Cummins at Raymond James Conference: Decarbonization and Growth

On Wednesday, 05 March 2025, Cummins Inc. (NYSE: CMI) participated in the Raymond James & Associates’ 46th Annual Institutional Investors Conference 2025. The company outlined its strategic shift from a traditional diesel engine manufacturer to a global power provider with an emphasis on decarbonization. Despite challenges in North America’s truck markets, Cummins is optimistic about its profitability and growth across various sectors.

Key Takeaways

• Cummins is transitioning to a global power provider with its "Destination Zero" strategy.
• The company is raising profitability guidance despite market downturns in North America.
• Investments in battery electric and hydrogen technologies continue, though adoption is slower than expected.
• Cummins emphasizes improving margins and managing investments in Accelera.
• The company maintains a strong market position in North America and is expanding globally.

Financial Results

• Cummins is raising its profitability guidance, driven by efficiency improvements and strong performance in other business segments.
• The company aims for 17%-18% EBITDA margins by 2030, with current progress nearing the low end of this range.
• Capital allocation focuses on business investment, dividend growth, and share buybacks.

Operational Updates

• Cummins is focused on decarbonizing its product line as part of its "Destination Zero" initiative.
• The power systems business is seeing margin improvements, with growth in data center power generation.
• The components business benefits from stricter emission standards, driving growth in after-treatment systems.

Future Outlook

• In North America, truck market production is expected to ramp up after Q1 2025, with a potential strong year in 2026.
• Cummins is navigating market dynamics in China and India, celebrating its 50th year in China and over 60 years in India.
• The company is cautiously investing in new energy technologies, adjusting the pace to market conditions.

Q&A Highlights

• Cummins addresses potential risks from tariffs by sourcing and manufacturing within regional markets.
• The distribution network is a key differentiator, providing comprehensive service and support globally.
• The company remains committed to long-term investments and strategic adjustments to optimize performance.

In conclusion, Cummins is confident in its ability to navigate market cycles and capitalize on growth opportunities. For more details, refer to the full transcript below.

Full transcript - Raymond James & Associates’ 46th Annual Institutional Investors Conference 2025:

Tim: me. Good morning, everyone. Starting off day three here on the conference on a strong note here with the guys from Cummins. Chris Cloullo to my left, is is continued the long standing history of having, excellent IR folks at running the the department at Cummins. And, so I think we’re just to start for for those that are newer to the to the story, maybe we just, Chris, it would help just kind of give an overview.

Cummins today is a lot different than it would have been, you know, ten, twenty years ago. So kind of just get, walk through the story and then we’ll go into Q and A. And if anyone has any questions as we go along, just raise your hand and I’ll get to you.

Chris Cloullo, IR, Cummins: Yes. You’re absolutely right, Tim. This is a very different company. I joined about twenty one years ago in 02/2004, and it’s, now we’re about five times the size in revenue and in a much better place. I think Cummins is a global provider of power is how I’d say it starting with diesel engines is our history, our one hundred plus year history.

But we also have natural gas. We go into the big engine space which gets into mining, data centers which I’m sure everybody’s interested in, backup power generation. And then we have battery electric, we have hydrogen, we have a multitude of fuels. It’s kind of our strategy is destination zero, which is taking all of our products and decarbonizing over time. And it’s it is a business opportunity for us because, you know, harder mission standards and difficult technical challenges is kind of our bread and butter.

That’s that’s where we shine. And so we have continued to grow really globally over the course of the last twenty years really and expand out into different different spaces, different avenues where certainly North America is a big piece of our business. But we have a presence in nearly every country in the world, including our global distribution network. So if you have a product in anywhere in the world, we can service it, which is a huge advantage for us. And it’s been a really nice growth story.

This year is a really remarkable year for us where in our North America heavy duty and medium duty truck markets, we expect a bit of a downturn, which I’m sure we’ll get into. And we’re raising our profitability guidance. That’s historic for the company where that’s been usually that’s the cycles that we’ve gone through, but we have other pieces of the business that have compensated and we’ve driven a lot of efficiency and improvement in the business to enable that improvement in profitability. And we’re not done. I think we’re still early in the journey on improving our margins, and really looking forward to the next hundred plus years of the company.

