The paragraph is an introduction to a teleconference for Cummins Incorporated's first-quarter earnings release. The operator introduces Chris Clulow, the Vice President of Investor Relations, who welcomes participants and introduces key company figures like Jennifer Rumsey, the Chair and CEO, and Mark Smith, the CFO, who are present to discuss the company's financial results and answer questions. The introduction includes a caution about forward-looking statements and potential risks, emphasizes the availability of non-GAAP financial measures, and directs participants to their website for additional information and resources related to the presentation.

Jennifer Rumsey discusses Cummins' strong first-quarter performance, highlighting record results in the Power Systems segment. She acknowledges the uncertainty introduced by changing trade tariffs, which impact the company's ability to predict future performance confidently. Cummins serves various markets, some more resilient to economic shifts than others, and the extent and duration of tariffs will affect demand. Despite this uncertainty, Cummins remains strategically and financially strong. Rumsey outlines plans to provide further details on quarterly highlights, sales trends, and market impacts, and mentions progress in their Destination Zero strategy, including the introduction of the new X10 engine.

The paragraph highlights several key developments at Cummins. The company introduced the X10 and B7.2 diesel engines, both set for production in North America by 2027, with the B7.2 designed as a flexible global platform. Cummins also acquired First Mode's assets, enhancing their retrofit hybrid solutions for mining and rail, emphasizing their commitment to decarbonization and cost efficiency. Additionally, through its Accelera segment, Cummins is supplying a 100-megawatt PEM electrolyzer system for a green hydrogen project in Germany, set to be the largest assembled by Accelera, producing up to 11,000 tons of green hydrogen annually by 2027. Overall, despite softening in the North America truck market, demand for Cummins' products remains strong globally in the first quarter of 2025.

In the first quarter, the company reported revenues of $8.2 billion, a 3% decline from the previous year, with EBITDA falling to $1.5 billion from $2.6 billion. Excluding the previous year's one-time gains and restructuring costs, the company saw an improvement in profitability due to increased power generation and aftermarket volumes, along with enhanced pricing and operational efficiency. Despite a 1% decrease in North American revenues and significant declines in truck production and sales, the Power Systems segment achieved record performance. Internationally, revenues dropped by 5%, but China saw a 9% increase in revenues due to strong data center and domestic infrastructure demand.

The paragraph discusses the company's performance in various markets, noting a decline in demand for medium and heavy-duty trucks in China but an increase in excavator sales. Power generation equipment sales in China rose significantly due to data center demand. However, first-quarter revenues in India decreased by 14% compared to the previous year, and power generation revenues fell by 11% due to a previous pre-buy linked to emissions regulations. The company achieved record financial performance in its Power Systems business but faces uncertainty due to global economic conditions and tariffs. Despite this, the company sees support from the U.S. administration for American manufacturing as vital and plans to invest over $1 billion in its U.S. operations. They believe their strategic manufacturing footprint shields them from tariff impacts, as they produce engines and gensets where they sell them.

The paragraph discusses the challenges faced by a company in the manufacturing industry, including potential disruptions caused by tariff regulations and uncertainties in North American emissions regulations for 2027. Despite these challenges, the company experienced a strong first quarter with improved EBITDA margins, largely unaffected by tariffs. Although recent economic changes and regulatory uncertainties have led to weaker-than-expected orders and unlikely pre-buys for the year's second half, the leadership team remains focused on customers, employees, and shareholders. The company enters this uncertain period from a strong position and intends to provide guidance once uncertainties diminish. Revenue in the first quarter was strong at $8.2 billion, albeit a 3% decline from the previous year, with sales slightly decreasing in North America and internationally.

