Earnings call transcript Q1 2023

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Operator

Greetings and welcome to the Cummins Inc.

First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

pleasure Investor your Relations. my Vice Chris now of President is to host, introduce Clulow, It Thank you. ahead. go Please

Chris Clulow

Thank you Mark first Donna. teleconference Good Chief are morning, everyone, and President our Chief discuss Participating me and results Financial Jennifer XXXX. Rumsey, today Officer; welcome Cummins’ for our of the and quarter Executive with today Smith, to to our Officer.

all at the the teleconference. questions available end answer to be We will of

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

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

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

copy section are a the statements copy at financial with release of our the on available presentations press website Investor today’s cummins.com. Our webcast and a within of Relations

us you. I you to and will Jennifer over Thank turn to that kick President With CEO, of the our Rumsey, way, out off.

Jennifer Rumsey

for the of forecast and finish Mark both results, I Good will of our take trends region. end morning. through will and discussion outlook I’ll discuss you then XXXX. will year. summary our quarter financial first financial performance for sales details Chris. then a our I first Thank more market our by of our quarter with start with you, a

details first portfolio on highlight Accelera the world's to business of diverse solutions our into provides zero the a announced getting moment I few of new Cummins, In by want for for the of quarter. brand take Cummins our a and Accelera Before industries, from unit. performance, New Power Quebec, a emission to vital in March, events many a to to largest major PEM launch customers a will advancing supply economy. future. shared PEM Carbon transition step it the brand most with Canada. North sustainable announcement, be empowering will our electrolyzer their key accelerate This the Varennes America plant installation a system that in green XX-megawatt hydrogen Recycling a for Coupled Accelera in the

to increase XX Blue electric of Bird months. also next buses the into will more emission operation school put announced, over than and the buses Accelera that production doubling collectively we've we school zero XX

common stock. on be a Form In for and our addition, that Filtration newly separation planned announced on the with we Securities business. statement IPO of Technologies progress issued to filtration of Exchange Atmus underwritten a continues registration the February, filed US proposed Commission filtration made the S-X In business,

revenues strong markets. XXXX. quarter in to improvement across on and and comment our of company our overall resulting quarter XXXX slow the Demand products of America, I first to China, with cover will continue our Now for before be in regions markets a largest for on markets, the key record the international performance moving with all our key some North starting first of of in

record EBITDA XX.X% a to of increase billion strong were ago. XX% Revenues quarter for demand, $X.X XXXX, by the an $X.X million to pricing. was year XX.X% and or billion, compared driven first of $XXX Meritor, or first the addition the compared quarter a of improved

the while to related to results the million million million in Filtration $XX first quarter $XX include related and the include to the results XXXX related of operations suspension costs of the Russia, of XXXX of quarter of separation First business, Filtration separation $XXX the business.

higher improved and cost chain offset compensation supply Excluding quarter, and these pricing, costs, in first percentage EBITDA increases. the by driven volumes increased by

expenses XXXX in the increased that the invest Accelera Research technologies particularly and will advantages first also as development continue we Engine, of Components, the future, and create segments. quarter in and products the to in in

supply margin of quarter increases. and the of Gross acquisition Meritor pricing, the exceeded first dollars volume, to higher benefits improved the XXXX as chain of compared the cost

noted we progress initiatives, portion results the of focused XXXX capture business are guidance our and Meritor which the included for previously, value will in be the our Components within segment. our provide continue we on on As will updates overall to of

capture In the improved pricing, operational sales initiatives. of improvements, and of $X.X improvement driven from The financial performance the first EBITDA X.X% with was margin quarter, improvement EBITDA and in our in cost of by with value results showed comparable activities billion profitability XXXX aligned Meritor reduction X.X%. operating and

$X.X Our heavy-duty units, grew driven by from XX% up from XX,XXX, Meritor XXXX to heavy-duty were and production unit North XX% demand. first the sales up while America of was billion, first quarter addition in levels, XX,XXX revenues XX% in strong XXXX. of quarter Industry the trucks our

Industry XX,XXX from the of XX% our up sales XXX, while production XXXX. were of from XXXX, quarter trucks XX% an was XXXX, units increase XX, in first medium-duty unit of

the partially construction from to for net X% volumes engines pricing. down declined, offset pickups RAM use positive North Engine X% of as levels. in the by customers decreased in XXXX quarter America XXXX, sales Stellantis XX,XXX by first shipped in We to

constraints ease. for power Revenues generation supply to industrial by XX% America and demand center increased North data chain and as improved began

