CMI - Earnings call transcript Q3 2018

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Unknown Speaker

MANAGEMENT DISCU9SSION SECTION

Operator

Good day ladies and gentlemen, and welcome to the Q3 2018 Cummins Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

As a reminder, today's conference is being recorded. introduce for to conference, like would your today's host Mr. I Vice President Smith, of Mark Finance. ahead. go please Sir,

Mark Andrew Smith

Thank everyone, third Good discuss you. morning, Cummins' today our results to teleconference for the quarter XXXX. and of welcome to

prepared today be our Financial and available questions Linebarger, Chief for me Officer, our Rich Officer, our Ward, Chief are Chief your Officer, and Joining Executive remarks. Chairman Freeland, Tom Operating and Pat President our will after all

or be the of Before the hear beliefs we regarding of future. strategies information that forward-looking express of hopes, of please the statements intentions forecasts our Act meaning today start, you given statements note some Exchange XXXX. the consist Such on and expectations, will will within Securities

forward-looking such and of number Risk is most disclosure Our differ the XX-K. slide results Exchange More with actual uncertainties. the on Report and available Commission, and future section filings our could risks statements in Form in of a Factors forward-looking deck and risks in statement materially regarding filed projected Annual information in such particularly those uncertainties of the because the from Securities recently our

for will we you the measures of financial discussing to measures and GAAP of reconciliation During certain course our non-GAAP be will those call, this website to the measures. refer financial

the release cummins.com, (X:XX). under at website, statements Our of today's a and and available of Media press our on webcast financial the copy with a are copy of Investors heading

to Tom. over it turn I'll Now

Norman Thomas Linebarger

business quarter segments quarter. and of you of or Thank and the in and with year. grew XX.X% a our quarter details operating the driven ago. sales EBITDA strong for with a a discussion demand percent impact XXXX. of warranties. to We benefit of engines China year then in Pat sales forecast more or all higher both sales profits increased North most by more to year-over-year, on-highway $XXX off-highway compared strong of million EBITDA year of increased for third was ago. improved EBITDA $XXX our XX% performance and XXXX, in to XX.X% markets due parts XX% Sales in volumes, an you, by summary million, and demand with through material major XX.X% by Mark. finish XX% compared to morning. record than ago, higher revenues construction for both a to our sales increase for for America and year segment markets. a of quarter higher markets. compared quarter America. growth Good Distribution North I'll start quarterly this our the of with third take the our service XX.X% in third costs was results and of lower new pricing offset in geographic our a delivered financial of Revenues outlook third of were for in growth billion, the $X.X and compared and Engine record will

and percent sales was quarter and EBITDA because targeted increases X% throughout of compared of measures. price the to control in of have dollars Third third quarter X.X% XXXX. improved EBITDA XXXX cost

in of a sales third XX.X% sales was quickest equipment the and a to truck and restructuring in a reduction improvement through in automated the for Fuel European dilutive year of to interest grew the in the actively margin North same the we which quarter Cummins effect automated transition business, the North adoption from compared strengthened $XX quarter a growth. an year-over-year, In rates leader Third oil have of in offset the shorter-range adoption technology. trucks trucks. lower transmission sales for positive the markets The in are demand EBITDA customers, sales in $XXX in and to Power higher anniversary economy marine XX.X% the strong steadily segment this a automated and the one-year America we growth. year, year for has XX% and risen transmission developing quarter of and its and markets transmission X% third sales business technology business XX.X% Components XX% revenues reached America EBITDA quarter. domestic in a new increased million. at higher the in revenues was our benefits technology increased in automated third third China. lead Components XX%. the rose the of There's in over driven to even declined our contributed the North record previous America. in demand X%. with of applications grew with truck with to the gas sales and drove North Sales business, an the heavy-duty where strong with customer drivability now offset generation by along for by in segment of by XX.X% segment was Increased international EBITDA EBITDA of adoption Systems electrified power rates America of in urban million third increase impact share quarter a quarter share X% partially benefits last International powertrain is expect ago. or build compared actions. sales ago, loss revenues. to due quarter The market in products

some I on markets. international and the markets our will Now North in for key cover of comment the some XXXX, largest of I third our quarter America, will with of performance then starting

automated to while engines trucks end American business. markets in quarter North grew due ramp-up of third transmission and of the production third XX% in our demand quarter Our of increased the growth in by grew revenues the North of Industry in sales America most XXXX heavy-duty XX% XX%. in heavy-duty

trucks with the third medium-duty the near market improving year. levels, in share year-to-date through up Demand XX% remains medium-duty up in XX%, and from truck market record X.X% Our XX% of quarter year-to-date. production August was last industry

support Total Our equipment market to year third shipments to market track XX% on and is medium-duty pickup share reflecting for North customers America North year ago a are the American be Engine up year. XX% sales for a our the XX% through to construction in the August, increased flat ago. from truck compared year-to-date in quarter, a full truck increase revenues while XX% in North increased were general from us strength market the offset X% Higher in and important was in oil ago. flat. compared an a high-horsepower demand and will investment year Current fracking, in oil economy markets gas Engine America. for sales were spend. mining marine U.S. to in North to sales America flat customers lower by continued in construction prices

global in this While in production. Revenues for power the seen half market to we third chain pipeline XX%, demand reduce in the constraints consecutive their second OEMs have American center fundamentals industry vehicle for quarter, Permian to generation with for orders XXXX were to the due North grew challenges higher constraining recreational production. Basin impacting supply by Orders data due remain markets. the increase shipments and strong, the ability above

year third in by compared international quarter a to Our XXXX increased ago. of the X% revenues