The paragraph provides a financial overview of a company's performance, highlighting the impact of the Atmus separation. Year-over-year sales showed a 4% decline, largely due to Atmus's divestiture, but EBITDA remained stable at $1.5 billion, or 17.9% of sales, compared to an adjusted $1.3 billion or 15.5% of sales in the previous year. The improvement was attributed to increased power generation and aftermarket volumes, favorable pricing, and operational enhancements, though offset by lower North America truck volumes and the Atmus separation. Gross margins rose to $2.2 billion, driven by pricing and aftermarket gains. Selling, administrative, and research expenses decreased slightly. Joint venture income and other income both increased, with contributions from technology fees and investment gains, although foreign currency revaluation had a negative impact.

In the recent quarter, the company reported a decrease in interest expenses to $77 million, largely due to a lower average debt balance and reduced interest rates following the Atmus separation. The effective tax rate was 23.9%, with favorable tax items increasing earnings. Net earnings were $824 million, significantly down from last year's $2 billion, which was largely attributed to a $1.3 billion gain from the Atmus separation and restructuring costs. Operating cash flow saw an outflow of $3 million compared to a $276 million inflow the previous year, due to higher working capital. Segment performance varied: the Engine segment's revenue fell by 5% to $2.8 billion, but EBITDA increased to 16.5% thanks to new product pricing, aftermarket volumes, and efficiencies. The Components segment's revenue dropped 20% to $2.7 billion, with EBITDA decreasing slightly due to reduced demand and the Atmus separation impact, though efficiencies provided some relief. The Distribution segment showed growth with a 15% increase in revenues to $2.9 billion.

The company reported increased profitability, with EBITDA rising to 12.9% of sales, driven by various factors like higher power generation volumes and favorable pricing. In the Power Systems segment, revenues rose 19% to $1.6 billion, with a record EBITDA increase due to strong demand and operational improvements. Accelera's revenues increased by 11% to $103 million, despite an EBITDA loss that was reduced from the previous year. The company continues to face uncertainty due to trade tariffs affecting global trade. However, Cummins remains financially strong and is focused on cost management and operational efficiency while awaiting clearer economic conditions to reinstate its outlook.

The paragraph discusses several key points during a business call. The speaker emphasizes a focus on strategic priorities amid a complex operating environment due to the ongoing impact of tariffs. Chris Clulow is acknowledged for his leadership in Investor Relations, as he transitions to a finance leadership role in operations and supply chain. Nick Arens is announced as the new Investor Relations lead. The call is then opened for questions, starting with Jamie Cook from Truist Securities. Jamie asks for insight into the impact of tariffs on the business and which segments are most affected. Additionally, Jamie inquires about backlog visibility and handling pricing risks related to tariffs. Mark Smith plans to address the first question before passing it to Jen for further details.

The paragraph addresses the uncertainty and challenges posed by evolving tariffs and their impact on the broader economic environment. The speaker highlights their company's efforts to mitigate these effects and mentions that any incurred tariffs will be passed on to customers. They note a lag between cost and recovery and promise to provide updates on tariff impacts as results become available. Different markets are experiencing varied effects, with some orders being reallocated in the Power Generation business and a potential boost in aftermarket sales due to delayed purchase decisions. The Engine and Components business is particularly sensitive, with customers pausing new truck orders. The company plans to continue investing in new products and adjusting prices accordingly.

Mark Smith comments on the current uncertainty in the market and how it has led them to withdraw guidance rather than continually adjusting it. Despite the uncertainty, Smith reassures that it is not an indication of widespread issues in short-term momentum. Jerry Revich from Goldman Sachs congratulates Chris and Nick and inquires about the strong performance of the Power Systems segment, particularly in relation to the targets from Analyst Day. Smith responds by noting that the strong results are primarily due to operational performance with no significant one-off items. He highlights higher-than-anticipated aftermarket sales as the only unexpected factor, but overall indicates that the improvements in the business are solid and ongoing.

In the paragraph, Jennifer Rumsey discusses Cummins' strategies and expectations regarding potential changes to EPA27 regulations. She mentions that while they expect some revisions and a rulemaking process around greenhouse gas Phase 3, leading to new regulations effective in 2030, they still anticipate NOx regulations in 2027. Cummins is collaborating with the EPA to explore options for reducing costs and impacts, focusing on aspects like extended emissions warranty requirements for customers. Despite uncertainties, Cummins is continuing to invest in and plan for launching new engine platforms in alignment with the 2027 regulations. Mark Smith notes that this situation is applicable to all engine manufacturers.