XX% Our of of most Meritor international a addition markets. the to the with in and strong year XXXX compared ago increased across demand first quarter by revenues

were in an year. $X.X billion, China X% markets Industry was heavy-duty joint XXX,XXX on-highway and an trucks quarter ventures, to revenues of medium units, China, of as for First demand increase XX% from including increase recover. began in last

meet and increased to joint within NS of partners and due Our were $XX,XXX, our to sales standards. units, penetration XX% venture joint ventures, VI launches product including increase an new

the X%. first was at in XX% the in adjustments China to were including in of XXXX quarter from The sold, levels the for levels. excavators market of increase units, Industry ventures, demand in light-duty XXXX units, X% up our XXX,XXX an due while units and The XX,XXX from was and market units, inventory decrease emissions levels. related a change size regulations decrease is XX,XXX joint

first sold by China data and a decreased primarily the decline decrease a decrease OEMs. of new with at Our X,XXX customer market units sales XX% quarter levels power share Sales excavator in equipment were in relationships center the activity. construction engine units, X%. was generation by of to the in driven replenish in improved offset quarter, inventory expanded and first The

increased Brazil, XX%, revenues end including First Power XX% while In as economic X%. quarter $XXX were strong. first shipments revenues in increased of by quarter Industry by joint improved our by from quarter in remains first ago. India, increased increased XX% the activity driven ventures XX%, increase million, our year generation markets. truck production in most revenues a an demand

me outlook including some markets. on and let our XXXX, end regions comments individual Now for provide

including XX%. up We our to have stronger guidance raised prior improved in outlook North Meritor. America, to company XX% be in up revenue an our of forecast XXXX guidance for demand reflects This to XX% for compared XX% total to

revenues truck systems expect higher and compared We and are markets in heavy-duty aftermarket demand power increase with to forecasting XXXX.

in to guide trucks to XXX,XXX heavy-duty our North We compared are be XXX,XXX America of XXXX XXX,XXX in to units our increasing for with prior XXX,XXX. forecast

chain supply demand to continue industry's constraints our While to customer ability produce, remains collective limit end strong.

to limit XX% America up to medium-duty project XXXX. from the XXX,XXX in produce meet XXXX, to heavy supply in to continuing ability our are customer the North to are volume XXXX. to end fully be shipments prior In demand. we units, to truck America be expected chain duty, flat engine pickup levels trucks continue consistent XXX,XXX XXX,XXX market, guidance, to Consistent with and to our our market XXX,XXX constraints size for with North Similar

in with the light-duty demand to and XX% low prior XX% to truck construction increase. market project improvement the total truck revenue, expected XX% XXXX, an than and consistent to the joint project volumes levels the content coming up the medium-duty share in market, improvement of ventures, We by XXXX, we a In in a including XX% XX% off growth increase guidance better and previous the demand guide. X% driven from China, in improvement in heavy

prior We expect flat down improved our to from decline XX%, be a of of volume guidance to China construction XX%. to XX%

emissions to inventory While shipments our adjusting replenish new to regulations, export demand exceed the prior market is and expectations.

As in we discussed recovery demand a previously, slow in our year. assumes guidance this China

XXXX continued presence to have and are through down the our continued of cycle for well-positioned outgrowth. region, We the in improve

technological Our support our and to well experience us positions outgrow the emissions partners. market expertise and

market is our are as that with fully this on-highway expand improved We in we the share implemented, seeing now partnerships. in share construction NSVI along with higher XXXX

increasingly revenue, heavy-duty joint presence our in In increases We production as this adopting to also market the in manual expand including to is our in X% share ramp we India, and continue project up XXXX. total automated be transmissions technology. ventures, market

We strong are remain to with Sales to year. expect X% to in demand consistent mining XXXX. for prior major markets the to for project to expected down guidance. industry the flat We up X% high be global trucks up horsepower and engines our be X%,

center oil are by and demand by XX% increased Revenues XX%, and in construction in driven market. North expected gas new XX% power increase non-residential in generation XX% in is in to expected increase to data markets the engines by XXXX, Demand global driven for improvement America. to to increases

are growing XXXX America the with commercial expected million guidance. For business. are in Accelera, gain electronic higher of market to of $XXX powertrain consistent well The on market near-term forecast year North the Revenues the expecting and to approximately electrolyzer full with momentum double to Meritor capacity the Siemens to continues due to $XXX meet we the expanding additions our be demand business portion battery sales bus prior to and vehicle school million, demand. as from

$X.X be contributed XX% on the for from of are guidance. call, guidance. in in components, to for business billion increase prior in to an previous mentioned expects is of included Meritor consistent billion to overall our previous sales, range Within Cummins results revenue to XXXX. Meritor billion be between the As $X.X $X.X XXXX to with expected by $X.X our EBITDA our billion, XX.X% guidance

to off with we have half summary, raised strong sales year, outlook year to beyond first of the for XX%. very a quarter coming In the strong the visibility demand first growth XX% our to

