fourth quarter. Segment performance varied: Components saw a 16% drop in revenue to $2.7 billion and a decrease in EBITDA margins due to the Atmus separation and a weak North American heavy-duty truck market. Hurricane Helene also impacted production in North Carolina. Components revenue is projected to decrease 12-15% in 2024 with slightly lower EBITDA margins. The Engine segment had a 1% decrease in revenue to $2.9 billion, but EBITDA increased to 14.7% due to operational improvements and favorable pricing.

In 2024, the Engine business is expected to see a slight revenue decline of 2% to 1%, with EBITDA margins consistent with previous guidance. The Distribution segment has reached record revenues of $3 billion, driven by high demand in power generation for data centers, with revenues anticipated to grow 8% to 11% next year and improving EBITDA margins. The Power Systems segment also set a revenue record at $1.7 billion, supported by increased volumes and pricing, with a projected revenue growth of 8% to 11% and higher EBITDA margins for 2024. Accelera's revenues grew by 7% to $110 million, with investments leading to continued losses. Forecasts for 2024 maintain steady revenue and loss projections for the segment.

In the eleventh paragraph of the article, the company reports strong performance in the third quarter of 2024, particularly in Power Systems and Distribution, which leads them to improve their full-year profitability guidance. Despite projecting a 3% to flat revenue change for 2024, the EBITDA margin is expected to reach 15.5%, at the higher end of previous projections. The effective tax rate for 2024 is anticipated to be around 23.5%. Capital investments remain unchanged at $1.2 to $1.3 billion. The company plans to navigate market moderation, especially in North American heavy-duty trucks, by reducing costs and streamlining operations. Their focus remains on reinvesting for growth, maintaining cash dividends, and supporting their credit rating. The session concludes with a transition to a Q&A segment.

In the discussion, Steven Fisher from UBS congratulates the company on its positive third-quarter performance and inquires about the seemingly conservative fourth-quarter guidance. He questions if there are enough positives to offset the downturn in the heavy-duty truck market and sustain EBITDA growth over the next year. Jennifer Rumsey responds by outlining three factors influencing the fourth-quarter revenue guidance: further softening in the heavy-duty market, a product changeover impacting volumes in the pickup truck business, and fewer working days due to holidays and maintenance. She credits the team for maintaining profitability despite these challenges and highlights strong performance in Power Generation, which she expects to continue into the next year. Fisher then asks about the momentum in Power Generation.

The paragraph discusses the company's performance and strategies regarding its product lines, particularly the 95-liter product, which is experiencing high demand and has reached capacity. Jennifer Rumsey explains that strategic pricing and operational improvements have led to increased capacity by 30% and plans are in place to double it by 2026. They are managing current capacity while planning future expansions. Mark Smith adds that they are cautiously planning for a modest start in heavy-duty trucks next year. Additionally, the company has returned to regular operations after overcoming previous disruptions, with efforts to address the backlog.

The paragraph discusses the impact of regulatory changes on Cummins’ drivetrain and braking systems in the Western North Carolina region, particularly focusing on the California Omnibus low NOx regulation and potential delays in enforcement in some states. Jennifer Rumsey notes that different states' adherence to CARB regulations is unpredictable, but there’s a national strong demand for low NOx products despite lower volumes in CARB states. The company anticipates a market softening in heavy-duty trucks next year but expects a prebuy before the 2027 regulations. There’s also mention of ongoing growth and momentum in power generation systems into 2025.

The paragraph discusses the power generation market, indicating that demand remains strong, with growth expected to persist into 2025, based on backlog and capacity management. Jennifer Rumsey and Mark Smith express confidence due to a strong backlog and resilient distribution, unless disrupted by a major economic shock. Kyle Menges from City inquires about the strong growth in the Industrial portion of Power Systems, particularly in mining, which competitors haven't matched. Jennifer Rumsey and Christopher Clulow note flat guidance in mining but highlight demand from rebuilds. Mark Smith cautions against overinterpreting the quarterly results. Menges notes that new guidance suggests incrementals of about 60% in Power Systems in 2024.

The paragraph discusses the expected incremental margins for a segment in 2025, with Mark Smith commenting on improvements made through reprioritization and cost resets over the past couple of years. Although previous incremental margins were between 40% to 60%, he does not expect this level to continue but anticipates further improvement. Jerry Revich from Goldman Sachs inquires about engine margin performance, noting the momentum into 2025 despite potentially softer demand. Smith acknowledges improvements since pre-COVID levels but indicates there is still room for increased operational efficiencies. Specific updates are to be provided in February.

The paragraph discusses the current state and future outlook of the investment cycle, highlighting strong demand in the medium-duty sector and temporary reductions in pickup truck engine production, expected to rebound soon. It mentions adjustments to organizational structure and costs since last year's fourth quarter, contributing to a strong position for the coming year. An extra pricing boost helped in the third quarter, though not expected to continue in the fourth. There is potential for growth in the engine business, particularly in China, but the exact timing is uncertain. The focus remains on costs and efficiency over the next nine months. Jerry Revich then shifts the discussion to natural gas engine demand.