Year-to-date, for to ventures our Third was X%, ago, a trucks in lower compared a year demand in medium $X.X of year. decreased market were September markets. and XX% joint quarter our Industry XX% in XX% China to billion, line sales expectations. heavy-duty compared through China due with by share revenues in on-highway including last to decrease

share quarter OEM engines market the our in of as power XX% at first penetration to Third our improved partners. we from the half XX% increased year, of

partners our preparation VI diligently with in launches work We continue to NS for new in product standards XXXX. of emission

of to NS in XX-liter China. third quarter our a on share first the sales with certification our certified Industry grew was standards with XX% Cummins in and Demand received making by China aftertreatment heavy-duty engine in from recently quarter ISXXX year X%, for third we increased the system, full-year trucks light-duty engine, line the system, engine example, VI X% turbocharger and a excavators market fuel For ago. our guidance. fitted in the in heavy-duty the

increased our into domestic in for due Our mining shipments business oil increased demand year-over-year. up X%, market gas share increased and sales growth for to centers XX%, September customers, Revenues market. Systems equipment engine generation power through in and to Power for the China data X% higher to

revenues million, economy domestic increase for resulting by an and in weak of compared from joint infrastructure revenues market growth year recovering a to demand quarter driven from is including due third economic XXXX. ago. XX%, $XXX in unchanged the investment. year share Year-to-date, our a ventures, Industry XXXX. ago, improved our to a XX%, India, to a increased compared strong trucks XX% quarter by primarily were XX% Third Brazil, production In increased truck

the in Third quarter years. were strongest revenues four

on XXXX for outlook overall and our provide me end and individual comment regions let markets. then Now,

company XX%. XXXX total XX% forecast revenues to We continue up be to to for

XXXX. trucks industry our are in XXX,XXX up North America compared heavy-duty maintaining for at We to units, forecast of production XX%

market expect production industry at We range forecast to year-over-year. XXX,XXX be our our are continue share share the the market, maintaining of of reach medium-duty up In to we for XX% to truck XX%. units, gave market XX% the to we high-end

our XX%. this market increasing our share the are to prior market We expectations XX% top in of to range guidance end of

unchanged trucks highest expect ventures, for expect years. very China, year, full revenues, joint strong we from shipments prior level continue the to and XX including at North to engine in be pickup flat our We compared X%, up the in for our XXXX America a to to In be guidance. domestic

the our next are NS and XXXX. We trucks million for of sky of demand of impact X% months that, the and implementation NS heavy-duty the before certain sales replace regulation trucks vehicles the and incentives about lower the X to V for given of NS of is units, to medium the pre-buy VI older medium Having in than for China middle which XX the over a potential heavy-duty initiative, XXXX. said China's months, blue outlook maintaining stringent in uncertainty includes more III truck X.X there

number primarily joint XX% market year-over-year, be demand. up in expect projection. forecast. our X%, we the government our regulations our forecast for XXXX, by to demand. of The recovery trucks In previous higher sales higher due introducing the in segment and to government surprised market, light-duty the a India, truck of for prior in industry including Brazil, is year-to-date market in medium by higher in we allow consistent In increase in production our heavy-duty we share decline to XX% we record with full-year previous truck August XX% increase that a loads regulations remains the the for consistent to China Improved and XXXX. guidance our lower outlook of share up Indian XX% caused and designed with produce demand due expect be of trucks XXXX. be followed in XXXX light-duty Brazilian in and we forecast demand truck XX%, revenues September. share weak truck in expect to a we sharp offset changes strong, policy from per industry to compared to ventures new in than total market, domestic growth In continue trucks vehicle. expect July, full expect trucks July for to Underlying exported truck X%, prior our In a to Brazil to Argentina. In now truck demand year Our XX%

and and engine of shipments expect These shipments with gas our mining XX% shipments compare and from up to our XXX% prior increase previous and to horsepower oil XX%. down forecast gas XX% oil up high We our XX%, XX%, respectively. up guidance global up mining of growth,

half growth size in the and In operating sales, utilization we expect higher shipment field. per moderated engine from cash share and continue the earnings sales full-year and benefit to the of summary, record in deliver outlook first part we EBITDA, level of from the While seen due flow in have our to maintained year, is population to engine XXXX. rebuild and

range EBITDA to the automated margins the our XX.X% EBITDA costs. transmissions trains, two including in of of represents impact campaign startup XX.X% of midpoint, incremental and XX% full-year Our power tariff-related businesses, but at excluding electrified

for our plans costs tariff-related previous X, and million of more expect due from through chain prior tariff a unchanged. $XXX estimated the in expect down $XX cost than the million, offset combination $XX finalization are be of America the to Tariff-related XXXX, List North and to remain our projections, million aftertreatment and we estimate pricing XXX costs in campaign in XXXX We majority of Section costs our supply adjustments. the to expected and of of

consistent of with QX, of billion operating the our allowing $X under just repurchases, shareholders form share delivered business in we quarter, XX% the return in flow, During us year. our flow invest return dividends and million cash we to $XXX in and of cash shareholders. operating this plans returned to cash cash to In to

cash billion of to new in Our continue a plans approved the underscoring authorization, shareholders our $X recently future. returning Directors share repurchase Board to

at with that while profitability for to extending prior that pursue like Diesel for cycles that, Intent both products add strong we Navistar's regulatory we XX% today. Isuzu also week, had We will maintaining the track Hefei. will increased thank offering approval of powertrain that already engines of midrange With performance Motors The growth leading domestic venture meet continuing record to will on to venture our actively received signed developing to track Cummins operations joint heavy-duty standards. new quarter. supplies our continue equity improving Navistar on previously you your returns. area. manufacturing and operations. explore joint result in the also companies. Letter strong its partnerships opportunity for to this We're opportunities its return acquisitions company. and continue shareholders. partnership to focus partnership Last announced new facility to engine and of Motors a and would profitable its V diesel full-year October, to NS well as VI of growth interest as results, engines, record have a NS to the JAC I announced global for purchase cash continue over In We and optimistic We're we will some China light-duty for in markets at its JAC This for

strides are significant our also in making in strategy more growth the profitable executing to future. drive We