Tim: That’s great. Maybe to your point on the globality of Cummins, maybe just spend a minute or two, kind of taking us around the world in terms of the key geographies. You know, in a year overall from a Cummins top line perspective, that’s flat issue. Obviously, you got some markets that are moving up and down.

Chris Cloullo, IR, Cummins: So Yeah. So I’d say the big markets for us, but North America, that’s the the truck markets, the construction markets, and then the big, big engine markets, mining, and power generation being the big ones. When I go around the world, the probably the next biggest market for us is China, biggest truck market in the world by far. It’s a down market this year and still including exports is about a million trucks, which is bigger than probably the next three markets combined. So it’s still a very significant market and we’ve been playing there.

This is our fiftieth year. So this is not a new market for us. We’re well established. We have some joint venture relationships that go back several decades that really give us a good foothold in in that what is a very big market for us. And that market is starting to we’re starting to see some recovery signs.

It’s been a stable and at the low end for a couple of years, at least in the truck space. The big engine side, the big industrial side has been strong for four or five years still with, like, power generation, with mining and so forth. India is probably our next biggest market. Again, it’s another market where we’ve been in sixty plus years. Have a publicly traded entity there that’s in for our large engine space as well.

And that’s been a that that’s the market I think that has probably got the least of barriers for growth. It is starting to we’re seeing a lot of infrastructure build out that is kind of starting to see the signs where they’re getting through many of the bureaucratic barriers that were there in the past. And now it’s really starting to grow. We see a really good growth scenario in both our power generation currently, the truck market and all the industrial markets. So that’s an exciting market for us.

Europe we play a bit. I’d say we have we have a good presence there, lots of manufacturing there. We don’t play as much in the truck market there, but in the big engine side, the global that’s more of a global market where we play. And then everywhere else around the world, I think, is is the other other pieces that still are important for us. So we have a large presence in Africa and Australia and really pretty much everywhere.

Tim: Just on on China, obviously, a key driver for Cummins. If if you look at the profitability of the joint ventures over time, maybe better than if someone were to look at industrial PPI in China down 2.5%, you’d think, boy, it’s probably a difficult market to get price, probably one that, is a little harder to improve margins, but Cummins has been able, it seems, to do that. Maybe spend a minute on that.

Chris Cloullo, IR, Cummins: Very much so. Yeah. I think this has been a market where we’ve taken different approaches to improving our profitability there. And it’s a revenue driver given some of our joint venture structures. It’s 10% or so of our revenue.

It’s but it can be in the high teens in terms of our profitability overall or EBITDA overall. And then what drives it is we have our joint venture structures and we’ve moved those over time where we get good profitability out of those joint ventures, but we also have license fees and tech fees and different ways to extract value. And then we set up our components business as emissions have changed in China. They’re at Euro 6 equivalent right now. They have taken more after treatments, different turbos, different things.

And those are wholly owned businesses for us and we sell into our joint venture. So that’s been a very good growth mode for us and quite a profitable one because we’re it’s become more and more difficult for the local players to hit those emission standards and this has opened up business opportunities for us and pricing opportunities. So I think we’ve navigated through it pretty well. And I would say that we’ve also done well in terms of moving cash. So like it’s good when you have profits, but if you don’t have cash, it doesn’t make as much of a difference.

But we’ve done well in terms of getting cash from the country as well over the past several decades.

Tim: Switching it North America, you know, on the truck market that monthly orders don’t probably tell us as much as they used to. But still, we have seen, you know, some deceleration here in the past month or two. We saw some numbers last night. Does that change the view of obviously, one month isn’t, but just the trends, does it change the outlook in terms of the expectation for the year as we start slow and then we build as we get into the back half

Chris Cloullo, IR, Cummins: of the year? Maybe just how you’re thinking about that? Yes. I don’t think it changes our outlook in terms of the base market. It is we expected Q1 to be the lowest point.

Q4 was down. Production has remained at a relatively low level currently and we expect it to ramp through the year. So that’s not too surprising. The orders were stronger than people thought in the back including us in the back half of last year. And so we look at it kind of average over time and it’s still strong.

