CMI - Earnings call transcript Q2 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Q2 2019 Cummins, Inc. 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 be given at that time. [Operator Instructions] As a reminder, this call is being recorded.

to of call Investor like Hopkins, to now Director Executive Relations. would turn over the James I

You may begin.

James Hopkins

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

Participating our Officer, Financial Linebarger; Executive and Tom Chief and today Operating with Smith; Freeland. our and are me Mark Chairman Chief our Officer, President Chief Officer, Rich

your We at the teleconference. available the for questions be will of end

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

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

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

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

our Tom of out Chairman begin the and that way, CEO, with With we'll Linebarger.

Tom Linebarger

outlook quarter and with details you second morning. a with of will then more year. quarter finished take and the our of for our Good summary Mark start our James. you, second full for performance I'll XXXX. Thank discussion forecast financial of our through results a

compared of XX.X%, million, were record ago. XX%, XXXX a of billion, $X.X quarter the to quarter or second $XXX increase or compared billion, second an record a EBITDA the for was XXXX. of X% $X.X to Revenues a year

costs, and campaign positive material pricing income and costs in offset lower the research more of engineering, venture and tariffs than investments China. joint Lower impact in our increased lower

were driven heavy quarter compared Revenues X%, well industry the revenues to production by by in business demand a medium ago. higher America, as North flat duty trucks, increased in of Engine markets. year strong and continued construction as second in

International revenues period compared in truck XX.X%, a demand and of for Chinese markets. margin declined XX%, the by for EBITDA primarily as in XX.X% light duty lower quarter construction same the XXXX. result was to

campaign and generation income than Lower research material grew increased impact distribution venture year-over-year, and higher demand equipment segment X% and North Sales in for of for power in costs, offset more improved pricing our America. lower costs by investment by joint engineering, lower the driven negative tariffs.

compared XXXX. EBITDA X.X% in quarter to second margins sales, quarter record volumes the or benefited million of EBITDA was $XXX positive from pricing. higher Second a X.X% and

in quarter same revenues quarter component by Sales result demand in Europe, international segment India. million, the the higher X%. China North ago. truck rates, in or by quarter second was XX%, America increased XX.X% markets The for lower to of driven for in X%, revenues declined EBITDA $XXX a XX.X%, a build as while and the compared declined second year truck by

development development China programs, at in standards aimed in due EBITDA costs, to benefit which and the increase reduction material margins of investment the India. of The cost than primarily increase products, more new in was lower campaign increased and and offset emission

medium scheduled applications NSX XXXX, for vehicles We when in such specific sanitation selling standards. standard with heavy-duty vehicles XXXX, national to will in urban six commercial in and currently products a and of and are limited production are ramp all China, as number up comply again

stage broad prepare we new will begin to we April X standard XXXX. products for in later this as India, year, a producing the In transition

and in XX% while declined of quarter due and system to lower Power gas products sales X%. sales sales of markets oil declined by industrial in engines, flat. mining second Demand were generation the power

Power center in by International strength driven East. markets North in continued XX% generation in the the decline data by sales America, offset markets, and in Europe increased XX% Middle mainly

Foreign negatively movements impacted by X%. currency sales

joint compared the standby where a in in was quarter demand to for experienced largely EBITDA second year the to China, generator EBITDA was due decrease we XX.X%, ago, XX.X% declined in income lower sets. venture

second commercial of $XX in In launch, invest Electrified in as was EBITDA of new our products fourth business, development the this in the the for beginning quarter, with year. quarter line million Power loss we the a in expectations, of

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

sales center Our data heavy-duty second equipment industry quarter equipment generation to continued North in record boost rates higher medium billion and trucks, America X% to of in by customers. of power increased revenues $X.X a build the construction sales driven and of growth

Industry production year the in second declining a year, to first industry of of and compared XXXX, quarter to grew compared supported of trucks quarter the this a by backlog. heavy-duty X% but XX% ago, strong,

strong through XX%, compared in the to our share performance of of customers. June was XX% market highest share a five and in representing years, our market eyes our reflecting year Our ago, the products

coupled duty continues XX% low increased spending, medium the Production consumer U.S. growing second for low levels drive and A trucks. to economy, unemployment of of high demand interest medium with in duty quarter. trucks rates

XX% in market to ago. XX% Our was market compared medium truck the June, share through a year duty

to pickup trucks. pickup a increased our increased American infrastructure XXXX for demand historically X%. the that for equipment XX% engine non-residential Engine to shipments in North customers and quarter and RAMXXXX shipments as for construction we remained pickup have in of Year-to-date increased second truck increased ago, levels XX% by customers new compared spending. North construction supported Total a production truck high America year and

declined recreational generation to due data reduction for a vehicle XX% to markets oil offset equipment. by of sales Revenues by new fracking engines partially grew Demand in power XX% OEM. demand lower sharp to and in due markets for purchases higher and gas center by

year Our international quarter revenues by to the compared ago. a XXXX, in decreased X% second of

revenues were quarter including X% and and partially $X.X prior markets. generation China, year. lower were to ventures the Higher in an construction Highway increase gas engine power customers markets datacenter over sales by offset joint to demand of oil equipment in sales billion, on Second and

improved compared positively quarter Industry year from our engines move natural heavy-duty in units, medium of was the was at We to full-time. of trucks we X% by ago, and ahead by though estimate increased of XX.X% XX.X% XX,XXX approximately increasing pre-buy standards China our in market by demand size to from and as gas decreased the that ago, this market a share a the a even pre-buy X% NSX year impacted this market July. the impact share quarter, to

towards further shift expect our OEM, market in market the expansion trucks our related improvement the share at versus further share and We in construction dump a in road quarters subsequent due over to trucks.