it turn to me let Pat. Now over

Patrick Joseph Ward

the performance Thank you, update financial an some our segments will start the quarter morning, a of with I in provide Tom. I Good of XXXX. then the operating for company's of on detail. more before the everyone. third outlook review discussing results remainder will

research global XX% dollar pricing, construction Latin demand from year margins from favorable sales, lower points were and more $XXX in Gross XX% revenues power from and year generation Earnings rental were share primarily truck last year and A related XX.X% new offset due Sales sales ago. than of demand of decreased a negatively last represented record in China. by sales expense International a lower year than of higher XX.X% Joint of partially million by admin for from of as China Components year increased sales was a the record markets. generation to $X.XX higher which expense, quarter markets. acquire higher the stronger million earnings compensation a international America, $XX impacted in spend compensation sales to absence assets of to revenues, in $XX before million for $X billion, technologies to of recognized in the improved from truck India, Distribution a million were $XXX on-highway, and due last tax, year in year a $X.X driven compared equipment. the Net a Engines million $XX million percent due a sales expense. the million last quarter each as our million stronger Third offset development demand warranty the our of levels impact our income ago variable or to of grew were power than EBITDA ago. variable compared for volumes, U.S. depreciation XX.X% X%. and to quarter to more production in in by of improved a by third from up the offset Other warranty from and segments year an on-highway of diluted of XX.X% by to more and from result increase compared third research positive costs sales. (XX:XX) of to and to decreased $X.XX or Sales development or the sale (XX:XX) and by or stronger U.S. from ago by meet our dollar. for as gain and which lower operating America, a construction and a increased mainly income venture amortization to $XXX North business. year currency due $XXX a industrial due investment weaker and XX% headwind quarter, Increased of Selling, demand of X% and million basis XXX percent interest, $XXX tariffs. stronger were ago. quarter per the

to $X.XX related rate tax the reform discrete of $XX XXXX favorable Our items, share tax or in of XX.X%, included which bill. the was quarter which million most per

have In rate discrete addition effective of to compared to XX% projected now we XX%. this guidance tax lowered our items prior full-year to excluding our

discrete in net Excluding or was quarter tax to $X.XX million per third $XXX the diluted Cummins attributable the items, share. the income

to the on Moving operating segments.

North increased construction of result America. both EBITDA XX% stronger as for America. the increased Segment truck a equipment revenues some performance on Let segment, me of revenues quarter, full North in year. demand China production last driven by I quarter Off-highway by concluded the review in the and in in was million with and sales. increase costs. primarily than On-highway favorable then outlook of the billion expense were XX.X% for compares profitability ago. from or company's an cash to a XX% the material the or then increased pricing will year. XX.X% warranty offset for the their grew year from in volumes, revenue revenues actions comments by Benefits flow. Engine million In expectations summarize in and more $X.X the the XX%, $XXX year This and And and full $XXX quarter stronger

to to guidance XX%. Engine of to up revenues full-year compared XX.X% a XX.X% prior to XX% segment expect We be

of for to the margins remains of range XX.XX% forecast in EBITDA XX.XX% sales. Our

year. billion, were segment, partially a compared unfavorable related million than of for to in $XXX last and primarily of assets of quarter pricing or higher XX% low increase Distribution by $XXX quarter expense lines and $X.X movements generation increased an of to higher the stronger demand rental year by Benefits year. XX% revenues in million last sales our of favorable favorable third power sales by variable ago. was and offset all the The the gain sales, North or America of absence offset X% growth the more divestiture compensation the across impact compared product EBIT pricing to the U.S. a equipment dollar. from a driven to currency X.X% For

Distribution For guidance revenues to is with projected EBITDA and margins X% in XXXX, revenue EBITDA to be XX% unchanged of X.X% and to to of the range increase sales. X%

were sales or contributed lower billion segment, impact For growth. increased increased truck due stronger in XX% grew of X% the $XXX due last decline America by is of ago. of XX.X% in venture increase heavy-and Eaton the sales while X%, quarter to the the million revenues by Sales million $X.X Revenues XX% for offset percentage Cummins demand sales international to higher Segment to venture. Cummins in XX% EBITDA quartera, the to XX.X% in with North the compared year. $XXX joint joint Europe. a year Components from The in EBITDA The production, to or medium-duty Eaton China

benefits grew our an generation In guidance. line as XX% prior the U.S. increase continue XX.X% from dollar. to equipment result sales gas Industrial to Middle Systems the revenues $XXX a X% million positive billion, year, demand stronger to segment, XX% sales to impact with million in Power XX% revenue ago. due were declined and in to of expect restructuring America, be year the a to driven up were of to XX% power the India. XX% previous by our increased for of by customers of And North in the $X.X EBITDA expect reduced as a Power East X%, quarter by of EBITDA from the actions. in to sales sales, XX% Marine we we last and impact to oil in guidance higher by demand or increased by XX.X% prior or higher XXXX, of sales negative of third generation increase of XX% XX.X% $XXX of For sales the compared for and to the quarter offset up the range equipment.

expect to For Power XXXX, of to we prior XX% XX% XX% segment revenues increase versus guidance Systems to now up our XX%.

guidance a be sales focus mining of near-term launch decline in seen and the in were oil losses gas result Electrified of purchased on XX.XX% to In customers XX.X% in performance. our in to the EBITDA new get and XX.XX% between and million XX%, of a invest previous the Power continue have improvements remains a $XX to XXXX to orders Although we continued markets as strong, are margins demand modest compared to as products closer segment, equipment. redeploying we operational to EBITDA products. as recently forecasted of

$XX the to net for full project revenue now year, million. the company And we a expense XX% of $XX this of For growth year. expect to to continue million XX% we

currency benefit Foreign first offset of in headwinds full are to the now prior half the of the an for fully million we experienced to estimate the year that the compared of year. in half the $XXX a revenue increase second expected to year of

and at flat previous the expected fourth a our Our in expect our million $XXX million to in line negatively guidance. ventures XXXX with by of the be we third joint quarter headwind current were quarter $XX in impacted to Income from year revenues compared ago is rates.