Medium duty is it was nice to see medium duty strengthen a little bit because that had been down for a couple of a couple of months. But it’s I I I we don’t read too much into the orders. I think our our long term view is what we’ve seen from the orders, I’ll take heavy duty, is it’s not pre buy behavior ahead of the EPA twenty seven emissions. It’s more of indicating that the base market is strengthening. The base market is at about replacement level, which is, you know, I guess you could tell it’s a downturn, but getting to replacement levels is hardly a downturn.

So I think we’re we’re still at a pretty stable level. The demand is strong. With freight showing some signs of improvement, I think that’ll certainly help. This is a very unique cycle. We’ve we’ve drawn out the cycle long time.

Usually when freight trends down, the our markets trend down, but it’s been just different because of a long backlog coming out of, out of the pandemic from years ago. And then the OEMs probably realizing the the benefit of building stable, as have we. So I think overall, I think we’re feeling pretty bullish about the market in terms of how it will improve for the rest of the year. I will put the proviso on there. That’s a non tariff related comment.

So that can put a wrinkle into our markets for sure.

Tim: Yeah. And just the uniqueness of this cycle as we look forward, you have the prospects of what may be the biggest ever year in ’twenty six, as we look ahead to a potential pre buy. But at the same time, you know, it wasn’t too long ago that supply chain challenges were were, with us in a big way. So, you know, the and again, that’s hard hard to to forecast. But in terms of the supply chain’s ability to ramp up and then with the view that maybe ’27 is a really soft year.

So how do you manage that and your suppliers manage that?

Chris Cloullo, IR, Cummins: For sure. I think it used to be the case where you’d get the year ahead of a emissions change even if it wasn’t not even a big price change that this customer base and customer base doesn’t like change. So they like the tried and true product. So you would get the industry would ramp up to near 400,000 truck production for heavy duty. It does it won’t do that anymore.

There’s a cap on the supply chain now. People will not ramp up for one year. I think that, you know, it’s I think it could get up in the three fifty range. I think that’s what we’re feeling from our OEM partners is the art of the possible. But to ramp up and then come back down is unhealthy for most of the business, most of the supply base as well.

And so I think you’ll see it a little bit more muted. And from our perspective, the pre buy is not helpful for us. I mean, we’d rather have a steady build that, of course, would help us. So we’ll see how this works out. We think it’s if it we do expect some level of pre buy even pushing back into ’25 because of that dynamic.

It’s not going to be you’re not going to be able to get it in ’26 ahead of ’27 initiatives.

Tim: On the market share in North America, medium duty has been a big, a tailwind for you. Maybe speak to heavy and medium duty in terms of where Cummins is as we look ahead to, the ’26.

Chris Cloullo, IR, Cummins: Yes. I think from a market share perspective, we have continued to grow. And this is in North America and really around the world. We expect that to continue for the most part. I’d say in the medium duty space don’t have much more.

The competitor in that space now is really Ford. They’re mid single digits and so we provide for the rest of the market.

Tim: And that’s a gasoline product?

Chris Cloullo, IR, Cummins: Yes. Primarily gasoline product and some diesel. But it’s I think we are our position there is really very strong and that’s it’s been a journey from when I think started it was around 17% and now up in the 90 plus is is nice to be. And now I’d say in the heavy duty space, probably over the last decade, we’ve seen a journey from a little little bit below 30% to now are just slightly under 40% in market share, really good reception of our product, lot of end customer pull. And that’s what it is though when an end customer, fleet customer as an example, goes to buy a truck, they buy for the engine oftentimes.

And so they will they will you know, we provide to all the OEMs, and so we can have a good pull through that. And so I think we think there’s still some potential for us to continue to grow shares. We don’t see big chunks moving in the next few years, but our steady growth in shares is what we expect.

Tim: Yeah. One of the larger, for hire, trucking companies presented here yesterday and asked about the pre buy and their thought was, hey, EPA twenty seven, this administration likely takes a hard look at that. I think that the timing is we’re getting closer. So it’s

Chris Cloullo, IR, Cummins: got to be Two years ago is closer. Yeah.