by venture engine was second share year joint in Industry and light X% market which new is launched X%, by ago. This JAC, X% our in the duty sales increase was of our declined with higher late which XXXX. driven quarter, trucks than a

industry of quarter, light duty for by remainder projections the loading second demand the of quarter market the and both enforcement second the regulations, increased our impacted year. significantly reducing In was

urban duty duty now Some registered and trucks, truck licensing to model access medium to requires limits has classified for trucks as light which areas are historically be as been drivers. additional

demand China for a quarter X% excavators in ago. year increased from Second

offset in down Our to power X% growth Demand by partners. market generation share XX.X% for of was center partially for strong from increased performance data equipment with by demand quarter, markets. the the driven XX.X%, lower our power, in local standby second

Second truck a ago a production including joint from and week quarter lower revenues industry rupee power equipment. offset was generation increased in reduction $XXX X% demand million, the impact India, of second the a with partially ventures for quarter by year a of

line in Industry the driven challenges truck sales lower as in financing of with truck demand expectations timing industry. by decreased with as our XX% well elections, the year-over-year

Within have share. heavy duty we decline the where more severe applications in the we market, highest truck saw

expect then We're our markets. prior up our revenues We end compared forecast trucks now for the of America at heavy-duty X% XXX,XXX low and to Now industry the let for at and me North individual end provide which XXXX units, production be on for is of guidance overall in range. comment to year, maintaining outlook flat company regions our XXXX.

from The units industry declined XXX,XXX ago. its over backlog of XXX,XXX to eight months peak below quarter this

While is inventory elevated at units. XX,XXX

trucks workdays build Our by guidance of lower as rates. production both reduced driven in assumes the industry as fourth quarter, well fuel

industry. our at capacity in has increased the equipment lower in to XX%. be lower end XX% market fleets combination The We the high prior resulted forecast available demand the freight to and of expect of of of utilization of our

lower of reduced in seen we've Because and business. demand parts this our remanufacturing utilization,

in reduce weak relatively be dealers to continue market of of anticipation to year activity. lower to the demand parts inventory as begin the expect We through end parts

forecast duty production industry units, expect prior share medium XX% from range truck guidance. to are the be XX% unchanged In we market market, XXX,XXX maintaining up our the for in and X% of year-over-year our to we of

shipments and XXXX, strong expectations North pickup XXXX a in be engine three for our compared ago. trucks to to expect We for America months flat our unchanged very from

down domestic expect revenues, to ventures, joint we China, X% XXXX. In be including now in

new year. representing We units, for at XX% are last maintaining truck our decline heavy demand from medium outlook million a X.X

in in our line share by of in prior and demand, this market with stringent in more XX% heavy the X% now to expect XX% both enforcement X% medium we light prior overloading light I be market the driven X%, the in duty reduction truck the our duty, In regulations to we duty and discussed to our expect XX% is of a guidance expect to to be market share earlier, down, range our of guidance. decline compared

flat sales countries with and to This down in to record of We developing of excavators exports our achieved excavators expect of XXXX. it's prior now Asia. compares guidance driven in by be increased XX%, levels Southeast industry primarily the

be guidance X%. joint we now project experienced down in X% India, demand our to than record our the to including revenue, prior guidance levels of XXXX lower compared down of to for be ventures and prior We flat. trucks anticipate to industry XX% compared In

non-bank Truck by which cost high negatively impacted availability banking defaults system, demand has by and of under continuing low India lenders. the in shadow is due pressure credit to been being

expect grow We XX% to to construction and power generation to continued investment. infrastructure continue due X% to

in growth economic growth of demand down XXXX, Brazil construction growth our to three project in months are The now Economic revenues projection ago. in increase flat. as compared prior from anticipated at to this growth now truck now not XX%, to In resulted Brazil, X%, we our X% has accelerated markets, has ago. we projected XX% and lower much be power down generation lower truck, GDP as to We months Brazil three compared production year. projecting

we year, and this global We continue our prior shipments decline is will from which to high engines be X% demand XX%, expect for unchanged engine project oil to horsepower down a guidance. gas

demand North our However, we well compared decline anticipate XX% will for ago as expectation new Basin, equipment lower sales now rebuilds. in down to America the as demand engine with three for Permian reduced months in XX%, by

deterioration by been offset to mining our for increased engines moderated have is demand have in over The and the as America for prices three North sales commodity has budgets This cut. months outlook fallen China. capital last

We second to the sales now expect levels of in quarter quarter, was up be than demand of the to second our mining the for remainder prior X% year. power down at Demand we to generation X%. engine lower equipment guidance and remain expect flat

Europe. markets year the in center with backup We large lower and of a by drop increased be generator RV China, growth in military and to plant and market, revenue the expect revenue full power sets power data to in and demand sales applications offset for applications lower flat

and be income the U.S. to by EBITDA lower be and impact lower negative maintaining dollars, material aftermarket guidance now we our of for the at to North In expecting America, driven in flat demand the the volumes in stronger as our XX.XX% truck lower end costs. guidance, other lower demand markets, summary, are we're offset by joint low international of will sales XX.XX%, revenues of year and previous of venture moderating of the impact

During quarterly XXth XX%, of year consecutive annual the quarter, we increases. by the dividend increased dividend our

closing We a for Hydrogenics cash of still flow million. continue approval, returning well of as for to cell the agreement Corporation customary the is to majority set into systems shareholders to a shareholder year. project acquire fuel In as we shares entered This $XXX Hydrogenic XX% definitive provider agreement to operating other June, conditions.