unchanged train EBITDA the be impact previous are XXXX, venture and projected margins Full-year XX.X% electrified from the We of Eaton EBITDA to campaign joint XX.X% XX% the the and power margins our business tariff-related costs. including forecasting to of to incremental all for be Cummins but the in guidance. range are excluding

expenditure for activities long-term third flow cash year year year-to-date higher expect total sales. anticipate million, performance we bringing million. XX% Capital our of the be the year. within will of to range And XX% to start was we to $XXX full million, $XXX $XXX capital $XXX from remain last And during the generated of for quarter than Cash the million operating $XXX the Turning expenditure will to in cash million guidance flow. to $XXX quarter the million. operating was

during the announced teleconference, earnings In year. our the previously shareholders third previous generated operations million the accelerated and program $XXX forms the indicated share X.X repurchased made cash of our $XXX this to with dividend share we we payments approximately XX% in million return quarter As million. dividend of repurchase we to buybacks and shares from plan totaling

growth For summary, of the year, X.X have which repurchase third $X.X year deliver in of earnings we of in with first we to In operating includes sales, very track EBITDA strong $XXX up million EBITDA, XX% XX% months and we flow returned flow operating delivered over per million. shares. nine quarter sales, XXXX. remain And the approximately billion the operating cash performance in the from last on share cash record and

to back Now Mark. it me turn let over

Mark Andrew Smith

Pat. Okay. Thanks,

call. to Q&A the Now we're ready of to the move portion

You please try queue, question in to initial and and your and can limit questions follow-up get a back please. related then

Operator

with of comes line from Sachs. Goldman first Revich Jerry question the Our

Jerry Revich

morning Good everyone. hi. Yes,

Norman Thomas Linebarger

Hi, Jerry.

Jerry Revich

the you you could will? this to China What you year, how others? on enforcement you enforcement if the out it? the terms opportunity reviews, play compared see the opportunity the incremental wondering for cycle as if of I'm expect timing is VI Tom, actions folks. then set next you expand of the And do line National in emission to What's components on

Norman Thomas Linebarger

Yes.

of many, now is many for will across cities will of on then was still for cities be I each with going across originally implemented engines. how about the I about some up national not XXXX plan What think is how going locked now said then. obviously talk which mean, component first there's I just in have actually pulled The the to economic bit actually. ask the the now. pollution go versus middle XXXX. things, and full clean earlier country NS challenges implementation the to the is me of I'm were I China's it numbers VI XXXX. the initiative, I let to effort blue is other will sky going to cities country, happen, the little that to think clear the And reduce the NS XXXX, and down thing uncertainty VI Mark comment how as the play I'll the on out. given the But some even environment, country, a and forward they up that as would've though moved middle was So

we'll So see.

be of XXXX. are the our programs We middle driving to for ready

mentioned In launched in to that, program script I addition offering they've my NS in turn vehicles. about this to also III incentives

So not if compensated road. you drive And turning what to-date. has that's and positive in can get newer on the demand, an polluting have but on to to course, older a truck, already purchasing older of it off a trucks trying you which, impact more it truck, sure is impact for going demand have we're had

not over growing for next happens strongly. the what is see we'll need months. in the trucks So given that course to X as the economy XX There's also of this general decline

coming these in do. why clear to is remarks, in over demand to the are especially I not likely next my it's And mentioned factors months XX all just what together. that's So, me,

we both highlight to us. our Mark, gain big further sell, Our want for opportunity opportunity each which and opportunity though for is pretty clear and that And, might growth see engines a components of sales addition represents into market we numbers. you share

Mark Andrew Smith

got over be regulations in XX% Yes, about million India, in, similar components of incremental well, to going China. revenue about China and and India $XXX because we've we've Jerry, got plus that there, opportunity coming in is of an as

Jerry Revich

that of surprise demand How what the restructuring standpoint would pieces in Can quarter Okay. Power played much margin that the negative this benefits in a was talk you really mining was moving from Systems? Thank Systems, and you. just I strong year-over-year despite performance other then imagine particular. Power quarter, improvement? any in out And for in about the

Mark Andrew Smith

cost most is I there's It's and and just it a of factor really, operating really tight reduction chain performance supply side the environment. volume. of good one And on think combination Jerry. the a no

Norman Thomas Linebarger

of playing oil those guess cost restructuring over we've fundamentally gas, expecting through. and to volumes and been mining that, activities that yet the broadly even to add and what's we're on and increasing, but mentioned several know, we've why worked business, in alternator now and I as as those benefits as lower now There's not through pretty to restructuring structure. speaking, most we much a we're program volumes in years time you we with strong in are over benefits were they're had improved That's get higher we've and going tracking some margins. of seeing the still seeing originally when still a

Jerry Revich

Okay. Thank you.

Norman Thomas Linebarger

Yes.

Operator

Jamie next comes Thank of Cook from line the And question Credit our you. with Suisse.

Credit Jamie Securities I Please XXXX, Tom, your extended particular to - talking Your don't Good L. understanding on are morning. questions. LLC about ahead. sort line is guess in open. (USA) the of into XXXX, side. about heavy-duty a of but Hi. Suisse truck want you customers visibility probably lot Cook talk go two

So of. could is markets earnings year? correct we can grow And to to XXXX most other feel they sort question you earnings comfortable trying the base talk with I as just off see which keep investors then of next getting about understand to the you that from growth they're think

we do add that when the campaign the think So, product the think back in base, we we and base include XXXX right things? as about we about can costs? Or

Norman Thomas Linebarger

Thank L. - are about market plans, you. and talk about LLC markets Rich talk let bit a he's campaign. Okay. I'll close attention little Jamie to me together Securities the been bit where Suisse then Cook Credit the back paying since been Let little a (USA) pretty he's and come

Richard Joseph Freeland

Yes.