Tim: Yeah. But but again, in terms of the the hard to answer questions, what what’s the latest view on that in terms of

Chris Cloullo, IR, Cummins: In our view is, you know, we we do think, you know, the most desired thing for the industry really is is to have some level of certainty. This is not the case, of course, right now, and and really clarity in terms of regulation. Normally, you have four, five, six years ahead of regulation, so we would have a decent idea what 02/1930 regs would be. We have no idea what 2,030 regs. We think the greenhouse gas regs are those are not not going to go into place.

We thought they were aspirational to begin with, but I think those seem less likely. The 27 emissions, we do expect some changes in those. We’ll see what they are. We do from a technical standpoint, most of the industries there or just about there in terms of development, and ready to go. And it is, it’s what is delivered with this product is not just lower emissions.

It’s for us, it’s 5% to 7% more efficient product. That’s a big economic value for when they’re sometimes number one cost is diesel having 5% to 7% more efficiency is a big big gain for them. So we do see this continuing to move. So from a technical standpoint we’re kind of continuing forward that this is, this is gonna go into place, and we’re and we’ll be ready for it. The the there is some question marks and murmurs about there’s an additional warranty piece which takes the warranty to the end of useful life.

It does add a considerable amount of of cost. We think that is probably more under debate. And we you know, I will say there’s not a lot of visual advocates for that versus detractors. So that that probably is more likely, to be be adjusted and were taken away. Got it.

And that would take away about half the half the cost increase.

Tim: Let the shift gear to some of the off highway markets and, and within power systems specifically, a couple years ago, you would no one would have probably associated Cummins with data centers. So, maybe just talk to the where Cummins plays and the role of distribution and how that, presumably as you think about more of those builds moving outside North America, how the role of the Cummins distributor facilitates that?

Chris Cloullo, IR, Cummins: Yes. Yes. So I’ll show you a few bars. Our power systems business, large engine business, you know, up to, you know, 95 liter engine, which for a power gen set, that’s about 3.5 megawatts. It’s the right and the sweet spot for backup power generation for data centers, but it also is sold into mining markets, rail and other other industrial markets that we utilize.

It’s been a really nice growth story. I would say the power systems business going back four or five years, I was traveling with our leader there, Jenny Bush yesterday. No one asked about it. No one talked about it because it was like, you know, okay margins, 12% every year EBITDA. Now we’re up near 20.

And the improvement in that has been data centers has been, kinda icing on the cake, but it’s been a lot of internal work taking out extra costs, thinning the product line, driving strategic pricing, and then data centers on top of that has really helped drive that margin forward. But the data center play is we do backup backup power for a data center. So if you have a hundred megawatt data center, it has at least a hundred megawatts of backup power. And think of that as for the for our large engine, our 95 liter genset is about the size of this room lengthwise. It’s very they’re very large, very hard to do.

There’s only a few players in the world. The key thing you need for a genset is an engine. There’s only really three providers and that’s ourselves Caterpillar, MTU. And so it is a it is a boisterous market and I think we’re seeing a lot of growth potential there. As you mentioned Tim distribution is a key differentiator for us.

Not only do we make the genset we make it’s the engine, the alternator and the radiator. We make all three of those pieces. We’re the only ones to do that. And then we have our distribution network which will take that, install it, do the wiring, do the commissioning. It’s a it’s one one stop shopping for the hyper scalers or the or the colos whoever’s building out those data centers they can come to us and we can provide it wherever in the world.

So I think we’re and we’re seeing over the last couple years, of course, massive growth in The US. We do expect that to continue, maybe not at the same clip, but it is it is growing elsewhere in the world as well. Obviously, we’re the number one player in in the China China data center market. They use slightly smaller engines, but there’s still two to two and a half megawatt gensets, so hard hard to compete in. And so we we see that growth profile there in India, in Europe as well, and we’re serving all of those markets around the world.

It’s it’s it’s exciting. There’s been, you know, people often ask us about like the deep seek, did that change anything? The only thing it did was increase demand in China. It didn’t really disrupt any of the other demand. Everybody expected certain changes in this in this industry over time.

