The paragraph is an introduction to the Cummins Inc. Q4 2024 Earnings Conference Call. The operator provides initial instructions and notes that the conference is being recorded. Chris Clulow, Vice President of Investor Relations, welcomes attendees and introduces key participants, including Chair and CEO Jennifer Rumsey and CFO Mark Smith. Clulow mentions that they will address questions after the presentation. He also highlights that the discussion may include forward-looking statements, which involve risks and uncertainties, and directs listeners to the company's SEC filings for more information on these risks.

In the discussed paragraph, the speaker, Jennifer Rumsey, Chair and CEO of Cummins, reflects on the company's achievements in 2024, highlighting strong financial performance and progress in their Destination Zero strategy. She expresses pride in the advancements made by Cummins and emphasizes their focus on leading the energy transition through a multi-solution approach involving both core and Accelera by Cummins businesses. The year 2024 saw enhanced portfolio evolution and strengthened relationships with stakeholders and partners, with notable progress being the launch of the Cummins HELM engine platform.

Cummins has introduced the HELM platforms for their B, X10, and X15 engine series, allowing customers the flexibility to choose between advanced diesel or alternative fuels like natural gas and hydrogen to reduce emissions. Full production of the X15N natural gas engine has started at the Jamestown Engine Plant, with collaborations ongoing to help large North American fleets cut their carbon footprint. The company also expanded its Centum Series with four new generator sets, catering to high-demand applications such as data centers. Cummins plans to invest $200 million in manufacturing across the U.S., England, and India to boost power generation capacity. The company separated its Atmus Filtration Technologies business in a tax-free share exchange, reducing its outstanding shares. Cummins aims to focus on innovative power solutions while Atmus pursues its own growth path. Additionally, through the Accelera business, Cummins formed the joint venture Amplify Cell Technologies to support battery cell production in the U.S.

The paragraph discusses a strategic collaboration aimed at advancing zero emissions technology for electric commercial vehicles and industrial applications, including the construction of a factory in Mississippi with plans for expansion. As the transition to zero-emission solutions slows in some regions, the company is refocusing its investments and reorganizing its Accelera business segment to ensure long-term success. The company's overall performance in the fourth quarter of 2024 saw revenues total $8.4 billion, a decrease of 1% from 2023, due to lower North American heavy-duty truck volumes and the separation of Atmus. However, strong global demand in power generation, aftermarket, and U.S. medium-duty truck markets helped offset this decline. The company recorded $312 million in reorganization charges for Accelera. EBITDA improved to $1 billion or 12.1%, compared to a loss of $878 million or negative 10.3% in the previous year.

In 2024, the company reported record revenues of $34.1 billion, despite challenges such as decreased North America heavy-duty truck demand and sales reduction from separating the Atmus business. EBITDA also reached a record $6.3 billion, or 18.6% of sales, up significantly from $3 billion, or 8.9% of sales, in 2023. These figures exclude various costs, including those related to the Atmus divestiture, the Accelera reorganization, and restructuring expenses. The company's Power Systems, Distribution, and Engine segments achieved record EBITDA, with the Power Systems business seeing a substantial increase in EBITDA as a percentage of sales, improving operational efficiency and offsetting lower truck volumes.

The company is optimistic about its core business segments for 2025, projecting overall revenue changes between a 2% decrease and a 3% increase compared to 2024, with an improved EBITDA margin of 16.2% to 17.2%. In North America, demand for heavy-duty trucks may weaken in the first half, with projections of 260,000 to 290,000 units, flat to down 10% year-over-year, and medium-duty trucks down 5% to 15%. Engine shipments for pickup trucks are expected to remain stable or increase slightly. In China, revenue, including joint ventures, is anticipated to grow by 5%, with a fluctuating demand for heavy and medium-duty trucks. While export demand may decline, domestic growth might boost sales. The power generation market is expected to stay strong, driven by data center growth, despite uncertainties.

In the article paragraph, it is projected that revenue in India will increase by 10% in 2024, driven by stronger power generation demand. The global construction industry is anticipated to decline due to weak property investment in China. Major global high horsepower markets are expected to remain strong in 2025, with power generation markets seeing a 5% to 15% revenue increase. Mining engine sales may vary between a 5% decline and a 5% increase. Aftermarket revenues are expected to remain flat or grow by up to 5%. Accelera's sales are projected to be $400 million to $450 million in 2025. Despite weaker demand in the North American truck market, profitability and cash flow are expected to improve due to strength in power generation and distribution, alongside a multi-solution strategy. The paragraph ended with Mark Smith discussing detailed financial results, noting strong operational performance and surpassed revenue and EBITDA margin projections.