Let bigger circle of you follow around the two then can up. me just Jamie, markets, three or

truck North with Let's America. start the

right maybe say what mean numbers; data we're retail You looks still spot seen we it very leveling continues see sales to, pay good. now now – between I of now The going are the XXX,XXX we're down strong. I okay? that and units, strong. some don't are see but backlog that And of freight the year. the I'd really attention the significantly have backlog rates end we of

think America So the America. enter position I medium-duty North XXXX I to on on Kind don't pretty in story same in think done strong going we're we're a of trucks. there. truck North

be as think much it been NS We seen talked I next of We've XXX,XXX China. there's in Tom sky could more potentially what to think V. in offset think I China, China. year as incremental by blue units would've so downside kind on this about that

The that we still shore more little XXXX. momentum help into that'll power the going PowerGen think has up business generation a business, I So bit. think

we're added future and $XXX next is touched little three we've seen end gas. in or over going a a so both million We've strongest we on the to orders bit we've last the And there of pause year five into and which And oil the them. of then years. mining quarters year, with about six in going again been

are do we spending second industries, so a second pause in as the now from what on I from the view see in year, the think half of capital And we so going we right that up in – based where going rates year. a the half actual those of

markets out some we've bigger that's got there. of the that So

Norman Thomas Linebarger

several we XXXX. over the more to in And on happen will going I'll P&L big let us repeat Rich to comment there But to years. hit a was that not Obviously, the take have – campaign emissions we that as to do emissions do campaign, we the that's the and and expect a execute not repeat so but expenses still warranty expect we item. campaign

So year, of that emissions our total were X.X% something this is of warranty for campaign. the like X.X% numbers, which

that as Rich X.X we're about drive level we're that to just trying talked kind X.X, at and So down. of

plan, actions down together to plan warranty we'll to put be we're that the together put the we a and drive that as XXXX. hope trying we number for taking, So

we that up Okay. not but will Jamie get come significant our Thank of finished queue. - you. (USA) Suisse Securities haven't so I'll Credit yet, Cook LLC X.X% back in to expect plan We what continue. we L. do see hit

Operator

the And with from UBS. Steven comes of Fisher you. line question next Thank our

open. is line go ahead. Please Your

Steven Fisher

Thanks. Good morning. Hi.

Norman Thomas Linebarger

Steve? How you doing,

Steven Fisher

Thanks. Good.

of you Just how little quarter how earlier timing I JV, just expected. than were bit profitability? at breakeven does XXXX. volume-related? It you think on change? looking you said of like the the last change that breakeven a in Or Was achieving maybe the does your view that hit timing And seems profitability faster that

Richard Joseph Freeland

potentially had really schedule. Steven, we us there a breakeven of in I to talked that. think XXXX that QX. optimistic sooner. in a we that couple were couple QX, us a of will But helped that but there get QX. and achieve generally a positives we certainly I'm as Small, a out. breakeven, are one-time unusuals ahead But was beat will I about We've good little helped say it and of

Steven Fisher

partnerships. think you and longer of be you partnership guys a sense blossoms done Can XXXX about just additors and deals to technology you you've net JVs? many how fill a like sounds us then the partnerships And and handful Okay. much had additive as we of of that been pipeline give things are that have the a earnings of But how cost it just And list of would over versus sort looks develops? hopper. reviewing these and deals for in

Norman Thomas Linebarger

not try about time sure looking for we what set universe. But to several reasonably started a a the that make spot a that given not we're drives for easy that We places then Investor narrowed on can speaking, we we going shareholders or question. a to growth just gigantic really got prices cost acquisition to or it's which And the right the through for. through do asset and what could obviously the more And we've profitable grow we've answer, It's thing a that's that a it's like it that of And I'll out company. right? give and last gigantic is think that's we I'll and acquisition with broadly Steve, universe. given major initiatives Day laid partnership where grow calls. a have short that down but just do so is I so that Investor partnership. our we're then talk great big at get growth Day looking And that or that we to opportunity universe, and candidates we return in for make positive we're not

capabilities. want we very There's make that area lot sure to again, that we to is But second we then to a looking need have. capabilities areas these new the companies. ones a we're big of universe. That's technology build add in The getting that we're

and, so to capabilities not they earnings. tend size we And is have technical battery as companies you recently the large very and good mentioned, than very Very, more have EDI. in just purchased, the example acquisition,

today. those future, spend as kind investments Isuzu, they the and figure is trying the partnerships support the And want category their on. earnings going have or partner. So basically JAC, on about to are core you with which they're our a make produce we of diesel and natural electrification trying potential And that around want now with new are other their to in what then to think make that see Intent sure in in business investment sure expenses is produce basically investing this technologies that the ones lot out in looking see there third and Letter companies gas those a we to us as of that companies less some or of

we So active very in space. are that

discussion, a least think world least do I and around large OEMs have this is month, at We issue. twice at about the thinking with same I a different Rich the about

the there those potential and lot of are active partnerships there. It's very people is active our industry, a but are those discussions. So very in

of kind So the that's field.

capabilities, particular these price. or are opportunities to one is either total pretty each of So growth for Those on combination the forming our a the add large it's we're of to focused But pretty base building for. potential. things right set looking partnerships in kind at of looking

Steven Fisher

very Tom. That's helpful,

dilutive. it's additives to of or whether Just sort net Or... sense of any earnings

Norman Thomas Linebarger

that The earnings And additive do. would to I would but I to significantly, the that earnings speaking are most not. the technology for opportunities start, fewer say the additive part other for be form at they're partnerships mentioned neutral. – and generally this, investments we are those the or to the growth harder

Steven Fisher

Tom. Thanks, it. Got

Norman Thomas Linebarger

Yeah.

You bet.