EBITDA margins for range forecast for revised We is invest to within while be XX.X%, reflecting our in markets strong. our XX% our most very strong Accelera. to continue of our and guidance XX.X% have previous to in from the core of business of future XX.X% also to Demand core the incremental

making future. and Our products are are in we performing the about are investments excited well, the we

resulted execution we plan of EBITDA, with our Strong the world same consistent approximately leaders operating quarter, dividends, and environment. share are challenging $XXX commitment in the form first of per flow employees net sales, of grateful long-term around and at the strong for continued and the quarter, who despite shareholders performance record XX% our earnings delivering the for in in income return returned to During customers the cash operating million to to the I'm and impressed generating financial time. shareholders. our

further return cash to in Our protect growth, enhance sustainable excellent will to Cummins' future the keep planet our that shareholders. future investing and ability solutions for results bringing generations

turn me it Mark. let over Now to

Mark Smith

Jen, good revenue year improved income first record morning, cash share, ago. net to compared organic per XX%, a growth quarter everyone. We you, Thank an strong and a quarterly and earnings flow with operating EBITDA, had of

sales our first full results outlook, strength raised profitability. have of and the the Given for and quarter year expectations improved we

let into America up XX%. year international quarter more XX% revenues Now, record were increased from of Sales details billion, a XX% ago. me $X.X Revenues North a first increased and performance. in the go some

was pricing. the growth the strong addition of by products Meritor. increase, all Of Organic total demand driven and was improved in for XX% segments driven by

impacted currency Foreign fluctuations by negatively X%. sales

business. of XX.X% related a $XX to million of was operations billion of EBITDA the quarter, costs million or costs separation of and our record of including separation first of quarter related $XXX the XXXX XX.X% the to for $XX million of costs the sales $XXX sales, Russia, related to the the suspension in was including Filtration million of $X.X the for Filtration planned business. EBITDA or of

and items, Excluding these products EBITDA by new driven percent by and capabilities. investment improved pricing, partially the higher higher was offset volumes increased in

in excluding provide guidance year my of first operational Filtration clarity the of the the to Russia prior suspension business and separation our related and on our operations costs allow of to and performance quarter To comments. and the comparison the business following in

were of offset Gross Let's look higher more a and but pricing volumes little item. line of benefits a percent sales Meritor. XX basis points, by improved billion of decreased $X margin $XXX detail as the of effect increased by by the as million, dilutive

commodity while we benefits business experiencing for input pricing prior in and to increases, businesses, with quarters other improved improved saw saw on Engine Results from the freight some our and Across improvements. mixed segments trends due some costs, costs. Meritor operational

Selling, to basis invest by XXX and by driven future points addition admin percent capabilities and expenses continue of higher Selling, as increased products decreased support million, variable the we sales. profitable and a growth. $XXX research R&D to and compensation of in as research Meritor, admin costs, new

end We of income the however. from venture demand, higher anticipated, higher rates OEMs joint XXXX. channels to fees. not yet million truck than see in seeing year, Joint user of $XXX after $X as million a ventures did sustained build restock lower signs In operations from earnings decreased with by earnings China, improvement offset challenging prior we technology very increased

of The a $XXX ago. -- investments also asset of in of $XX incurred in also, other year-over-year $XX item. in from foreign loss an is driven a $XX write-down Other line increased a ago, on million improvement gain million this a and million year increase income compared We gains of exchange mark-to-market income we $XX Interest year income an by million. ago. was year to million, a

increased of was rate tax The including by related share rates. due million effective the quarter costs XX.X%, $XX and million of diluted first interest acquisition expense rising the items. to discrete financing or Interest to $X per favorable $X.XX all-in in Meritor

share XX% a diluted were million net from or All-in diluted $X.XX quarter share, million ago. or for per the $X.XX earnings year $XXX the $XXX up per

due performance earnings. strong flow quarter first $XXX continues than over $XXX primarily our cash All-in, QX trend raising of operating was million, higher an successive performance inflow to in Our of cycles. million last higher the year,

on and performance our comment XXXX. now I'll guidance for segment

our operations will of As all the business a be results year year. the that Filtration full reminder, includes in for and the XXXX it consolidated the guidance assumes Meritor impact of included

results of Filtration XX%, to driven primarily separation EBITDA when of the revenue related guidance increase XX.X%, sales that by Segment record or from the to billion, and benefits segment Components exclude XX.X% $X.X Meritor. the occurs. and the as of a costs was an while of addition business decreased

million were in segment $X.X the Meritor line EBITDA X.X% or sales, quarter quarter our in up revenues of and first the last and $XXX in billion from with was expectations.

to three X% from increase year months EBIT of total between XX% XX.X%, XX%, and from Components, be range XXXX to guidance we to ago. expect and revenues XX.X% prior up margin in the unchanged

with For an as a first and $X.X variable material by the pricing were Engine compensation quarter revenues offset EBITDA higher segment, from record ago. the XX.X%, a year billion, from ago year flat increase expenses. of benefit was a was X%