Strong in resulted year. revenue execution operating our translated half record EBITDA and businesses being all of into the cash across record in of first flow the

levels as levels production. that projects second decline of our second from guidance As our of lower we move markets several the of into experience revenues XXXX, half industry quarter will end

track over this we record cycle The repeat and of company significant returning cycle our to move earnings period shareholders. cash increasing as to well-positioned is

of additional We will gains, invest and stakeholders, we to prior the our in cost reviewing technology ensure continue efficiency reduction have while future success cycles. to as in areas for

let Now turn Mark. me it over to

Mark Smith

I'll Tom everyone. quarter, our year. you, the drivers of the strong for in and morning the start comment with financial quick good on Thank and full outlook then of a second performance our summary revised

were X% from $X.X Second Sales by overall America by quarter revenues impacted year up revenues a X%. record grew negatively revenues X%, X%, North company billion, ago. International in currency and a movements declined

and as EBITDA or lower margins by and result record offset increased interest increased were $XXX venture other before income. EBITDA depreciation tax which second and last than stronger the the year, and of quarter. of $X.X billion a higher gross over joint more Earnings for amortization million expenses research income, development or a XX% sales quarter

Gross margin of Results XX.X%, charge $XXX by of the improved for campaign. second billion, for million included system XXXX $X.X or a million. an $XXX engine quarter

In the of impact addition pricing higher from tariffs cost costs, benefits lower material improve than reduction to more programs offset year-over-year. campaign

components million and primarily driven $XX engine Our year-over-year, increased million and costs by new in development selling research administrative segments. product Electrified $XXX Power by the

Joint X weaker in power truck generation duty China new by the meet the expenses regulations. by income on demand emissions with launch light to declined million, associated new National of in and markets driven China, addition products, increased in some highway to in venture $XX

with by our primarily driven segment on mark-to-market our million, underpin non-qualified increased investments gains benefit $XX million gains income $XX statement, mark-to-market in the reporting. plans. by $XX and that of The eliminations of other income million Other recorded the in were income

rate earnings The with second quarter second line impact a activity lower XX.X% positive the quarter earnings, from $X.XX share quarter, effective $X.XX in effective tax and last year, forecast last in the in XX repurchase prior of share the year from rate Diluted were over tax up stronger was from full of year, resulting the per and in XX.X% the our down completed XX.X%. months.

working $X.X the bringing in inflow $XXX by record earnings a flow the of and expansion. much period an was quarter last of billion, to year-to-date year, pace a from capital $XXX cash stronger total the Operating driven same up million, million of slower

our on for XXXX. I will now comment guidance revised

revenues up we to the For segment growth be compared to of guidance X% to of to engine expect our year full down X%. X%, X% previous

light of This of and outlook growth Brazil. weaker North that lower revenue America, weaker is the pace in a Chinese result in a projection truck market, for parts in slower sales duty demand economic

We've guidance the in to margins EBITDA of down the range joint XX% China. to of business of to impact primarily driven venture weaker by XX.X% be in outlook, prior forecast XX.X% the of our revised XX% lower and in the sales income from our engine

X% of we currency segment, compared distribution X% the expect guidance a X%, higher For to adjustment prior driven therefore by our headwind. stronger be and to a now a with dollar, X% to revenues to slight

EBIT raising margins of of are more be depreciating operational negative X.X% in X% of to driven range to EBITDA than X.X%, a impact the dollar. prior for We outlook margins to performance, offsets stronger -- compared X.X% by our guidance to which our the

X% China of now a up of we X% and to to demand prior to between compared lower our expect to growth year projections be by XXXX, driven X%, components revenue down in X%, India.

XX.XX% XX.XX%, year-to-date. We've stronger from XX.XX%, EBITDA be prior to our operational the for driven up by performance raised range guidance to forecast of our XX.X% in margins of to

our to unchanged in focus be also for down prior In XX.XX% up of the be guidance. maintaining We're to XX%. margins, are to X% revenues Power EBITDA Systems, range from our forecast X% to

$XXX to we advance development the segment, as In that expect make continue continue the $XXX net targeted to expense Power Electrified we of to new and commercial launch. towards million million, product investments

to XXXX changes net up be of flat flat that previous the of company revenues to The in lower focus segment range impact X%. individual we to end of is the total projections at our now

to we year sales. in full cash projected company to of XX% be forecast to XX.XX% exceed XX.XX% flow the said, operating EBITDA are range Tom maintaining for of our margins is

quarter Capital still of bringing the we year-to-date, $XXX to in the million, total million for to range $XXX $XXX second expect be were million, and our our full-year expenditures to million. $XXX investments investment

returned million second activity. the $XXX quarter first months and to we million have six $XXX In returned through have for shareholders, dividends repurchase the we share

confidence As which our dividend, and long-term in reflects the a our performance in Tom board recently increase commitment returns. mentioned strong cash XX% to our shareholder approved quarterly

We operating dividend. this expect shareholders to of to share XX% year and through cash flow repurchase return

record strong extend shareholders. on strong first invest and cash maintaining cycle sales earnings a year future quarter, delivered flow. quarter of us first return terms improving cash in to invested second enabling operating we of half our of to results and and growth, record EBITDA summarize, capital These over delivering To the returns cycle, track in while

turn Tom. I'll it over Now, back to

Tom Linebarger

Thank you, Mark.