Operator

with Joe line of ahead. And Please go open. question Partners. Research comes next our And you. your now Thank Vertical is from the O'Dea line

Joseph John O'Dea

morning. Good Hi.

from on double-digit understand chain-related First the But just of moving incremental outlook we bit year quarter-to-quarter a at looking the segments, target kind of forward? come range of your in general bit kind specific swings. just the seeing that charges And pressures, a ago anything from was and supply quarter? a flow-through if Components some Engines to growth, little number incremental wanted better of the any back line on margins out below little and for seem to and top to

Mark Andrew Smith

Hi, Joe.

You're things right. And lot of took kind FX challenges from in some probably I little is that. both around $XX of hit a chain, expedited business each natural variation. then like both a would a on quarter the had supply segments in and bit and moving There's of the say from costs parts. million rest

Joseph John O'Dea

kind forward general to anything moving segments? in on of you Is line in see is the that from plus getting XX% there you incrementals those preventing closer EBIT

Patrick Joseph Ward

the talked the but business. not no – base we've in in about Not venture which We've the businesses. joint separately, got is

Joseph John O'Dea

Okay. And...

Norman Thomas Linebarger

those forward Joe, just, is I'd then add Kevin, thing, one for businesses This a that bit too. more you. looking and year of hits tariffs both

And another million in through tax, about the so, get will, QX market $XX Tariffs increases. if $XX got either tariffs. you million with in we we'll through metal indirect, direct or hit through in QX and

a of a And are got so headwind bit little those we've year. in this

going We mitigate have those forward. very active plans to

there's forward. of how spending on from It's probably We've incremental minute question just looks got hit to a margins, those it are going just a we standpoint, there. worth a So so that. a Okay? no little bit modeling going about headwind

our in indirect is $XXX mentioned or the impact, tariff either Tom gross So direct annually. earlier at million statement, now

of suppliers do, Okay? contractual like that million metal market Think the market tariffs of we ranges. that direct is We'll $XXX in always through manage and and million $XXX increases. metal and through

$XXX plans have metal it aggressive address actively capability to capacity pretty working capacity have in already where a direct on the as will where we someplace we through set third of where world, address move we so million short-term million about in that, XXXX. that can we're $XXX We've and that. got got go up quickly production. we can on So markets the The of hopefully course tariffs,

example Power we our one China. Systems do know, you that business, in So in alternators

this the India. Those We process. moved be in yet We're capacity in year. will have

And so like forward. they're we've actions moving that got

the bit second the that of half will a a in in of The as forward go So decrease hit of XXXX. impact we year.

Joseph John O'Dea

you at now running direct right to you can timing metal take? because think to markets we're XXXX $XXX in of sensitivity and this the quickly suppliers. and of just the When being chains given there timing reroute sensitivity about you change you the supply million that some take both actions can how you $XXX the just can think about on and million do some What is actions the

Richard Joseph Freeland

that course million I through work million we'll that said in of the agreement is metal rid impact on on actions the $XX year the the have. go through direct down of tariffs. the so normal $XXX will The additional place markets million. in of we've we get those just of course $XXX short-term. with contractual the the actual got with repeating, And of We'll Just that year

So bit managed out each little a the being better. of majority getting quarter it

Norman Thomas Linebarger

because million-ish So math opportunity through just roughly kind bit bit Joe, of metal said and speaking, like A not that much if is right? we little we the of an it's do all there much year $XX you I kind to not mean this little through markets kind think mitigate, of pricing, delayed. number a

of will full not of of through course happens And market year the you kind first the million everything going. mitigated comparing then address a with year. number half and then it zero decrease to for million, you're full think Next year of the the to million the you But got we it's Again, of the million $XXX $XXX it we but million we'll metal now number $XX year keep in that. you're and $XXX over year so a number. year full going day year can number $XXX a think average

factor. So if $XXX mitigation we're million we our million year, over have $XX right now secondary we without something think this

of to much year-over-year. So increase year. to piles it be number tariffs an impact And next of a coming it increase year-over-year over to that's in. new much we're But year. down trying hoping be not to that's with get this won't zero again, that more an not get number But

agile we're But, fast. moving things so and to it we can as being on that's what you we're mentioned, through. So take trying time, as as manage

Joseph John O'Dea

focus kind One out over on and on now, JV I about and trying AMT question really year That's the just think to area the of your net Endurant helpful. the a of other primarily was the market.

opportunities I opportunities some little and some more bit think higher up you attention AMT with putting the keeping areas some a is pivoting think in at just world growth about probably medium-duty penetration this demand But all there are with there, other when rates. at point? overseas you one on

Norman Thomas Linebarger

Definitely. the when That's JV, more are it other also heavy-duty is about little also is of talking the a versions building Sales medium-duty bit at And were we're Endurant profitability terrifically and the a part well. reaches we're in active in up investing doing to more markets well, we're that. profitability we that the when investing of in are going at world looking engineering, very markets we around we're that then transmission meet markets. also so but

the As far does pretty the experience once you our adopts it to customer where want know, But each plan market they quickly. when it has kind their adopt. reaches so is for price own of got

I got don't But think the So from AMT just matter price that market at back of matter it's of point is a think full-blown for decade will a a don't really accept. either. the and and right a I I it's now example, time India,

fuel before years a are it's bunch a of couple works the begins benefit of look for like think economy professional to I matter of that it there. a growing fleets

to we markets those developing be ourselves market each well. be country of can positioning So but are will part different, as well markets as

Joseph John O'Dea

much. very Thanks

Operator

with Melius of line the from comes Research. question next our And you. Thank Rob Wertheimer

open. is Please ahead. line Your go

Rob Wertheimer

sky material in an just curious whether offsetting way then and or there's or markets think parts trade impressions and different give could Good But demand of affected of war Hi. serve. worse it blue impact about how are obviously you the There's other moving bunch a an a you things way accelerating of where a in ahead? are has you big your in lot you there. seeing China I'm morning. general whether

Norman Thomas Linebarger

or we serve just guess, following we try the and we global just we I'll generally good the for regions general parts Cummins have and more they've I Cummins. because forth. cost that and to a in – we speak generally we the ways Yes. that company to world discussed, are I'll taxes come as speaking, not move up to the Again, just back in we markets economy sell. just about then over and been build driven the all tariffs