North continued for the pace construction we at the midpoint deceleration XXXX, China X% market and in our to business from strength in X%, expect the guide, between market. In Engine lower revenues up a X% driven by grow American prior and truck the of

previous projections both for guidance. top XXXX in Engine flat with the to line business EBITDA the fourth include tapering XX.X% the to of and in our quarter. range And the in sales, is of modest the a projected line XX.X% bottom be overall

billion. to pricing. record aftermarket the from X.X% increased In increased year well compared net whole revenues volumes XX.X% both as also a segment, a Distribution ago EBITDA XX% ago, of and a goods improved driven year in higher sales by as to to $X.X

and XX% to and EBITDA X% be for the distribution and to XXX X% expect raised range midpoint by points. up guidance to at We sales by basis we've XXXX the margins in of XX.X% revenues XX%, our margins

business, XX.X% higher driven of strong volumes, quarter also we Systems Power of the up EBITDA by business, year-over-year. X.X% revenues higher and $X.X sales increased strong pricing. billion, had to with XX% the Parts In from a

guidance. be be of portion more expect our Accelera commercial to driven the and of demand powertrain XXXX, bus X% from In is battery than projected our XX higher million, business. American XX% of increase revenues consistent an XX.X% the electric up Meritor Siemens prior with to market, by we vehicle EBITDA XX.X%, in to doubled prior school additions North to approximately and revenues to $XX systems for electric the projections. points basis

invest million growth. support as loss $XX infrastructure capabilities we future continue EBITDA the was products, to Our strong and to in

million revenues anticipate the XXXX, net $XXX million and projections the million In $XXX increase $XXX losses midpoint, the with range of to three to we our Accelera in to from to range entirely be of at months ago. consistent

be XXXX full As Jen and strong mentioned, XX%, XX% from Company projections. project X% and XX year to We our now up points quarter up the company our XX.X%, now to markets, are to key expected the margins given revenues XX% performance are increase the guidance. from in raising basis outlook first EBITDA approximately we guidance. in regions prior to end be prior a our company

rate consistent to forecast. approximately will items. the XXXX, to be prior Our expected discrete range in with of XX%, effective is XX% $X.X be investments any tax billion Capital excluding in billion, our $X.X

to continue growth. investments we make to market capacity future support As new products to to and expansion critical the bring necessary

remain to be of And year, primary We reducing in balance by we debt operating goal of to our shareholders profitable sheet said XX% XXXX, deliver long-term focus for dividends as whilst to shareholders. time, growth on cash over our returning time. committed for last our strengthening and this will continue we our

we record income a in and strong share earnings net sales, delivered per first very EBITDA, In quarter. summary,

the raise our into Our confidence customers forecast. half year, giving us are indicating of second stronger visibility the to

the on to products technologies. investing lead us margins delivering Meritor, and that We business, will incremental the of position the in in levels in focus new our inventory performance core continue strong to in of improvements reducing adoption driving technologies and

is your I to would matter last like one to attention. There bring

updated be our notably our review discussions we emission with and disclosure to XX-Q risk filed see EPA factor have related on most systems, applications. today the to pickup will ongoing of truck our CARB their later Form You our our in that

We relatively are these consent and understand resolving propose likely decrees the pay matter that to agree or one requesting near in future this to more agencies penalties. we that civil by certain

to we to when are is able that the We We amount information today, but material. this look to forward reach amount resolution. likely estimate providing of anticipate the not we a on topic penalties these be additional

you it and to I'll back now us over for turn joining Thank today, Chris.

Chris Clulow

Out that others would call, Mark. question one consideration I and to follow-up. you, ask of to related on a you yourself limit the Thank

we first Operator, our additional the If any for ready you questions, have queue. rejoin please are question.

Operator

you. Thank

The first go Jerry Goldman Revich question today coming is of Please ahead. Sachs. from

Jerry Revich

morning, Hi, everyone. Yes. good

Jennifer Rumsey

Jerry. Good morning,

Mark Smith

Good morning, Jerry.

Jerry Revich

really quarter. to outstanding first quarter and just strong Systems decline margins a the the the on of wanted Congratulations is that for Distribution I are rate. early through? run you discrete significantly businesses, for ask declined sequentially guidance Power there for to quarter, Can think off sure that or we businesses? results the items just Is and these two are year, just in you sustainable, first to make step want the any

Mark Smith

asking questions well, been internally as Really from definitely Yes, strong both. we've those Jerry. results

been course, pricing, think I of positive. has

in think We anticipated help the businesses, those power of that that for we some seen year. beneficial I both had full systems. we in commodities the moves haven't cost some yet increases

they we're increases continue. some then that cost effect of strong before So And lag and assuming course, parts take not in place. some margins, distribution, of very the

strong year we're still results. So expecting full

the modest from leave can. want to think one those And everywhere Of performance the particular or main push businesses. of pleased we're for But segments. you with the course, takeaway to improved I we'll we I of with, items in all continue that benefits there two corporate really again, improvement was

over improving Distribution Power by quarters progress really record encouraged time, the now and last we're the Systems The in three four of over established quite a business has or track business. the margins

certain drive I which we one And that business pushing bit, factors the keep continue subsequent inventory we'll have we're a are in Systems So think Power not or some through to little. impact can may down little two trying more. absorption the a quarters. But for