In 2024, the company achieved record financial performance, driven by strong product demand and employee efforts. The fourth quarter reported revenues were $8.4 billion, with EBITDA at $1 billion or 12.1% of sales, which would be $1.3 billion or 15.8% excluding a $312 million charge primarily due to a strategic review of the Accelera segment. Comparatively, Q4 2023 showed sales of $8.4 billion but had an EBITDA loss of $878 million. However, excluding several charges, EBITDA in 2023 was $1.2 billion or 14.4%. Despite a 1% decrease in Q4 revenues due to the Atmus separation, the company saw an underlying EBITDA improvement of 140 basis points, primarily from higher power generation volumes, pricing, and operational efficiency, although it faced challenges from lower North American truck volumes and international revenue decreases. Gross margin improved to $2.1 billion or 25.4% of sales, up from $2 billion or 23.7% the previous year.

The paragraph outlines the company's financial performance improvements due to increased power generation aftermarket demand, favorable pricing, and better operational efficiency. Operating expenses decreased due to lower R&D costs, while joint venture income fell due to reduced technology fees and expenses from a new battery joint venture. Other income saw a significant drop due to investment losses. Interest expenses slightly decreased due to lower interest rates. The effective tax rate increased due to non-deductible reorganization costs. Net earnings were $418 million, impacted by charges related to the Accelera reorganization. Excluding these charges, EPS was $5.16 per share. Operating cash flow exhibited a minor decline. Full-year 2024 revenues reached a record $34.1 billion, with a 4% growth after excluding certain factors, and EBITDA was $6.3 billion, or 15.7% when adjusted for various charges.

In 2023, the company's EBITDA was $3 billion or $5.2 billion, excluding certain costs, driven by higher power generation volumes and pricing efficiencies. Net earnings were $3.9 billion or $28.37 per diluted share, a significant increase from the previous year. In 2024, the company faced various financial impacts, including gains from the Atmus separation and charges from Accelera reorganization, with capital expenditures remaining flat at $1.2 billion. The company returned $969 million to shareholders and reduced shares outstanding by 5.6 million due to the Atmus separation. The focus was on organic investments and dividend growth. The speaker will now discuss 2024 results and 2025 guidance, excluding nonroutine items.

In 2024, the Engine segment achieved record revenues of $11.7 billion, slightly up from the previous year, with an EBITDA of 14.1%. For 2025, revenue is projected to slightly decrease or increase, and EBITDA is expected to improve. The Components segment also reported $11.7 billion in revenues, down 13% from 2023, with an EBITDA of 13.8%. Revenue for 2025 is anticipated to decline or remain flat, with EBITDA margins improving slightly. The Distribution segment saw an 11% revenue increase to a record $11.4 billion, with EBITDA improving to 12.1%. For 2025, revenue is expected to rise by 2% to 7%, with EBITDA margins between 12% and 13%. The Power Systems segment recorded a 13% revenue increase to $6.4 billion, driven by demand in power generation, resulting in an EBITDA of 18.4%. Revenue growth of 2% to 7% is expected for 2025, with EBITDA further increasing to between 19% and 20%.

In 2024, Accelera's revenues increased to $414 million despite a net operating loss of $452 million due to cost reductions and additional joint venture losses. For 2025, the company expects revenues between $400 million and $450 million, with reduced net losses of $385 million to $415 million. Revenues are projected to decrease by 2% to 3%, and EBITDA margins are estimated at 16.2% to 17.2%, up from 15.7% in 2024. The effective tax rate is expected to be 24.5%. Capital investments will range from $1.4 billion to $1.5 billion to support growth. The company achieved record sales and profitability in 2024, with a focus on cash generation for 2025. Despite challenges in the North American heavy-duty truck market, Accelera aims to improve profitability and cash flow, aligning with its 2030 financial targets. The call will now proceed with questions from participants.