So from moving that number serve it's is that as just have one that it course not some of products increase a build And – places. one place better we but markets there in it to we all our place. we're of not we we're can means than most less tariffs,

thousand we XX make and Light-Duty our joint in engines hundred Engines several that Cummins there. example, XX our venture, Engine, For Foton we make

those opportunity we have thousand a though, probably a in We big an sell U.S. tariff, some with of but don't. few the to

just plant that's opportunity not pursue an a won't probably for set thousand. we we're be up going to a so to And and able few

in currency that, appears good me the that's that Chinese paying we a So to the it I as compete also of general, weakening. in example. that much with are say companies because would tax not there

In are fact are. costs not their increasing same rate at ours the that

we're So becoming generally against less speaking, I not more. competitive them think

at of yet same more going specific China, course, we're say we with have have going which, in at don't but know the from the that to not yet all We not of. Chinese been and that's or company other to far. fearful are demand not buy me. economy trade is that in all happen, that to that or saying American is American company so well are might that seeing I And the not the customers that versus government when Chinese rate. much seen we're clear Your if very question has about How to the do trends would What in it not we're growing war China though. China, is

that's So a good thing.

other their some know from economic weakening. potential Chinese And though. is are is government to. the what We are looks of stuff that's of that kind hard tell kind kind can't seeing I it that said, the to due industry of read sky, the our signal, is activity we're worried, demand, we blue in And but all weakness demand. exact like to again, Rich is to I know the as that It in things decreased decreased making seeing more complicated. of trade market. truck and But, offset promote

Rob Wertheimer

able sorry. get a for Thank I'm The tariff you that is cost which what next the Is And that? year, $XXX in is? what $XXX that a you XX% billion? clarification, answer. are incremental on Great. clarity rate to million on at and on Or bucket

Norman Thomas Linebarger

don't that. I time. We can off-line at this on talk think so

Patrick Joseph Ward

have We're to math to going to exact. that do on it get some

Rob Wertheimer

enough. Okay. Fair

Norman Thomas Linebarger

Yes.

Rob Wertheimer

All right. Thank you.

Operator

from of the next of line with our Ross And Bank Gilardi question comes America.

Your line ahead. Please is open. go

Ross Gilardi

guys. morning, Good

Norman Thomas Linebarger

morning. Good

Ross Gilardi

losses think Tom, about increased we how EBITDA in a the electrification? should you've little I taken them mean, you've – bit.

you put I some of over But think years should I to kind we early talked and people area. the most in I like I about just inflection. wrong. think more it's taking But that. wider importantly, powertrains be where I'm on think have late if you've before XXXX Do some but can that up electrified the what about? first mean, next that I they I'm maybe that about Because are sort me of XXXX. next to get here? sure they if invest actually I'm of is acquisitions those commercialization made And before to losses related trajectory you've more see several what a of you the general number actually wondering this acquisitions, the several not flat in thinking think Correct years. narrow? you linearly

Norman Thomas Linebarger

and a question little this EDI. what right you that we great are the Yeah. reason bit a – because here's year's It's purchased up is

acquired they levels and profit added expenses. more quarters a just we are in EDI expense of in than originally just position purchase since fourth meant little third the And So them weren't we that a when had that intended. higher our

laid and Because before narrow. We we're going projects prototype still. we investment, think widen existing. and talk But that and that about acquisitions mean, us over be being three do feels years. included You P&L roughly parts, about number. And that's but to to I demonstrator number some as that our which programs to the your investment remember think what that's And million a they're right created I'll other $XXX I it's think market that we essentially have it's of product still don't because correct. opposed I losses to kind R&D out which burgeoning. question, moving reflects But they doing. of the exact

products to using that think about is we're a good customers So supplier electrification customers and basically Cummins that trying them. that ensure for end-user OEM are thinking

a those all absent just that you're different all you're if they then demonstrators think kind those of So and projects, supplier. don't

and make look most then So we for ordering like those. work are that trying that But The they numbers sure warehouses want again on because then frankly, the a and some actually vehicles number for are aren't in buses at some and to short-range things not economics while people right we're that ports. some ordering markets in like are perfect. urban

so on And are attention those. we focusing overwhelming focusing – our

So, that version XXXX for will short-range of you mentioned, other the have a And have did after right, vehicles. year the later powertrain and XXXX the these another launch beginning buses. timing launch right again of end that of then following we buses a is be you which

these in were programs for the launch the then to demonstrators will in the those is expense really down production be and that's investing revenue make what's side few markets. we difficult So we're very road prototype widening the plus ready product to And sure say. is the side investment

broadly don't We the a bunch want ones we much of that don't bus part revenue bus just more in fast, it's the we So to hard know is going It pretty of to fleets go the how then like cash know you of just win. big goes us But this but don't rate breakeven like you going know looks or across that buy lot to the what side the don't you're know know is. market. them. calling adoption a to business about and breakeven

in even breakeven so do expect is to likely predict little it XXXX predict. losses kind more ones XXXX offset they'll loss these have some is bit powertrain to of probably beginning easy the begin revenues and in to What out earn to multiple buses. sense and before of significant versions the our hard point in though, to So is that a of for when And goes. widen we is begin I the to

Ross Gilardi

quarter So loss for electrification. in fourth the implied the

a good actually than in think run Do is you is $XX that even electrified does about next use for to power year more I or I million. rate think widen think it that?

Norman Thomas Linebarger

a work. base to that's think good I

Ross Gilardi

Yeah.