Jerry Revich

your laid shift we you gains the share new you content rising these Super. really context you gears, that folks expand opportunities job vehicle Thank do comments the prepared every and of well? as about folks time wondering terms engines, market regulations. the talk the can just I'm you, just that Mark. Thanks. a have particularly in recently just rising we potential of And folks and electric made in then I good see market you expanding on can as plans have do the EPA's out on complexity within share remarks of Jennifer,

Jennifer Rumsey

the for Yes. question, Great. Thanks Jerry.

is some in that with commented through saw NSVI. I playing drive and the come our China of market in in in strong we do the believe And future seen emissions build previously. following launch the of We've course, NOx that of -- both market. space opportunity our regulation US have as change position ultra-low as out of playing pattern you with there's regulation to in the outgrowth position as well to BSVI start to to position rule the regulations leveraging market, in So continued increase content the today in now India EPA out we Engine although, degree, QX, added a

So content expansion.

to continues opportunity a but be continues tailwind to and America be there. that outgrowth North in slowing upside some So there to on-highway, degree

we to then business the position integrated our in key our as and working clearly as electrified well particular, are Accelera in and in position powertrain. And components powertrain establish in

and the and right market as getting to technologies market electrify. electronics We are partnerships motor to that forming we've over experience power starts like got time batteries, the and in position portfolio eAxles, fuel feel of generators, cells. ourselves So

Operator

The ahead. question next from Please, Tim Citi. of is Thank Thein you. coming go

Tim Thein

on morning. Good you. Mark, to just one maybe Thank Engine on the segment. start --

outlook full believe, as revenue and was year guidance, as the I and You've up the income well JV margin taken unchanged.

the guidance? So line profit in top EBITDA against terms what's of the there or the working

Mark Smith

We inflation. the the In of of term, quite near cost some actually that's the progress on the on segment pressure in input areas. other one front, bit where made a faced Yes. we've cost more

single So the biggest that's there. probably factor in

just got -- in market better better a we're visibility user expected expected. demand. will I be Tim, the found that But than improving clear will than upside. a footing up we have don't it we it sure we income, JV yet, in not The now. and -- just It It exceptional. don't pick was we're mean, we've sight QX. was end We into have not an that right to wasn't eventually, the just

business still one the one have challenges, the -- that factor. other don't biggest businesses that's wrestling the supply wouldn't challenges that's say but that's on that's basically, with side, continues I the to But have and the some

Tim Thein

Got it.

then, Cummins Okay. you've yet wouldn't And just on translating -- on-highway an be is a on without you call on production on And a a seen update retail China. the pickup side, that side. the standpoint not mentioned from

-- on is the maybe What just markets the what team seeing the on-highway, key end and other hearing, you. of just for but not some

You other of a in as mentioned of China maybe the of for some the into what's and China baked excavators, but the you. operations whole? the year ones just kind Thank balance in

Jennifer Rumsey

already I'll slow But in -- the alluded on-highway to. forecasting and can as slow like we're not you start demand opportunity then about. and we're as significant additional in that the increase and inventory add end Yes, that points was a as Mark believe recovery business, Mark in he'd we've to, to in the user some buildup there market quarter, talked recovery outgrowth and seeing

impacting emissions up higher seen in we In as some less previous channel that export again, as guide, is have in construction, negatively off-highway, than so because we've the China market, changeover our stocking demand. the well the

and and up continue in to oil gas. We markets holding mining see

of bit little a and gen. construction overall, so, of in on-highway kind off-highway a upside story and mixed And power

Operator

Credit Cook of Jamie ahead. Please, Thank go coming The from you. Suisse. question is next

Jamie Cook

Mark, marginally, components to morning I the our too margins a on question, Hi. nice but and engines, quarter. were guess, similar Good sales unchanged. are first on guidance congrats increasing

would So what the be that? behind reason

But fairly seeing book, where everywhere that pretty order of could good event guess, about based you're weakens? your And sort you're macro Thank red there it earnings, trends the recession what demand on is there to areas any a sustain or then, sounds in how do Jen, do you're higher self-help Cummins I any flags? assuming the we other is good saying, And XXXX. in decrementals, or you. think downturn, for seeing like of are

Mark Smith

Yes.

performing this think continues I The mix I is think, big Jamie, I to to dilutive to and price/cost relative think components. just America. businesses such do underlying really minor factor business. But well. no not it's power in really but overall well. North continues components improve, in really main strong from a going Again, are The help the the segment to obviously segment, changes got that We've fundamental in the systems forward. . Meritor mix it's some but still