So it didn’t didn’t, didn’t cause much of a disruption as we work with all the big hyperscalers. It’s kind of full steam ahead. We don’t think it’s infinite. We are currently building out, doubling our capacity, investing a couple hundred million around the world, UK, US, and India to raise our capacity. But it’s the way we’re approaching it is just cautiously making sure we’re investing in our current plants.

We have the assembly capability already. It’s adding machining. It’s working with our suppliers. It’s not building whole new plants because this is we’re cautious because of this. You know it seems like every boom is comes with a trough right after it.

We there’s always been an overbuild in this industrial space. And so we investing a couple hundred million dollars in this space is a very quick payback. And we see a headline of sight for that demand probably for at least the next three to five years.

Tim: And in terms of how you can protect yourself from a pricing standpoint, as you think about it, you’re probably quoting into at this point what ’27, ’20 ’8?

Chris Cloullo, IR, Cummins: Yes, we’re in ’27 now. We haven’t opened up ’28. That’s why we’re not in ’28. Yes. So we do protect ourselves on pricing.

We have long term contracts with many of the big hyper scalers with price protections in there, some cancellation clauses, things like that. But yes, we have given the movements on pricing and other disruptions, we always make sure we protect ourselves in price. It’s been a good pricing market as you might expect over the last few years with a very, very high demand and only a few people able to supply it. It’s not it’s these are tough customers when you’re dealing with Microsofts, Amazons and and others like that. It’s it is tough negotiations, but we’ve been able to price pretty well.

Tim: Yeah. I think one of the things you mentioned from a distribution standpoint that’s worth highlighting is that servicing, that the wrench turning, the difference between your big competitor and cat, that those revenues would be going to a distributor whereas or a cat dealer rather.

Chris Cloullo, IR, Cummins: Yeah. So we just have a greater value capture of the whole thing and it’s it’s easier for for the customer.

Tim: Yeah. Is the as you think about the power systems business and the margins there, going back to to cat, obviously, they have they’ve got a very profitable oil and gas business in there, but, you know, they’re gonna do 20 ish percent operating margins this year. Is that as you think about is that a historically, you lag them in a big way. Is that a reasonable target to think that margins can be closer to CAT’s E and T business? Yes.

Chris Cloullo, IR, Cummins: Because I mean on top end of our guide this year is about 20% and then and we’re adding capacity. And as you add capacity in existing plants, you get really good at incremental margins. So we do think that we still have some good runway to go here in terms of expanding margin. We did a lot of the efficiency and all that structural work within the business that gained us a few hundred basis points. But most of that is largely done, but there’s still a lot of room with this capacity expansion to drive markets up.

Tim: One of the things you talked about earlier was, as emission standards increase, there’s a kind of a content opportunity for Cummins. The components business is really where you see a lot of that leverage. If you look back over recent years, the margins have kind of moved around a bit.

Chris Cloullo, IR, Cummins: But it seems

Tim: like this year as you look in flattish revenues, you’re seeing now some steps to take the margins up. Can you just take us through what’s leading that?

Chris Cloullo, IR, Cummins: Yeah. So it’s been a up and down couple of years for the components business with the acquisition of Meritor, which had slightly lower margins. We’re driving those upward, and then the disposition of the Atmos filtration business, in first quarter last year. So that’s been a now that we’re getting apples for apples, we see a much clearer side of how do we improve margins, how do we drive them forward. And it’s and a lot of it’s there’s some a little bit of pricing in there.

A lot of it’s cost out, driving costs out and making sure that we’re being as efficient as possible, manufacturing in the right locations where we’re in the markets that we serve in the most efficient way possible. And I think that’s really been the key. Meritor has been a big piece of this, the former Meritor business driving that margin upward, But it’s now it’s taken hold and we’re expanding in the, emission solutions business, which are the after treatments for every engine. Those are that continues to grow and be a really good profit center.

Tim: Yeah. And within, we’ll talk about corporate margins in a second. But Accelera, maybe just talk about, you know, and this is one of the advantages of having a kind of a hedge portfolio between the the legacy, the base business versus the playing as we move towards this energy transition, that’s kind of the play of Accelera. That’s clearly not been moving at the pace anyone thought. So how does the company think about just kind of tapering the investments there, while also keeping obviously a longer term view?