Norman Thomas Linebarger

not maybe slight maybe a So a widening, of of to precisely. that exponential up like off but off that big growth X% XX%

Richard Joseph Freeland

Yeah.

programs right place got again, we've our in they're and have been funds engineering, some adding be we'll but now So going.

a not big change. So

Ross Gilardi

then And could I Can Okay. you particular that? a bit to the is a add? little the order on little you're more that give just want about slowing more did ask When that mining. that for any you slowdown? start geographies you bit it talking like anything in about that color Or

Richard Joseph Freeland

at We're a shot little a take to understand bit trying that. I'll ourselves.

for in XX% the year, were we up most So we now saying saying of slowdown XX%. mining seen And up we've the is new production.

hearing that Utilization The So, still the is X% in field. the year next from year. growing looks mining pretty for new a sites equipment going CapEx to we're good.

of and now. thing. there away consciousness the a a history think equipment, of that it's last the And just lot there's a I there so bad I we're lot carried seeing don't little necessarily and think And there's out a service cycle right people bought more parts with strong.

of so a it long communications, in list of sell is half see and a are to we mine talk second list And we bouncing from estimate OEMs the the our And long year. we'll next we back regular not not of where that year sites.

we we're yet guess the don't think right think where are now. done I cycle we So I on is

Ross Gilardi

or But, or Rich, Or it Australia? is is America, global? China is it more in it North

Richard Joseph Freeland

broad-based. pretty It's broad-based. pretty It's

Ross Gilardi

Got Thanks much. it. very

Richard Joseph Freeland

Yep.

Operator

Kaye Noah from with the And question next of line you. our Thank Oppenheimer. comes

Your is line Please open. go ahead.

Noah Kaye

questions I comp had We've and can everyone see want possibly lot of costs Maybe I about variable you to if to it margins positive. much. are better-than-expected. takes ask bit all incremental costs so simplify a little electrification campaign of and these a just Thanks puts for headwind

Just how point? at this for incremental XXXX margins should overall we about think

Richard Joseph Freeland

we margins business. to on in lot incremental And XX% what Day. we the with the consistent invest pretty base said base business to to The we will beyond continue it's that. will commit invest EBITDA least think we at Investor And a at I Well, JV. continue in electrification

last change we year. no So what time this said from really

as January. guidance will always more give quarter call We we in specific do on our fourth

Norman Thomas Linebarger

And costs the campaign absorbing incrementals after-treatment XX% while we've earlier delivered the a in the business year. on

Noah Kaye

go Right. Much off-road. appreciated. and have the then back And on for internationally to agreement announced do does just to with both Hyundai to road seem There you electrification. you be appetite

heavily then, number a think You in that are this more said a discussions versus you're And space? I frequent having of year more investing ago. Tom, you partnership

you customers proposition versus on conversion? around you Cummins Cummins in out do compete value So basically you're Is be there the best to of sort side? can able Where framing the us, just to market? really how see power it here? Is for what the you it may frame integration

Norman Thomas Linebarger

kinds emissions way meeting to OEMs Yeah. locations, to It's figure all very at time need just vehicles, And to much. the the essentially need to this powertrains. world Most it's going think I'm and vehicles, and those when they electrification, need. partners even different but I to basically the It's us most are for see trains all do and say had be all too just And areas question. do on at how that to wanted it this people. on customers powertrain. is partners focused look here. out it things strategy they're autonomous, we my in, of I all I they are get in capacity of from a in good in investments in partners. the new these including they the it And make of saying I and need talking just them they looking point invest by power some to in this in then difficult think big they invest looking be as never electrification on powertrain anything, that there's can the And I have partners don't Even parts their three about own. at in add

and we'll battery sell regard our components, we've cetera. are of laid parts sell to we'll this you don't you technologies which you sell sell a And do, we'll the so we've will et space you With you we'll sell the is always specific parts focus we'll see of that want we'll areas. system, we engines, systems, electrification so played, out our role of our we of it, to you do playing within all kind

we is – won't It we So doesn't power, develop definitely packs reason different that won't durability the packs battery and just value different cells in vehicles. we just is And battery work we cars it battery proposition battery that but investing for that packs. there make doesn't and commercial our also that will energy, life. are car work mean use, use different

like made only to commercial apply not better and system cars focused diesel vehicles. And much but the apply but cycles we so, duty system, can engines, work higher because are design for engines vehicles, that the for we essentially with are there applications volume, the on commercial and

in network electrified your we're to support is And a pretty and big in new that. support benefit only parts still a stuff that's service going work anything like it's might still well service to use players service there in less if have of have and is vehicles it's and or They're a you of the can do really car, where less we're thing Second the batteries think a lot. to don't replacing that to do a do. but even but again, and your going bunch there's recharging network And, support powertrains. market

our added end also partner. big service user and for So and is a both network OEMs

they'll fleets things bus they'll doesn't any are that if the or big be any who and somebody use worried with support. presence and stranded support in they So no the buy market and have

So propositions. kind are the those that key of I think value

off challenge I It's today. what revenues with the front a and opportunity, but few pace earlier the mentioned good still as at and that's the a at years working of which it's dealing think come where is investment end I well. is it looks I for we're lot for us a think

Noah Kaye

Okay. That you helpful. color was much. so very Thank

Norman Thomas Linebarger

You're welcome.

Mark Andrew Smith

I Okay. Thanks. very your much. Thank appreciate time. you

Operator

program, Everyone, This Ladies you disconnect. and great participating conclude the have gentlemen, for thank and you today's a may in day. all conference. does

Mark Andrew Smith	Cummins, Inc.
Norman Thomas Linebarger	Cummins, Inc.
Patrick Joseph Ward	Cummins, Inc.
Richard Joseph Freeland	Cummins, Inc.
Jerry Revich	Goldman Sachs & Co. LLC
Jamie L. Cook	Credit Suisse Securities (NYSE:USA) LLC
Steven Fisher	UBS Securities LLC
Joseph John O'Dea	Vertical Research Partners LLC
Rob Wertheimer	Melius Research LLC
Ross Gilardi	Bank of America Merrill Lynch
Noah Kaye	Oppenheimer & Co., Inc.

Cummins (CMI) 30 Oct 182018 Q3 Earnings call transcript