As discussed that you earnings Resources pickup review processes we our applications our as the call compliance an we'd result first conversations announced and in of California quarter with and Board. our EPA April initiated the and truck certification XXth a then remember, on internal Air for of emissions

closely and with questions. continues, agencies proactively review and their and to Our the address CARB other EPA are we working

agencies the our conversations the CARB not emission of systems our with effectiveness pickup requirements the fully certification. for applications, XXXX may aspects that about the reduce emission effectiveness systems EPA control with raise certain comply During did the of and of and concerns truck our

agency's on review internal our has result, a As focused largely concerns. been the

agencies requirements of enhance customers. closely fully emission agencies to of and and truck effectiveness pickup meet the to the working the our are our expectations systems with the improve We address our to applications,

to other regulators internal which agencies the develop in that values issues the include a history future of identified we’ll strong to work review and the advance and the and compliance, our address with commitment industry. will technologies company, with Consistent our

It's will organization our view, that internal to review. processes the as the and too on early to a consequences. make or regulators response of changes our It's to any any conclude of know also to too our financial to be what we will result determine potential soon

me Now, Q&A. back let James open to to it give for

James Hopkins

call, others now to ask Michel, And limit the have we're Out and that rejoin for question of a follow-up. question. our related please one to I if you questions, the Tom. on yourself you additional ready consideration Thanks, queue. would first

Operator

first of Credit Jamie question Cook from Suisse. Our comes

open. Your line is

Jamie Cook

one Mark the the what for engine just one a I help good in could Mark, guess so there? little morning. questions, you little me you thought, than puts have would margins two lower understanding for understand I down your the Tom. takes guidance a were and Hi, -- down I guess on change just sales if took

given view of control? outside the on give a Cummins concerns fourth your many so touched probably on you. and quarter, to there, then investors can out help drag more, Day Analyst you then understanding on we are the And for Tom, within how and that a question thinking want frame can you you any about think but markets, the could us just about positives given -- or markets negatives, macro some should you to XXXX get that XXXX you're that be when or your Thank you

Mark Smith

America, negative market, really a the lower light which the which Okay, impact the so leveling constrict of EBITDA by off the venture, duty to outlook Canada and of two due by in for the joint driven for China, margins outlook is lower it parts driven North quickly earnings main engine all demand lower is especially is top-line kind JV of in off the which percent. outlook course then business, Jamie, of lower the drivers part for principally

reasons two everything the primary pretty in line. are much is those else So otherwise

Tom Linebarger

are know start to view, our will be next we'll And peaks either at will year of broadly these near general or about and speaking, when inevitably cyclical get we make in comments, markets our very of Jamie see as Day detailed seeing. we're regard to we just of markets the which a you But that Analyst with few means I what some many decline. course to

that the know data because quarter, on and industry But a some done do. a ask. fairly variance has in detailed for projection we market depending don't We to U.S. truck even exact lot of there's you it’s the the who easier

markets degree, cyclically, in they think will fall many have following as the even Most XXXX, we of and to least people for lower inevitably into when at more are some them many at XXXX prepared markets other ones sense. be the prepared our thought are variance we and to but to of so for major least of relatively

to first cost making and when it's our make sure the the we're We our place will are managing to react. capacity be levels and that that ready the time already be cost sure at levels right and first to

ensure lot focus of cost is the prior downturn. than a so, view of have prepared downturn that how we next were a in that better structure cyclical for that's margins on point that And the our from we ensuring downturn

share that many end thing our that's incredibly our our higher you tipping because sort of think projections our well. are very second The for we year why estimation the are market of the is performing as products products towards performing well, of see

serves make cyclical us few well market We of share that can downturn. up downturns because points some in a think

quality performance we and continue will to will and we the emphasize continue our products of new to products. So, launch

downturn, we're customers. we from in to as when market from strength to in share us competitors continues gain well, think see that and also commitment our go strength because downturns So will can we

some now We for be NSX, in be ready. from will feel seeing and those we Also, hopefully the engines launches ready investing components and think SSX we and been gain significantly up we've market think in we and step India think give positions. we which a both and chance and our positions think China, be will our will will outperform lasting products competitors we us that to we'll

right prepared know, the not and while but we a way this we're all of and turning make the in cost the time, upturn. will cyclical for just new products to is for have we and of not launch we from share just as you fall to are takes, the are follow are same this cycles those competitors lower going structure puts our conditions all better same, are gain markets the downturns again, mode. continue sure the that So and very It and will global into some says market a

Jamie Cook

back Thank queue. get you. That was in helpful. I will

Operator

Fisher from UBS. comes question Our of Steven

is now open. line Your

Steven Fisher

On Thanks. your JVs earnings Good down XX% morning. your from in guidance.

think that that, guidance for down half I that else. XX% implies the around XX% it to or pickup something the second much half flat is is comps an expected in first easier how versus of emission for in sales,

Mark Smith

So, is aggregate I think certainly your in our exactly a see towards the half a system venture we of tail the Steve. assumption kind is the off to year, the and out method earnings flat of year. half side in right, of just it of joint will There second start [ph], on is no leveling last back so

Steven Fisher

I then had just think demand And are you in the you clarify you outlook disclosed segment. Okay. growth could the seeing the quarter, a exiting X% lower to already parts distribution what extent

negative started anticipation already to you just demand and this of later year? or next that the are has So, year and turn lower production adjusting

Rich Freeland

Rich. its Steven,

just parts, me on little perspective. background Let a give some

and We that. rapid some a for has year, there out more complex years product service pretty XX% power we in more put growth about and which since seen last we've more trains, and are parts business grown three

not on adjustment are but look is in be run heavily What a And there utilization, -- kind data therefore we truck will this our North not that. And to mostly that is the adjustment, what America and pricing and about that parts fall we've our again growth hypothesis dealer forecast and trucks as back a to and strong as bit seen is year, we bit. a down including so in we've X% here, X% some when service of of older being inventories there. seen happens,

inventories don't this are bloated excessive. We or at time think

that inventories some year. to last basically I we Again, flat on reduction see. what put will be prudent forecast our would to expect I we says trimming just think of still this is

years. remains about forward. engines levels year, last bullish going million and over a a it We're So, record out three at so putting so the X.X

consuming So those engines move business. parts into the

So, the long of we think of a adjustment second term. bit half bullish year, little

Steven Fisher

thanks, Great, Rich.