Jennifer Rumsey

I a in we're And margin when we focused Accelera I'll on we and performance sustainable our the just improving breakeven said driving add, performance scaling investing with business then other improvement perspective, and business. towards what incremental mean, across from up and really Meritor businesses acquisition, core consistent margin the the did a way moving

towards of paying we're targets. so track attention driving we're our to each And to those items -- those that

from strong. have, Jamie, In the continue terms of that fairly remains customers boards, our broader the get picture, customers to to we end your the question, comments end market demand, order

second business. into we growing we're cyclical broader to continue a the macroeconomic confidence, these we Our indicators year, half in as and understand said, is and that the of watch

cycle while cycle and margins we'll deliver in because And of through this as the preparing and past. outperform are action decremental hasn't down the constraints, typical we have a the take we to been supply

key the to. limiting continue for and So, already in level we we the are future, investments areas that operate appropriate in and need to as closely that monitor other at for investment and adjust year, plant to demand this we're we'll and watch our but continue making areas in seeing, growth also headcount operations

Jamie Cook

it. appreciate I you. thank Okay,

Operator

from of go ISI. Please you. is David coming Raso question Thank ahead. Evercore next The

David Raso

Hi.

on-highway. for on picking just what to initial look from XXXX off-highway relative of to I'm thoughts they need on beyond Sort customers curious, up having trying XXXX. in you the your conversations with you're

those Just curious if you conversations? have any distinguishing between different features

Mark Smith

or to is correctly? more the make in markets high David, answering construction sure horsepower we're in your question area the just

David Raso

Off-highway question Open on versus purpose. on-highway.

Mark Smith

Yes.

-- don't of guidance, for course, the So have XXXX. would really we given haven't we say I on --

construction haven't this one America seeing we're similar any in though the watching we're on-highway, weakening markets We closely. in seen in North to what

into that's move third construction we fourth probably -- good now. state visibility I similar that the cautious now it's very on-highway, into the a look as going into at quarter we as well versus the probably but think quarter, probably

Jennifer Rumsey

add, of about I'll just talked And emissions course, China, the you in changeover.

China market action a there's question does dynamic on economy and any there So, do to. pay a in that that attention in we'll the

terms places broader Systems, orders do Power where watching in but I'm And we indicators take of have same XXXX. we're into starting macroeconomic to in that,

just And at a so this point. watching it's we're that space closely

David Raso

a And living been the also just about appreciate truck I market also price. But historically curious era right now. been maintaining that. we're pretty it's people through best are hasn't power unique for pricing

cost I'm just thinking have curious to can't and conversations if be are not offset for So, early price, there you or you XXXX. lower I'm give back about commensurate what how saying are the like XX, the initial for pricing we've XXXX the levels isolation, think trying to up about in what you. conversations been to where coming given XX for last pricing the But just are months?

Jennifer Rumsey

some overcoming have change markets we emissions Well, XXXX. in our of in

So, of We're price regularly say factor. going market. some But with the have on course, pay what's continuing with is price more customers. customers We our would to with in what we I that's other attention a agreements long-term of some costs. to

a still picture. it's said, Mark As mixed

still year, areas. moves. stay cost to deliver areas, But top on committed inflationary continuing some seeing right price of this we're we're we're as improvements pressure other so and returns in and now, And that strong to and seeing

So it's -- yeah. a in XXXX, little bit difficult

David Raso

Is case being just even you're getting -- about hear price are guess more concession Should more But ideally? asked the a why and they be When I'm down or I for it's would some concessions that for curious, getting curious we even base component the for if price cost some just be the mid-year were I'm request? then OEM. suppliers, XXXX. I answer structural we not because concessions. But mean any -- price

Mark Smith

a lot lot I David, that's factors A all. included go conversation at costs, input pricing, but into customers, think agreements topic right of supplier with a now main those there in available. things, not of

are driving for the XXXX. is, That's performance. thinking year really appreciate their us is how going any questions does average, on thing for the I our we're of the demand. the up, and not -- think about telling We to off-highway and mostly gone right this levels has rest That's the run radar be biggest recognize upon customers cycle long the on the stayed of and about signals confidence factor same most is our now, around demand same.

Operator

Please Thank Research. you. ahead. of The Wertheimer next coming question Rob Melius from is go

Rob Wertheimer

question just up plant. following that with a different on slightly maybe Almost

businesses serve you, did and have think, where distribution good I that well. well quarter have and OEMs pricing really on-highway you control more Your at margin. power the a really And had as systems truck

to pricing and is your up sense you're should strong? that catch over those your there's runway overall, or general still time, Just is and that go, too components to OEMs

Mark Smith

to Well, the we're business. our first have of -- and That's -- of really performance all, at of aware business. their OEM really dynamics not really we we look pricing. can't the We of the can't all the costs

within quite on going got some that's of about, our significant about. our new thing customers and other The course, of we're of excited margins, a lot are products investment, we've that excited

of So the engineering cost elevated.