In the paragraph, Jennifer Rumsey discusses expectations for the market share of natural gas products over the next 6 to 12 months. She suggests that the share could potentially reach 8%, driven by testing with big fleets like UPS. The natural gas product is seen as beneficial for reducing CO2 emissions and operating costs due to the fuel price difference with diesel. However, exact predictions are uncertain due to changing economic conditions. She mentions the product's launch with Kenworth and Daimler's planned launch in 2025. The operator then introduces a question from Jamie Cook of Truist Securities, who asks about capacity increases for large engines in response to demand and potential benefits in 2025.

In the paragraph, Jennifer Rumsey discusses the company's efforts to increase capacity for power generation products, specifically the 95-liter engine, by 30% within current supply chain constraints. They aim to double this capacity by next year and are exploring potential investments for further expansion. Mark Smith addresses the financial impact of hurricanes on the company's margins and highlights a retroactive pricing adjustment that contributed about a 50 basis-point improvement for the quarter, emphasizing their focus on cost efficiency and product value to support customer success.

The paragraph discusses a company's financial performance, focusing on costs, revenue, and efficiency. It mentions incurring costs related to Hurricane Helene but maintains a steady revenue outlook due to predictable production levels for trucks. The company prioritizes cost discipline and preparing for future growth and margins. Tami Zakaria from JP Morgan questions whether the company will adjust its long-term incremental EBITDA margin target, considering strong recent performance. Mark Smith from the company suggests they will give yearly guidance without committing to revising long-term targets, acknowledging the complexities of their portfolio.

In the paragraph, the discussion centers around recent challenges and future prospects for the business. The company acknowledges some obstacles on the Accelera side but remains pleased with their overall performance this year, with plans to provide detailed guidance in February. In response to a question about retroactive pricing, Mark Smith explains it as a result of prolonged discussions starting from January 1, primarily affecting their light-duty space. The conversation shifts to the demand for large engines, particularly in hyperscale data centers. Jennifer Rumsey notes that reciprocating engines are expected to remain the backup power solution for data centers over the next decade.

The paragraph discusses the considerations of using diesel generators for backup power due to their cost-effectiveness and reliability. It then shifts to a conversation with David Raso from Evercore, who asks about the impact of the election on Cummins' plans, particularly regarding the introduction of a '27-compliant engine. Jennifer Rumsey from Cummins responds that the company remains committed to working across party lines, seeking regulatory and legislative stability, and doesn't anticipate any changes to the 2027 regulations for their industry regardless of the election outcome.

The paragraph discusses Cummins' strategy to introduce a diesel version of their 15-liter helm platform in 2026, ahead of upcoming 2037 regulations. This launch aims to provide a lower NOx product with improved fuel efficiency and reduced operating costs, aligning with the company’s history of being first to market with regulatory-compliant products. There's consideration of a potential prebuy in 2025 as customers anticipate the new model's early 2026 release, which could impact truck order numbers significantly, given Cummins' substantial market share. Additionally, the paragraph hints at questions regarding the cost of the new engine and its components versus warranty offerings.

Jennifer Rumsey discusses the company's current transition involving the introduction of a new 15-liter engine in 2026, which includes enhanced technology to meet lower NOx regulations and improve fuel efficiency. Although specific pricing and transition details are still under discussion with customers, the new product will not require a longer emissions warranty until 2027. As this represents one of the company's largest R&D investments, there's anticipation of significant R&D spending at high levels through 2024, with future expenditures potentially normalizing based on regulatory changes and the transition to zero-emissions technology.

The paragraph discusses projections and current market demand for medium and heavy-duty vehicles, along with an analysis of the distribution business. Jennifer Rumsey notes that the medium-duty market in North America is seeing steady growth, with demand expected to continue due to upcoming regulations. Meanwhile, Noah Kaye shifts the topic to the distribution business, highlighting a shift in revenue mix due to strong demand for power generation and a decline in parts sales. Timothy Thein questions whether this change in revenue distribution might be seen negatively in historical terms, but suggests that given the strong demand and supply constraints, this might not be the case currently.

The discussion involves Jennifer Rumsey and Mark Smith addressing questions from Timothy Thein about business operations. Jennifer discusses the challenges of balancing whole goods and aftermarket sales, noting that whole goods typically have a negative margin compared to aftermarket. They are focusing on operational efficiencies to manage inflationary pricing and increasing volume demands. Mark emphasizes the importance of meeting customer expectations and growing earnings efficiently, pointing out the significance of parts sales. He clarifies that while they have implemented several pricing strategies, a specific retroactive deal in the light-duty engine business had a notable impact. The timing of pricing adjustments was lumpy, primarily affecting the third quarter, but overall yearly expectations remain stable.

In the paragraph, Chris Clulow delivers closing remarks for the teleconference, thanking participants for their involvement and continued interest. He mentions that the Investor Relations team will be available for follow-up questions after the call. The operator then informs participants that they may now disconnect from the call.

This summary was generated with AI and may contain some inaccuracies.