Chris Cloullo, IR, Cummins: Yes. Yes. We definitely take the long term view. And within Accelerate, we have battery electric, and we have e mobility, which includes fuel cells, which is likely decade plus away, and then we have hydrogen generation. All of these markets are going slower.

Even slower we thought they were gonna go slower than most people thought, but they’re going slower still with adoption. There’s some places in the world where they’re maintaining a pretty swift pace. China’s a great example, but, I think we are pacing our investments for this. We we we are targeting to get breakeven in that business in 2027. We don’t think that’s likely under the current scenario because of just the slow adoption rate.

In balance, it’s probably better for the company. I mean, from a profitability standpoint, more internal combustion will continue to grow our our base business, And our overall targets are are probably, you know, running at or above, those overall targets. But we just need to be really judicious about how we invest. And you have to take the long term view, but be very critical. So as we look at it and someone who’s been asked like over the next few years are you going to trim losses?

Yes, we do expect to significantly trim losses as we go to ’27. We just don’t think we’ll get all the way to breakeven. And if adoption continues to slow that may be further reducing investments or it’s in some of it will be volume tick up. But we still see the really good long term potential in the business. It allows us to serve all the needs of the customers around the world.

And the slow pace, I’ll take battery as a great example. The slow pace of adoption has been an opportunity for us to gain share in what is a smaller market, but that is going to be meaningful in the long run. So pure plays are largely gone from the market, and the OEMs aren’t rushing to making big investments here. So we’re gaining a bigger share in in probably the battery electric space than we expected going back a couple of years, and I think that’s going to help us in the long run.

Tim: Yeah. And as it was, Air Products recently canceled a couple of big hydrogen products. So that clearly, it’ll electrolyze a business today versus what two, three years ago is.

Chris Cloullo, IR, Cummins: Yeah. And we took a pretty big charge in the first at the end of the year because of slower pace and writing down some assets and so forth. And then it’s interesting that we had a couple of our biggest orders right after that. There’s still some movement in different parts of the world on electrolyzers and some of the hydrogen production, but it is the challenges are very real in that in terms of infrastructure.

Tim: Yeah. May maybe a question that, I’m guessing you you feel that once or twice yesterday in New York just on on tariffs. Obviously, Mexico historically has been a solid, you know, footprint for for Cummins. You know, who who knows what this looks like, what happens with the peso. There’s a lot of moving pieces, but how how do you kind of frame the the risk and and where can you get a kind of potential mitigation strategy?

Chris Cloullo, IR, Cummins: Sure. Yeah. Largely, we source and manufacture where we sell. So China for China, North America for North America because historically, it’s for industrial companies, it’s been industrial supply chain is all of NAFTA or all of USMCA. So we don’t source for a lot of external suppliers in Mexico, probably very little in Canada.

And but we have some intercompany stuff that moves across the border and we have things that sell down and some trucks are assembled. So from an industry perspective, we’re probably median to probably less exposed than the industry. But I guess the concern really is what does it do to the industry? So if these remain for the long term, then it is we’ve clearly signaled and everybody in the industry knows this will come through in pricing. So we’ve had the conversations with our customers.

We have it in our most of our long term agreements already is clauses for this. So we will be having those conversations this week and we’ll continue to move forward with that. But what does that do to demand? So it’s okay if we can get the pricing for it and it kind of flows through. But if it will tampen demand, that’s probably the bigger worry.

Yeah. So we’ll see how we’ll we’ll navigate through. I think they’re, you know, making huge changes in your supply chain. We’ve changed over time and so forth. It takes years.

So that I don’t think we we I wouldn’t expect any big shifts in supply chain.

Tim: See if there’s any anyone has any questions from the audience? Okay. Maybe, talk a bit about distribution. I think a, you know, going back, I guess, it was over fifteen years

Chris Cloullo, IR, Cummins: now

Tim: at this point when you bought in, bought out the stakes in North America. So just kind of talk to the evolution of that business. Obviously, a business that doesn’t cycle up and down like your engine or power systems business. So maybe spend a minute on that.