Operator

Rob from comes Melius. question next Our Wertheimer of

Your line open. is

Rob Wertheimer

parts, question and the on cetera. Rich, was on et rate, growth that yeah. Actually, past that My fantastic was color

how of mentioned to willing to tickets If curiosity, mean, it that guess I out distribution? number? you bloated, of non-Cummins, much give sales Just all I goes your you're

six-month Part markets. we And is clear. as asking of And had just pack this the reason to of all you adjustment? were didn't kind then, do obviously in the then, someone is sort see you I'm car, think slowdown of selling

Mark Smith

Yes, have exact split putting half non-OEM but numbers channels half, so to say, I the I would than than going more don't in through more channels.

So, is there a inventory. of wide buying customers range

Tom Linebarger

there they're Mark not parts time. What much downturn hard the quarter. can have is. go of than but channel. in effect that a grand through own scheme to on of half we we're parts, And are see an frankly, inventories, adjustments versus And there good some predict adjustment. And channel more predicting is every this in saying relatively our small Because of they at is that's quarter it this as truck in the kind side. dealer And OEM you said, adjustments, adjustments the

see So, think that I what were not now it is of Rich surprised that downturn, was to it stable kind business, quarter. increase to it continue so, a services And very then to we long. keep we're future it we was. lasting we every in it expect we expect see now, expect going every And saying to see off. level Parts but to our down, be this, it time it is we business, is tends very don't we

in little the half of a seems downturn a as be go inventories. that we're dealers expect inevitable bit prudent little bit of in we And and that saw a we adjust So, will quarter it second see second trying this it to just more to of on some we that year.

And see, said, you of. that we'll what circumstances like holding much and how everybody is to have all where happens. different right on kind going But depending they're holding inventory, they're

inventory rise parts you expect some it's start downturn, should and I they inevitable dropped over then just look rise. things but think if we as again that cycle to just up variability, in the the

Rob Wertheimer

Perfect. Thanks, Tom.

Operator

comes of question next from Ann Our JPMorgan. Duignan

open. Your line is

Ann Duignan

morning. good Hi,

Tom Linebarger

Hi, Ann.

Ann Duignan

Maybe you of business maybe as could other further end has walk America and duty, that components markets the North on everybody regions comment us markets are feel through which see heavy post one on you a do little understands peak? different your the But and peak. impact what at also. you I mean, being

Tom Linebarger

along In, mean, the Brazil of the are others. or near truck a of at but of it's because peak. exception, the kind most markets is running I notable bottom, most

China the way is been up the way but down, it's holding down. like about, while. it's already Heavy India is duty a for talked medium duty, look strong, on you So, on

So, it But some we quarter. some exactly that are this out Europe how that about. what truck It's makers of means. hard sure rumblings weakness heard in is showed last we've say the But a much just, and not of the getting are concerned. that little one to even Europe

find off. story. It like bit hard other look but of of down feel at mining truck It it's a us little So, a doesn't is sort to market if peak, doesn't already a side. it's that leveled it's to definitely not different the looks headed peakish, like

say I that. there's just about mean, else nothing to

year longer, there's view a sort here ago. turn just or to is of we're to for have it's a little leveled going growth Now, bit up whether grow that going sure our it's question It's but a no from of not that's back kind steadily off. compared that to again slow

got it. And whole bunch like doesn't it's left so more a that in that look

tail market already strong construction market, but stimulate some tailing And a U.S. start head to I'd because for got China's also has to China they continue has say feels down market and it markets. to point, down. up markets unless at been and the if then after still like down we while likely truck think construction construction is to the

has the to India they has invest will. think India, got some -- we stimulate still probably there, and government and continued

markets we'll put remember of we a you So, We'll that the side. we on kind bring some India there. them. might there. where the Day, that all the and on But of markets that's construction But and again, up of kind longer hold up the to little all Analyst show put

to around that way then it at suffice look hills the their the are top up. kind there's we up bottom those But the more little there of and at of and say on that

just means being what about that we're in revenues XXXX. So, for realistic

Ann Duignan

I Okay, there. appreciate leave I'll Thanks. that. it

Tom Linebarger

you. Thank

Operator

is Revich Sachs, from Jerry open. your of question next line Goldman Our comes

Jerry Revich

Yes. Hi. everyone. morning, Good

Mark Smith

Jerry, hi. morning. Good

Jerry Revich

wondering have set and I'm set. the Isuzu you on the folks could what what for us duty you fits that the company's folks strategy can how wondering, if flush Tom, I'm diesel venture on setup, it venture is light you out market overall share globally. in for joint with joint now opportunity opportunities is now update you opportunity just the and the

Tom Linebarger

we one it's always think been kind like we feel impressed to conversations least of Sure, we a we ours, see but it's in days they're started early business them. It's off-highway that other, is company not mean of I where with although having company, joint the really think done our But of that with lot conversations. that at the in with with them engine until from we're we've terrific and we venture, the highly a pleased competitive a each actually market them. we afar, had they

So opportunity. are we anyway, conversations, the market had what of kind terrific we've share to days as but early

we're it putting investment lot two how equipment thinking spending occupy companies various lot here's But investment the both together, the into a will that are the technologies commercial that is about a space. industrial -- of of

and think about means. gas natural think So, fuel diesel that and not about start only and to and cells but hybrid electrification what