I'm and components. engine particularly doesn't that's with really factor that come an the the is of in accelerate new amount So everything revenue to today. enormous going other

engines But our right? a the will a get have source so factor We're this in generally, to we're technologies do positive we planning components, even clearly year. pricing us secure that. cost more new for in And we future, that business for we more Aftermarket, price with the pricing, there's for Rob. That's where forward. we're secured stronger the bringing can results, obviously of and

Because the business think putting the because future. investing? more I the we right for how we're also margins, into a But growth. much are investing who's you've I is about about now, excited others the engineering got And signal across much think to are effect, we more into how looking take at are investing

Rob Wertheimer

I've bidding you. should That's margins I be and dynamics And loss-making to about the as this about a your do we do? I the am there? think ramp, to not be. of asked answer. How can you are are volumes still as positive -- to underlying maybe think if easy helpful what sort on going Thank not start to how we economics Accelera, project answer, level margin consistently margin revenue but of deliveries the through? come I Are in line more I mean what – before, think

Mark Smith

then ramp aiming EBITDA to the electric going costs we're some as think at battery we expect have around then on that get fixed are our current I based stated higher have strategy, on we've And been electrolyzers, up. positive we And or there side. previously on XXXX. to gross by margins to neutral

battery QX, yes, on particularly growth up revenues sales, use is yesterday, those momentum time. the up, accelerate, as got the sales we've has word building go quite the a me. down was excuse as I over picked electrolyzer we're So losses about the we've recently, And backlog clearly we're lot. -- really electric, the expect going to most see But talked -- to of on come won't

focused about as And bullish But we're Battery up. that. margins very is rate. little come higher bit yes, fixed a volumes the cost the on so

Operator

question JPMorgan. next The Please is you. Tami Thank coming go Zakaria ahead. of from

Unidentified Analyst

XXXX? production Congratulations is Ishan question on And be -- anticipated, Meritor customers great inflation first ask print. to back? I second is, XXXX behalf could of Thanks. well. preparing on cost able on ahead second emission then if on pre-buy a I on as Are this assuming Hi, may a the pass to if of are My are or sorry, Tami. pushing [ph] in ramp you regulations years the ask may as XXXX or you

Mark Smith

Yes.

is we're up economic I'd say expecting pick what we're So making cycle, investments are planned business. more because we of irrespective the -- to

our is to economic be new of up cycle. parts business to business in that nature we increasing launching we're capacity of prepared on ramp the such products. have So The based our down and ramp and

But bullish we're a predict or yes, CapEx great because year with longer-term years to two of this three prospects. is kind out. general our certainty our it's on as So up hard statement,

And increases think then we're competitive a late It able and inflation the on prices. course, industrial quite took increase necessitated XXXX. in I challenging. it's really cost, always and But pricing were us significant in over and what's that that's space on earlier of been there's cycle the time, frankly, across to the price aware all while we before

an there. of so the been ongoing… that's to catching extent, kind we've up Yes, trends an with So

Jennifer Rumsey

You improvement. specifically that some reflected EBITDA of Meritor in the saw as

Operator

coming from of Fisher is go question ahead. UBS. Steven next The Please you. Thank

Steven Fisher

any that just I in what be? might might call, I And on color this that about to could, that you be if the sort resolution affect Hi, you of to might plans can the but the fund conference any plans that I situation how it this there's negotiate up, of timing spending on thanks. want legal Wanted yourself of have? multi-hundreds this and of a offer? could your sensitive to something EPA something and follow cash Is morning. think investment that mentioned, obviously with the suspect on then dollars? and CARB is potential you or don't just framing Good if know flow might of other size millions within you you ongoing Is just this

Jennifer Rumsey

the for thanks saying first, to that want to is So, by fully emissions compliance. I Cummins do start question. committed

we internal with today And have all in what XXXX to this updated disclosure We process. this our to been through work of we've review since throughout transparently best along consistent cooperate continue first the done abilities. and is we'll with our matter voluntary and our disclosing of announced agencies

we end. to exact said, is the as we amount to strong at this strong nearing a position though well financial point. It's premature returns. exact like the are or speculate Mark generate that in positioned business timing We think feel So, continuing and

Steven Fisher

I'm versus quantify price this up helpful. cost Are on discussions. year wondering, and kind just the That's follow And price for then, actually of cadence versus cost able of to you the Okay. to some but the makes about talk highlight of that sense Thank And you. year? margin I'm it cadence specific of the thinking to sort any helpful. for rest would be the whole about company, segments, if the

Mark Smith

between in remarks, X% said business, by cost. And see margins can And about we of it positive the quarter, you're about questions can the varied as the see first Well, asking the lot -- in in you on fact, earlier much we net and very you different since it, price in were business. a that.

much set largely course pricing area and the nature I the customers, pretty I efficiencies business. I year potential part is operations, unique that of it's frequently. the is we think, in mean, set. where were to every much, Cummins. the with think have is the That's prices this just looking one of pretty don't more for with that's Aftermarket suppliers. really But then, working working aftermarket for

not of grow out very, an costs are lower. robust business enjoy just been the That's it unprecedented some been supply some which, we're of and when very unprecedented complexity a faster and It's to of be. yet period constrains, And underlying not all of demand. markets. We the of continued it's we've where our than we'd period frankly,

been lot teams. our a work that's So a for positive, been that’s of chain but supply

quarter-to-quarter. bit, using some be net techniques think, try commodities can and Steve. out I again, copper it's smooth ebb dramatic benefit for I to year, we're And largely, and this going don't those little But hedging Systems other the to a business. saw Power positive flow and costs. changes imagine in and we The a prices

variation now, right And for on confidence don't I customers the the confidence this based has the fundamental We're our changes in of to up through of on expect reason But side. earnings. demand really rest gone this focused our year.