In this discussion, Angel Castillo from Morgan Stanley asks about the power generation guidance and a $200 million investment in power generation. Jennifer Rumsey explains that the investment is to increase capacity at their plants in Minnesota, the UK, and India to meet growing demand for power generation products. The guidance reflects increased capacity and strategic pricing, focusing on sales of large engines, especially for the power generation and data center markets. They are on track to double this capacity by the end of the year. Castillo also inquires about their thoughts on EPA27 and mentions assumptions of some prebuy in the second half.

The paragraph discusses the likelihood of challenges to the EPA27 regulations, with Jennifer Rumsey expressing confidence that the regulations will remain intact. Companies, including those represented by Rumsey, have been investing in related products and anticipate economic recovery and increased revenues in the North American trucking market. However, Rumsey also foresees potential challenges to future greenhouse gas regulations. The conversation then shifts to the Accelera restructuring, where Rumsey explains the focus on agility and investment in zero-emission technologies, specifically battery electric vehicles, due to market trends and technological advancements. The restructuring involves consolidating investments from multiple acquisitions to better align with market movements.

The paragraph discusses Cummins' investment strategy in electrolyzers and fuel cell technologies, noting a cautious approach due to fluctuating customer demand and uncertainties surrounding incentives. Despite challenges, the company believes it is well-positioned strategically. Jennifer Rumsey highlights the HELM platform's fuel flexibility, indicating ongoing sales of its diesel version with improved efficiency. There's a goal to reach 8% adoption for the natural gas version, with companies like PACCAR and Daimler Trucks involved in its rollout. However, the adoption rate for natural gas or hydrogen is uncertain due to factors like diesel prices, regulation, and infrastructure costs.

In this paragraph, Jerry Revich from Goldman Sachs asks about future throughput expectations for large products in 2025, noting a 30% year-over-year revenue growth in the Power Systems segment. Jennifer Rumsey highlights the importance of launching new Centum products and maximizing capacity to achieve further growth, emphasizing the need for major investments to double capacity. Mark Smith notes that the increase in average selling price, due to larger generator sets, contributes to revenue growth outpacing unit growth. Revich also inquires about the China truck market, pointing out optimism for stronger demand and estimating that China truck profits might constitute about 10% of the company's total profits.

The paragraph features a conversation between Mark Smith and Tim Thein about the company's current market position and future outlook. Smith notes that while China represents a significant portion of earnings, current investments are not substantial, suggesting potential for increased profits if demand rises. The conversation also highlights the company's resilience through previous cycles, pointing out that despite challenges, such as a weakening truck market and a weak China market in 2024, the Engine and Components businesses performed well. The discussion shifts to the 2025 margin outlook for Components, where Smith attributes anticipated improvements to ongoing cost reductions, initiated with a voluntary separation package in 2023, rather than solely the Atmus spin-off.

In the article paragraph, the company has worked internally in 2024 to optimize resource allocation among different business lines, functions, and regional structures, resulting in improved cost structure and focus. The Components business, including the former Meritor, Drivetrain, and Braking Systems, has seen improved results. Despite operating in a stable revenue environment, efforts are being made to enhance cost efficiency. Mark Smith discusses Accelera's progress, acknowledging challenges and admitting that they are not on track to reach EBITDA breakeven by 2027 due to frequent and severe headwinds. However, the overall company targets for 2030 remain on track. Additional actions were taken in the fourth quarter, acknowledging limited near-term demand support. The company remains confident in its overall results while addressing Accelera's challenges.

The paragraph involves a discussion between Mark Smith and Kyle Menges about the research and development (R&D) spending and business outlook for Engine and Components, specifically for the years 2024 and beyond. Mark mentions that while there will be new product launches in 2025, any significant decline in expenses for the Engine business is expected after 2025, as part of a margin expansion strategy through 2027. The conversation shifts to the Parts business, where Mark notes that Parts performed better than expected in the fourth quarter and anticipates growth between flat and up 5% in 2025, correlating with the economy's performance. Jamie Cook from Truist Securities then questions the margins in Power Systems, suggesting they are strong despite a modest revenue forecast and asks if this is due to pricing and new products. She also raises questions about margin targets relative to last year's expectations and mentions uncertainties regarding tariffs.