-- business truck to a which integration do has other have has autonomous identify safety, also also vehicle. their they Then of to

all about all make tips up and coming us a thinking over size. need investments thinking and in in make investments they're they power that company need to our So, that the to train the they

with So, room a they in and truck us. to they're be need they're no leading, laggards, second company there, is market share the place going Japan, mean, strongest not they diesel terrific there's largest be for Asia but there in I engine maker is any Southeast second and the have to

various on power investment so investments a we're try sense that to going in like the these train, way do my we do to in more technologies, focus they out figure a sense they lot and and would the can that of to it's that, can do to investments Cummins make So, truck. is can the and out what figure how these rationalize

make leading them to can And technology that if about sure they that's that about to the supply, assets going they do there way a have a do how you be think I they're utilize ensure there's that a of and solution they -- in allows to have, like. that. conversations But lot

an if of out with this other out, something ways similar figure rationalize we and same are the world that think to around is technology great a over of essentially which same like out of both add a there. I keeps companies looks investment is the And to us all or the content markets we either unless lot of figure some stuck find a opportunity the OEMs really essentially this same for investment. can equation problem lot of we us figure There most and again, like size, for new in can to would think solutions the reason new

a set I we're the So, indicative be that how of work think doing, industry of discussions some it's really could that important other of go.

Jerry Revich

really us you’ve in really can which mid-XXs in see, at revision, for I your detrimental you targeted interesting. could detrimental preemptively looking just the where are detrimental be this that better the you on were folks past? shorter-term achieve believe And you are demand Can That's framework side, update margins the you on was nice margin, to weaker. the optimistic on that so markets the teams than

Mark Smith

this year, improving will give the new markets, of the be on got of goal a and of I you're the of we've against get we those we that we Jerry, mid-teens, yes, in some balance precise some a second the as but view technologies. Well, on of the just closer in half clear in that you Analyst, think cycle-over-cycle kind near-term more to of right, in will as investment the earnings, needs

be and but So, to that cycle committed well you we'll should answer, clear, the clear give down as the up. out we you as a come improving on those earnings

Jerry Revich

you. Thank

Operator

comes Our David from next Baird. of question Leiker

line Your open. is

David Leiker

everybody. morning, Good

Mark Smith

David. you, Thank

David Leiker

fourth I could dig a looking markets a a and you're wanted of further into going different hold if folks production you I year-end things pace the quarter detail may that, bit rates and get quarter. that great of We're up for. wondering bit, what of build we to in year. terms from little terms the how hearing through of little into different of in talk was third amount the end

we thinking you're further QX. through thinking something the says might the rates happen? -- build daily fall seeing lower go you you're Are year? that That as you're that seeing of actually just you out some that towards But of schedule look the in end

Rich Freeland

is this David, Hey Okay. Rich.

And we're visibility a as not We QX. few strong. short-term the in off things. One, to they it our backlog scenario, for begins we're a see planning goes just doing the So, down. schedules, through remain fall out seeing where what production

And so, it seen we at that have run don't pretty to right some elevated are no people that. capacity in close just working OEMs visibility rate, cycles to past We've this now. because

to run is past moderate we've what don't full the in begin is steam people As They to seen down, schedules. the a cycles production begin, all their backlog way comes gone. backlog

scenario but the that, our that that seen of there lot that's built past prepared we cycles, in a And course, will vision what where into doesn't a we also. we've And is in seen for that that we're guidance, is on of have David. QX. happen But haven't we So, happen. more

David Leiker

the looks on capital sheet. then over that Thanks. one And year? second It any working Mostly the thoughts you like that think just item just and and Thanks. numbers great. where pretty The Okay, the receivables on inventory. balance additional high. of half trends

Mark Smith

hasn't off metrics we second look quarter. the our our when similar to pretty year, were we leveled inventory certainly business. in think, are I last There at where kind of

of range shape, capital overall, that shape. in sales expect for of dues past be good I XX% would collections in to pretty are working kind So, were the good in

So would in weaker we're would it positive the expect to there yes, extent impact facing that from bring be but to flow down. cash some some the downturn. outlook then earlier And

David Leiker

versus I cash your last significant was same of working looking the in quarter use and this statement quarter the pretty flow capital on year?

Mark Smith

which QX just one that's quarters see… the from I don't this QX, strongest Yes, ramping of up

David Leiker

you. Thank great. Okay,

Operator

Research. Adam from comes question next of Cleveland Uhlman Our

Your line is open.

Adam Uhlman

Hi, morning. guys. Good

Mark Smith

Good morning, Adam.

Adam Uhlman

for had of I follow-up been flow. low the has the I you a this returning the activity the potential reiterate I'm of guess, question so half cash of far or second year. on And repurchase to on XX% David's the share of kind plan operating pause shareholders lead just depending the any year. that wondering, if to cash deal this could plan deal activity a year? in repurchase share

Mark Smith

that any we get for operating current are item. I there Those now expectation are into little flow there our not quarter. factors that are number in guess, share right of different. guess bit cash to we'll a restarted XX% But some scenarios could be which repurchase that go is of the just given in a I see year. we ones around this

Adam Uhlman

center you this market have the Have your And center really if up strong. talk just rates? you're been the seeing global Okay. much kind on holding markets, you you visibility and gen like order at then power softness Got I data demand what market seen you. data with on relatively sounds has any time? the of any set how wonder, within through do it the gen could --

Rich Freeland

as is -- can as activity we out that core remains then good. far That And strong, the look see.

hit on getting market Our rate share on that.

giving I next guidance, the strong year So, that the end into mean, through XXXX but consensus least. of general looks at not is, year we're the

Tom Linebarger

China has And the spot, Adam bright been this side.

quite because always One share. that looking of European China, a data the and of premium especially starting total, out maybe big centers U.S. develop We've to and see as of center countries, at is the the market of now our worried it been things the actually seeing But been to kind how about in market. the to phenomenon. build kind able is that good market had position developing been end we've because we're been we've data relative of

in a data in these start has out player done since to job to. And as terrific ensuring center that that China markets build the our look come that they team

globally. build So, it again, although of the centers a you're that seeing why segment big I seeing market, data we're reason strength think, it's that's one just continued is in

kept growth for it's longer. out -- that's steadied think I So, robust it the and

Mark Smith

bit Yeah, run. multiyear been segments we're seeing then on little our weakness increase in the North which of a has little these military all a and strong business, of America, in bit in a

it's a like cycling bit. little feels down that's So

Adam Uhlman

Great. Thanks.