Jennifer Rumsey

in And mind keep context here. as just to

really years, with factors increase two saw there's Over rapid we play in supply pressure inflationary challenges. been the that the as last and couple demand, of at

And in the reflected in made the QX. price, XXXX pressure of So early is improved and one we it's leverage versus see and in cost also that leverage. the lot that then that some numbers and of you supply is disruptions the to didn't of because that to through you ability XXXX, offset we see a quarters, normal has see all in operating our pass progress a and on and that inflationary operating we would, continue those

Plant, So Engine us Rocky give just sense in now midrange that's our which you Mount to what a like engines. of for produces

our expect something suppliers we it would delivery XX%. In XX%. historically, And at from XX%. was on-time to year, Last closer QX, our was at

plays plant. that efficiency us our so for out And in operating in

little a it's improved. So, bit still opportunity. of There's

has we've the still into and at chips Yes, at call running improved. are couple I'm small far But are, chain. supply means improved, without which of a about impacted. me but But it rate supplier underlying have be operating the we asking capacity, constrained to continuing asking components. that hasn't shocked overall, we electronics anybody made this -- disruption operating leverage by they're our

Operator

TD from Elkott coming next Matt of Thank go question ahead. Cowen. Please you. The is

Matt Elkott

morning. side, new you from California Thursday, any content which long-term potential Good and on passenger, rule includes the wondering mandates locomotives. Thank that you see freight, issued locomotive opportunities the On rail industrial if on

cycle opportunity So, goes stands well and lot technology national, Is if you of a for any could as build be there that? guys big upgrades. a new it as there from

Jennifer Rumsey

passenger lot with still our here. engine. now XX-liter a for of the in It's response add course, We, business of early are rail me to

a market and Tier cells. we've rail then the with have with X certain compliant customers fuel entered product, also We

the we'll so continue And to offerings explore opportunities product have that with we market. that in

Matt Elkott

weak? the question it. one light strength a this improved see higher just and of whole strength results and of level on the Got bifurcation outlook. as rest economy you in your one the your being hand machinery strong Do And sector between of and the

that up typical than the or Is a Is more something catching cycle. two is that -- nearly than more a this the not you mentioned, hampered the levels, from production so catching demand this that, or up demand? just a last there just function is of half years Jen, disruptions while and

Jennifer Rumsey

and more fuel high Well, high supply use, in there new and I is products definitely, a said are -- use right, then efficient. mean, is limitations what you factor, at

to demand a So, the to cloud, it's that's center investments of in growing in to causing construction driving trucking continue commercial want -- to there's customers in are factors There's that and data and demand. lot driving investments there's still buy. infrastructure

for indicators are decoupled the specific from business some economy. broader are there that so And our maybe

the increasing continue to and where be broader some making headcount. we're investments That we have cautious about why influence, said, does which is economy

Mark Smith

and other get retrenchment. areas, observer We the do of added wonder economy you at parts the and of resources sometimes as hiring -- into just of new then an and like you rate being

we efficient from very work that's different sometimes, business model with very And in. the that customers. We operate

of strong we lot cycles are some to well don't what that some economy, you even through experienced. A going dynamics other the sectors different have very right, focus, in when just efficiency is of the see growing translate

Operator

would Clulow to Thank closing time for you. floor Ladies I and gentlemen, back unfortunately, over we Mr. have of out turn like for to the questions. comments. run

Chris Clulow

Donna. much, very Thanks

conclude, I closing over we for few turn a back to it to comments. Before Jennifer want

Jennifer Rumsey

Thanks, Yeah. Chris.

wrap in We're today, per delivering of record want company revenue, the financial future forward future on position to first are strategy the in I in share. up to to strong quarter, the recognize strong earnings income company performance the net EBITDA, Just a and and calls. in you and leaders confident and look progress in the of our our continuing our to update again

Chris Clulow

for That continued you. interest. all today, our and concludes you and Thank teleconference your participating thank for

day. the Relations questions after good a always, Have call. As the Investor will team be available for

Operator

Ladies gentlemen, event. you and today's for thank This participation. concludes your

time may log and You or lines disconnect your off this at the your day. the webcast, of enjoy rest

Cummins (CMI) 2 May 232023 Q1 Earnings call transcript