The paragraph discusses the uncertainty and potential impact of existing tariffs on the company's financials. While the effect of tariffs was negligible in the first quarter, the impact is expected to increase in the second quarter and beyond, contributing to uncertainty in demand outlook for the latter half of the year. The company anticipates a lag between ordering, incurring, and mitigating those costs, and plans to provide updates on the tariffs' financial effects as the year progresses, assuming no changes in tariff policies.

The paragraph discusses the potential impact of economic conditions and tariffs on Cummins, particularly focusing on equipment consumers and suppliers. It conveys that the full effect of these factors will become more evident in the latter half of the year. The company is preparing plans to manage costs and intends to pass on some tariff impacts, although there might be a delay. Angel Castillo inquires about the growth in aftermarket parts demand within Power Systems, especially concerning data centers and large backup generators. Mark Smith acknowledges the question, indicating that there's significant focus on data centers' role in driving aftermarket demand, and hints at possible shifts in asset usage or power supply considerations.

The paragraph discusses the strong revenue growth in the aftermarket parts of the Power Systems business, attributing it to various applications, such as mining, oil and gas, marine, and general power generation, rather than a surge in data center demand. The improvement in the Power Systems business is attributed to a broad-based enhancement, including effective margin management by the leadership team. While data center demand is acknowledged as positive, the overall story of improvement is attributed to various other factors. Additionally, a strong partnership with the distribution business is highlighted, playing a crucial role in servicing customers. The paragraph ends with some light-hearted commentary regarding updated presentation slides.

In this paragraph, Mark Smith discusses the performance of the engine business, particularly focusing on margins and JV income. The engine business margins have improved due to past strategies, though JV income's boost from technology fees may not sustain. In China, demand for engines has been stable, with no significant changes. Product coverage costs have declined, positively impacting results, and strong parts demand has contributed to improvement. However, the future of parts demand remains uncertain. The company has also implemented additional pricing for new products in the light duty segment. Overall, the engine business is performing well, especially in the second quarter.

The paragraph discusses expectations and concerns regarding truck demand in the latter half of the year, with momentum currently declining. Despite strong Q1 performance, there is uncertainty due to factors like tariffs and a softening North American truck market. Jennifer Rumsey emphasizes the company's focus on key areas discussed previously, such as improving gross margin, expanding capacity in the Power Systems business, investing in new engine platforms, and managing decarbonization and regulations. While navigating these uncertainties, the company remains committed to these investment strategies. The operator then introduces a question from David Raso of Evercore ISI, who seeks clarification on concerns about demand destruction from a macroeconomic perspective.

The paragraph involves a discussion about the uncertainty surrounding potential cost increases due to tariffs and their effects on the truck industry. Jennifer Rumsey emphasizes the uncertainty faced by OEM and fleet customers who are adopting a "wait-and-see" approach amid economic and tariff uncertainties. David Raso seeks quantification of the company's exposure to costs related to Mexico and China tariffs and inquiries about mitigating strategies. Mark Smith declines to provide specific details but mentions compliance with MCA for U.S. engine plants, highlighting exposure to China and Mexico tariffs while emphasizing the significance of their on-highway engine market.

The paragraph is part of a conference call discussing a company's performance, focusing on its data center market involvement, particularly in China and the U.S. Rob Wertheimer from Melius Research asks about the company's operations and market presence in the data center industry, specifically in China. Jennifer Rumsey responds that global trends such as AI and cloud digitization are driving data center growth worldwide, with significant development in the U.S. and China. The company serves these markets through U.S. and Chinese plants, including joint ventures. Chris Clulow adds that backup generators in China use engines produced at a Cummins factory in Chongqing, highlighting the company's leading position in the backup power market for data centers.