Mark Smith

Adam. Thanks,

Operator

question from comes ISI. next Our of David Evercore Raso

Your line is open.

David Raso

Hi, with the which downside to story I'm looking comfort the operating really Obviously, is gain the margins. good trying just morning. critical XXXX. to leverage into

So, I'm engine understand to division. the like just trying say

saw over year engine we a little year-over-year ago, the profits up million. bit, adjust $XX down business a but If that have campaign charge. just We for sales

While the second profits million, million $XXX $XX $XX half down engine to only of year, million. revenues business down the but over about have to supposed

that trying a quarter some off sales second in decline. -- implying it performance, half? So just assumed that somewhat build to after changing I'm Can for is the second lot is just better, quarter, despite half notable half second on our engines. help I the coming the second obviously second what is materials, comfort understand confidence with margin you

Mark Smith

Mark. it's David, Yes,

different those just comparisons. moving some some got parts we've think I So, in of

the JV year. in compound partly think a So, a half bit number one, tougher light of to the first due little the I duty, gets easier earnings second in that comp China adjustment

lapping actual year we're close run remember tariff first the half higher rate, a the to of in the with then zero. expenses tariff And

certainly on And course, on the well kind so, just we're of on those And share. lapping heavy-duty higher we're relatively numbers. then market of doing

some I second taken down part, outlook a the by maybe quarter. is to leveling way said, as half off, for Tom better our year, in weaker occurred in we've outlook there the think and large, nothing already second heroic it of So, the of actually are describe the

a significant expecting So, not shift. we're down

major of I half amount cost, the first in significant a not those, to half. For or price, think, second material parts, moving are change

David Raso

was on income overall I the company the in context income. year-over-year. of your not bit a down JV terribly guess, little I for second different, half JV XX% It mean pushed seems income back engines the about second I in like JV half. the Yeah, is

some number that we we second the gain decline in that comfort So, ... materials handle can sales half with that mix again, can about there is biggest around or the something

Mark Smith

XX.XX%. margin something up on to like maintain first for XX% of just guidance, the the We've delivered XX.XX% was weaker guidance really kind the the company slightly revenue half for a we're we've That back to at outlook. year, -- to the overall full

things pretty plan on are cost generally, according to the going So side.

that's what don't our I anything I today, I've numbers. heroic we So, we and guidance, think best the got think know would there's in

David Raso

that. appreciate I

Thank very Okay. much. you

Mark Smith

Thank you.

Operator

comes from question Piper Potter next of Our Alex Jaffray.

line Your is open.

Alex Potter

Yeah, hi, guys.

duty? can duty If policy the light qualitative in offer and bit reclassification impact changes of guess demand that commentary you're you light comment from Is the a in all, any on seeing be could -- medium markets truck China to duty you well, on helpful. the that I there would first policy

to there then should a joint on is Domfront side of demand to the could able and you presumably, think reason capitalize to secondly, But shifting that medium the venture as that? the have result so, duty [ph] if be this market a of

Tom Linebarger

Alex. Thanks,

add if Just of inner requirements. parts this that issue, be Rich you're driver the a of less have can and car you And is I'll light imagine blue-plate means you're you duty. easier congestion, vehicle, blue -- the let a China, the they closer points if in you license, can has very this what call couple a licensing city, would if and more. This -- smaller he et qualitative you vehicles, to cetera. access the It's lighter why plate a if get and is you

just it's they've, what didn't picked city, as is were done day rules the tightly the they've enforce quite every started. enforcement so of just And a in and already all now that sudden them in they and place,

it disruption be an understatement. that would market say in the To had

So, China a created in didn't and happened this, recently, OEM that a was all complain absolute because in it sudden about of it wasn't I, there single I when market. the havoc just

lot kind outside of -- vehicles and sort a my part, it being of there'll that a sold be the really cities of if city. because to brings and I'm previously them some little bit, So, in used in wondering, were of compromise this proposal rationalize takes

that spots. into not the it's money again, to the more that get can't you spend to have all fact licenses more just And you actually get

have loaded. in change So lightly the that a get to significant that there's very and can ones be

capacity reduced just you're so, you're afraid moving now significantly. And has

there of say from I'd that how your can you on, to figure anyway, in that about going and you move only So so there's that's much there's out fast experience. bunch going a know, like that China

quite and to is But -- is rationalized question. not medium another if some whether moves a sense demand my compromised or bit of or that some there's things this duty where get consternation, there's outcome potential that

mile of restrictions the the doing really, And vehicle there's My lot feeling -- cities is anyway delivery delivery. size, it takes final mile that is Because a this the of the stuff. final that movement larger that have on is final not there. part most

many going medium a duty maybe is not more they of really solve And truck your those. medium don't to bigger so So, need a problem.

could could But, substitution. there be -- you know, some be

I think gangbusters it products it, halt to JAC line-up going biggest we kind the thing and was, great just got have pretty we've new for a hit impact and we second the a quarter. with this JV, still a Foton while, just us We rationalized. that it of a came for going getting abrupt this had second in think great in case, it's screeching is got either they're both great and so trucks -- great