Mark Smith discusses the company's strategy for dealing with potential tariff impacts and price changes. He emphasizes that while Power Systems is performing well, there's still room for improvement in terms of productivity, volume, and pricing. The company is focusing on managing supply chain efficiencies to enhance margins. Smith notes that their strategy is to manufacture products in the markets where they are sold, though they do have a global supply chain, which might be impacted by tariffs. If tariffs occur, they plan to pass those costs onto the market. Additionally, he mentions that they haven't observed strong growth in the U.S. economy that could further drive sales of smaller generator sets, but they are focused on managing what they can control and driving cost-effective growth.

The paragraph features a conversation between an operator and David Raso from Evercore, discussing the financial aspects of the Engine and Component divisions. Raso inquires about the increase in depreciation and amortization (D&A) and its impact on margin expansion, seeking to understand if the growth in D&A largely pertains to the Engine or Component divisions. Mark Smith responds, indicating that most capital investment has been in the Engine business in North America, attributing significant D&A increases to that division. Smith clarifies that D&A increases will not significantly affect distribution and that most incremental investment impacts Engines and Components. Raso further questions the operating margin improvements in Engines not related to D&A, contemplating if product mix or market performance—like outperforming with medium engines—contribute to these margins. The discussion aims to anticipate future Engine division earnings, considering projections for 2025 and 2026.

In the discussion, Mark Smith highlights that the aftermarket side, particularly the Engine business, will drive near-term performance with pricing opportunities extending into 2025. The focus is also on cost control, as engineering costs decrease and Components increase slightly. They have not yet included significant contributions from China. Avi Jaroslawicz from UBS inquires about the North American heavy-duty truck market outlook. Jennifer Rumsey responds, indicating that challenges faced by truckload carriers might see improvement depending on the economy and interest rates, potentially boosting the market in the second half of the year. A pre-buy phenomenon could also strengthen second-half performance, but its impact is uncertain. Jaroslawicz further asks about medium-duty market share and growth dynamics for 2024.

In the paragraph, Mark Smith and Jennifer Rumsey discuss their company's performance and outlook in the engine market, noting their leading position and past market share gains. They mention that future growth will primarily come from the truck segment, with some potential modest changes. Regarding sales guidance, a "buy down" is expected, reflecting order backlogs. They remain optimistic about their product positioning in medium and heavy-duty markets. Rob Wertheimer from Melius Research asks about opportunities for recurring revenue in the data center market, given high uptime needs, and seeks clarification on recent successes in Power Systems, questioning whether it's due to data center demand or operational improvements. Jennifer Rumsey responds positively but doesn't provide detailed specifics in this excerpt.

The paragraph discusses the strong performance and strategic considerations of a company in the data center and power generation market. It highlights the role of engines and generator sets, and their distribution business, in supporting power generation and data centers. Despite backup power traditionally having lower parts revenue, there is potential for change due to power shortages. The company is strategically evaluating its involvement in micro-grids while maintaining its focus on reliability for backup power. It has improved its Power Systems' operating performance by investing in the right products and overcoming pandemic-related supply challenges. This improvement, combined with a rise in volume, has led to significant profitability growth. Additionally, distribution plays a crucial role in supporting global data center business.

The paragraph discusses the strengths of a company, highlighting its strong service capability which concentrates market demand among a few large engine manufacturers. The speaker emphasizes that improvements in Power Systems should not be solely attributed to data centers, as other segments like alternators have also performed well. Tami Zakaria from JPMorgan asks about the distribution segment's outlook, noting the strong 2% to 7% growth guidance and potential double-digit growth if power generation demand remains high. Mark Smith responds that parts growth typically exceeds economic growth rates, with power generation being a key factor in the short term. Additionally, other segments like mining, oil, and gas are expected to grow in the future, supporting the distribution segment, which is valued for its cash generation capability.

The paragraph discusses the current state and future outlook of a business's distribution sector, noting its stability and contribution through aftermarket sales despite not having significant year-on-year growth. Tami Zakaria inquires about the potential impact of pre-buying on the heavy-duty and medium-duty vehicle market in North America. Mark Smith responds, highlighting various influencing factors, including upcoming regulations, supply chain flexibility, and the strength of the U.S. economy. He anticipates stronger performance in the second half of the year, with the first quarter being the weakest. The operator then concludes the question-and-answer session of the teleconference.

The paragraph announces that the Investor Relations team will be available for questions after the call, and the operator concludes the teleconference, thanking participants and indicating they may now disconnect.

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