In the discussion, Jennifer Rumsey addresses concerns about potential order cancellations and delays in the PowerGen business, clarifying that while these instances are not significant or widespread, they do occur and the company can reallocate resources accordingly. She notes ongoing demand for earlier delivery of some products. Additionally, Mark Smith mentions that this business segment is less affected by economic sentiment changes. The conversation then shifts to tariff mitigation strategies, with Rumsey explaining that the company has implemented inventory strategies and dual sourcing to address potential tariff impacts. Although uncertainty around future tariffs remains, the company has a comprehensive strategy to adapt, including exploring alternative options that may take time to develop.

In the article's paragraph, Mark Smith discusses the challenges faced by the supply chain and other groups in managing operations with suppliers and customers, without providing further comments. Tami Zakaria from JPMorgan inquires about the price cost in the first quarter, to which Mark Smith responds that there was a 2% gross margin improvement year-over-year, with a 3% improvement in price cost and a 1% negative volume impact. The discussion also touches on the geographic production locations for Cummins engines and components, highlighting that while Cummins engines are primarily manufactured in the U.S., distribution involves reselling parts from various sources. The complexity, particularly regarding tariffs, is related to the supply base and specific suppliers. Following this, Steven Fisher from UBS commends the company's performance in the quarter.

In the paragraph, Jennifer Rumsey and Mark Smith discuss their company's product launch plans and the impact of NOx regulations and tariffs on trade and market guidance. Jennifer confirms that the company is on track with product launches, including new engines planned for 2026 and 2027. Despite existing challenges, such as disappointing truck orders and disruptions in the global supply chain due to tariffs, Mark emphasizes the need for more data points to restore market guidance, highlighting the impact of slowed freight activity on the U.S. road freight sector.

The paragraph discusses the uncertainty in the industry and its effects on economic confidence and activity. The speaker emphasizes the need for clarity and more data points to assess the broader economy, particularly regarding capital goods and the on-highway sector. Chad Dillard from Bernstein asks about the timeline for the impact of tariffs on the company's profit and loss, including inventory and cost considerations. Mark Smith responds by acknowledging the complexity and numerous variables involved, stating that there will be minimal impact in the first quarter, but a growing impact will emerge in the second quarter as tariffs and mitigation actions come into effect.

The paragraph discusses the uncertainty surrounding the impact of supply chain issues on a company's second-quarter results. It highlights that the effects are still evolving due to complexities in the supply chain, and compares this company's situation to others in the market. Chad Dillard inquires about the potential impact of Section 232, which involves a U.S. Commerce Department investigation into foreign production of medium and heavy-duty trucks and parts that could lead to tariffs. Jennifer Rumsey explains that the investigation might result in tariffs on foreign trucks and parts, emphasizes the company's focus on U.S. manufacturing, and mentions the ongoing public comment period. She advocates for exemptions to minimize negative economic impacts. The operator then introduces the next question from Jeff Kauffman of Vertical Research Partners.

In the article paragraph, Mark Smith discusses the impact of currency translation on their business, mentioning that if they didn't use hedging techniques, a weaker dollar (except against the pound) would be beneficial. However, due to global organization and simple hedging strategies, the net impact on profit and loss is minimal, less than $10 million. Sharp shifts, like those in Nigeria and Argentina, can be challenging, but overall, the company remains close to neutral. Chris Clulow addresses the question about the average selling price (ASP) increase in Power Systems, explaining it's hard to gauge due to varying product sizes. There is lower demand for smaller items like RV generators, but strong growth in data centers.

The paragraph is the closing section of a teleconference. It mentions that despite some variability, there is strong performance expected in the first quarter, leading to a higher average selling price (ASP). The operator announces the end of the question-and-answer session, and Chris Clulow delivers closing comments, expressing gratitude for collaboration over the past years. The Investor Relations team remains available for follow-up questions throughout the day. The operator concludes the conference, thanking participants.

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