Chris Cloullo, IR, Cummins: Yes. So we’re pretty unique in that we own most of our distribution network globally. We did acquire, we have joint ventures in North America structure for many years and bought those out in the last decade. So now it’s all wholly owned. It’s a huge advantage for us for one maintaining the relationship with the end customer.

So we have a close relationship with every fleet, every end user because they’re getting service done and buying parts and from our distribution network. It’s also the path to market for the primary path to market for our power systems business, not just data centers where they’re doing the outfit but passing through all the other power generation equipment, passing through some of the rail equipment and others, servicing the mining equipment. So it does it has a really key piece there and aftermarket is a big driver of that business as you might expect. Overall aftermarket is about 30% of our revenue, and a good very good profit driver. We don’t carve it out separately and that flows through our distribution network.

So having that owned is a really big asset. It has progressed. When we changed the accounting structure and took away the joint ventures, the profitability EBITDA percentage went down. But now it’s on its way back up and probably up in plus 12 right now. I mean it is finite because you’re distributing our own products.

So we have driven a lot of efficiencies in that operation and it’s proved to be a really, really big asset for us. Yeah.

Tim: Despite the mix tied to parts has been coming down as you’ve seen this growth in power gen. So naturally, that would be something you would think would dampen profitability.

Chris Cloullo, IR, Cummins: A little bit. But I think, you know, our like for like the data center work, that’s about on par profitability for us in the distribution network. And demand for parts is, you know, it can ebb and flow with some economic cycles, but the really biggest driver is population. And population, because we’ve gained share so significantly over the last, you know, couple decades, That usually comes into the parts sweet spot about five to seven years after after your initial purchase. And so a lot of things that we’ve gained in the past, our population just keeps growing.

Our parts consuming population keeps growing and that offsets any dampness of downturn. So we expect a little bit of parts growth even this year with the market down.

Tim: Got it. So wrap it all up. So you outlined a target at the last Investor Day two thousand and thirty get to 17%, eighteen % of your down margins. This year, you’re closing in, in the lower end of that. Yes.

What’s driving that? What and what is that a market dynamic? Is it some of the pricing coming in faster? How would you kind

Chris Cloullo, IR, Cummins: of Yes. It’s a nice embarrassment to have is when we get to the lower end five years in advance. I think it is a couple of things. We don’t expect a linear line. It’s not going to be all roses for end markets for the next five years.

We don’t expect that. But it is we’ve driven the improvements we’ve driven in engine business and components that are playing through the better than expected profitability in power systems and distribution all are contributing. It’s like all the businesses are moving in the same direction other than the accelerators I mentioned. But it’s I think we’re seeing bigger steps early on, which and it hasn’t taken away from our runway going forward either. So I think we’re feeling very bullish about achieving that.

And we’ve got a lot of questions at the time like, yeah, we haven’t seen you do that in many years. And just a couple of years on or actually six to eight months on, we’re already kind of there. So I think it’s I think we’re feeling we’re happy at our Analyst Day to raise our guide and then just a couple months later people are asking are you going to raise it again? That’s a nice question again. It really is.

So I think we’re feeling we’re very positive about the outlook.

Tim: Got it. Last one and then we’ll move on. But as you’ve delevered post merit or what are the priorities here from an allocation of capital?

Chris Cloullo, IR, Cummins: Yes. Yes. So continuing investment in the business is really important to us. That will start to wane off after ’26 in terms of both capital and R and D investment. We do expect that to step down a bit after we launch these new platforms.

So that’s key. Dividend is absolutely key. We’ve grown it for fifteen years plus and we expect to continue to do that. And then we’ve we don’t see a lot of M and A, priorities. We’re very comfortable with our portfolio, don’t see a lot of opportunities or needs to go externally.

And so that opens up us to do more share buybacks and things like that. We’ve have a long term target at 50 percent of operating cash back to shareholders. In many years, we’ve done well more than that. I think we peaked at ninety eight percent one year. So we if we don’t have a use, we have the same philosophy.

It’s always been our philosophy. We’ll give it back to shareholders if we do not have a good internal use.

Tim: Excellent. We’ll wrap there and then we’ll head downstairs for a breakout. Perfect. Thank you, Chris. Thank you.

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