Alex Potter

with, venture kind Foton with does? commentary there you Foton, announced any overlap that thanks. I joint as there, Okay, for relationship the Cummins with just of And some guess potential Yuchai a super very guess I Thanks one That's much. well. there helpful for I helpful. then would you mentioned noticed what the be is there partnership

Tom Linebarger

and and, situation I businesses you segments, they're know, they're those joint export. each bit of number they So competitive use and of venture those trying you the then us know, for segments of with has number and, a of a that segments and they that fair in the of other and to engines some OEMs here's use -- as engines another domestic sure make

have multiple have cover themselves. to And partnerships to so, they always

of to comply engine where mention need it. supply Not there have they programs to number government are a to domestic with

we, getting we've of got So we where the more years many you after know, there, think many, we this engine after, thing to kind we're good thing, are, used to go. we're now now

comment we on recent spent but a another with good some then al-in-all, partner about feel him, And to so of to sudden, partnership. And again, our partnership has there's Rich want let in, photon the know with very time I all I still photon. Rich,

Rich Freeland

I Yes, as recent in is would relationship years. it's so say good been with photon as our

In fact, the the Foton Cummins then customers both there view relationship of product. and

of year-ago, fact, up Fotons now. in XX% So, share is a in mid-XXs the from so our to

work Tom think And it's to I so with as says, same train multiple get just the the our it develop we're strategy again, but power feel let will Foton. the options, used have multiple customers positioned nature business the and will really be choose, of remains the so going to I partners there's there since options, now and of right product with be where kind we've customers to best good always

Alex Potter

Thanks, Okay. guys.

Tom Linebarger

Alex. Thanks,

Operator

from Kaye of Our Oppenheimer. next question comes Noah

Your line is open.

Noah Kaye

the questions. Good thanks morning, and for taking

that think I lot of a on the and First believe expecting business. been you've XX-bps XXXX a to about do shorter-term growth I question pricing from pricing, had an parts with

You of still lower are if current know, get in sort activity growth price that parts you what the and expectations, seeing we're levels? can

Mark Smith

said I the this business. where at But the the start of around about takes puts that's and year. we round think

gain. points on lower But a a gone we're little Again, down, hasn't XX the parts. yes, little little So bit pricing the that for basis overall, volume in just range a bit year.

Noah Kaye

helpful. the And I longer-term the mean you regs, COX for then formally first duty time that's adopted trucks. just that heavy for Okay,

think in bit components how some the Can you of there And Euro coming talk tailwind the about kind you your you X. investments, already positioned? fuel are business little potential new red? over talked a even You of contextualize cells, those potential about maybe for of light recent electrification, years and

Tom Linebarger

tough here's see But are thanks about do way, just nonplussed that. that By what is are it are to No, going I regs. they those is for think what think, draconian. a OEM say just the those across the single emblematic are I -- world. of we're I and they those isn't those. There feeling

new in look have lower, potential of least have they and emissions sights, And be at potentially to economically technologies, viable. that like local which these their so, especially some regulators now and the

the course, them hybrids, going viable, Things obvious they cells, But electrified et And one reasons. is, harder, them. we like cetera. they of they economically of regulations those have and think trains, Once power can fuel or for inevitably U.S. in shove be elsewhere. or of and their course, see to sights, they in will Europe are

So, we of when Jerry about to kind me think that the back linked Isuzu. my content - and conversation, that's asked

seeing significant in think I Cummins and and required and markets. investments the systems. power to all as order of vehicles our customers, all at be And as front their end power components, trains, well competitive are of in train in

Everybody has might be a But cities, countries have the kinds they're those meet be. going looks covered, that what have that regulations good of of models view daunting. to to number it the amount investment, of regions, the of to different

in gas. natural is think the as kind know, that's bunch EV, Cummins hybrid the of So, a challenge in made in we've you what been successful. of front we're and -- space has that's historically investments, most in technology what where we of When us, diesel that

And cell Hydrogenics if the beginnings of this we can have with fuel offerings. also complete transaction will

their choice providing for have the and technologies each those these of including integrate So, intent our train systems. these, providers, power to own them for of to is in components

So, we technology. be will think, forefront at the again, we of

to a their everyone about about that. and the in manufacturer us European to are system, has So, we role like talking different view they'd every play

are we challenging, them think that's to that's our We're tail made. you clear are where because that's meals system what support and what change, to And it, on. regulations differentiate we whenever they we said come is provider, there as when essentially there technically. whenever make, in, That's the that the we're technology we are

to and we these us. they're requirements. know will And lead say, to help that hands, people going meet ready us a to, And show what wringing want us just out we we're we when will ready up to every we're to help. ready ensure figuring there, are use you how will all day that lot So, they're their again, invest we're let of you

Noah Kaye

you're I just Right. would of not you're where power integrated, me to mean, outside do there's or that power spec a that. I lease. alternative a trains, is motors seem train. opportunity, to And a gain market of where lot every they going mean, OEM going seem it into And a in would it vertically like their more at me something subcomponents providing currently. may to

Tom Linebarger

It too. seems to me

Although I'm see that. also plenty others sure that there'll of be

looks It's agree the front an with opportunity have. OEMs with of just cart We like those But pushing be with horse. So, don't to get meet others technology there that want our that you standard will OEMs to too. we up to it us. announce we'll I show up to our to help hard think. and they what components we But that in

Noah Kaye

Thanks so much.

Tom Linebarger

Thank you.

James Hopkins

Great.

we're of it our hour. end the with So, at that, looks like

be to I'd for everybody in like available your for up interest you very today. Cummins Thank questions any So, thank I'll as this much. follow And always, afternoon.

Operator

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

Cummins (CMI) 30 Jul 192019 Q2 Earnings call transcript