CMI - Earnings call 4 2023

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Operator

Greetings. Welcome to Cummins Inc. Fourth Quarter 2023 Earnings Conference Call.

[Operator Instructions]

Please note, this conference is being recorded.

the Relations. to turn President Clulow, now Investor of will conference Chris over Vice I you. Thank

may You begin.

Christopher Clulow

the full Thank Officer. Chief to me Chief to for Executive our Good today teleconference quarter you. morning, our Mark today discuss everyone, are Jennifer Officer; Cummins' Chair Participating and of Financial XXXX. year and Rumsey, welcome fourth with and and results our Smith,

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

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

differ in results those a from of because future such statements of actual risks uncertainties. projected number Our could and forward-looking materially

risks particularly any available in with More uncertainties quarterly on Commission, Exchange the information and Factors filed Form most annual XX-K reports deck report filed recently the statement the and slide and regarding XX-Q. our filings section of Form the forward-looking and disclosure on our subsequently such is Risk Securities in

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

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

I'll CEO, Jennifer Rumsey, off. With us turn over and of Chair to that you out the to way, kick our

Jennifer Rumsey

our and I'll then XXXX. quarter and outlook and and for discuss year of performance our discussion with start everyone. finish of forecast full XXXX with Chris, full year. fourth more take for our year of and the this and you, Thank morning, through details will summary I'll good fourth financial you Mark then quarter results, our a

for employees our back our to global energized feel demonstrate stakeholders, Cummins for of and about XXXX, relentless and am ahead and innovation. the continue accomplished a proud I on what As we I energy incredibly opportunities I clean focus on reflect our as technology us in leader being

We dual-path and clear reducing our and of our achieving to continue strategy, greenhouse to grow this air our made the today that impact. in meet Destination our and it to approach be quality right gas continues is significant progress customers' approach to products and business needs impacts Zero

U.S. did the fuel-agnostic more billion we Power as Cummins. through We to emission by committed developing XXXX, fuel-agnostic than solutions well by this XXXX. new our well investing business business $X across Accelera support the in XXX to our engine core as as platforms for in notably advancing North unveiled America X first in launching manufacturing our series network as engine Most industry's

to gas our applications, Additionally, enables initiated natural industry's achieve further several oxides reductions performance. greenhouse gas and heavy-duty we North and year without with will their which truck specifically on-highway for XXX opportunity our to the in engine goals. and customers This realize engine, launch decarbonization this design natural offering gas first the is compromising in collaborations America customers nitrous

We launch the are later of this continuing strong OEMs from end users and see to both interest year. ahead

the in accelerate chain joint In Trucks jobs X,XXX the venture PACCAR U.S. and Mississippi the create in of manufacturing more we to EV Accelera and supply XX-gigawatt further Marshall with expected than announced to for Buses, factory selection quarter U.S. business, Energy battery begin a in the anticipated production is that battery XXXX. localize this hour to We County, our announced with Daimler production and cell

manufacturing engines began electrolyzer compliance for mission used milestone million. the In location first certain electrolyzer $XXX order in to demand, for and further a also we U.S. electrolyzers Accelera to our year process growing regarding resolve backlog U.S. claims primarily meet regulatory at applications. over our reached order certification truck in of this totaling principle our production pickup

After agreement the this us our certainty with for matter way working Destination advancing an regulators, move our strategy. certifying and was years with Zero products achieve to reaching the best of X.X forward on diligently and new

We have regulations with our expanded and help world. emissions stringent compliance products to program our increasingly emissions the strengthened comply ensure around

us a Compliance Regulatory compliance and global product XXXX, in line to which a and for has Our cleaner positions and organization, are and to customers our reporting solutions we requirements lead launched environment. deliver come Product to me directly that safe Affairs meet

will for by of some of I strong Demand quarter of many remain across markets. of XXXX, for across our strong for key the demand performance XXXX compared comment global regions. to overall and totaled company billion, products our key markets. cover fourth Revenues driven markets quarter the $X.X this increase XX% an Now on and most our

million the positive to a of the or quarter claims, XX.X% negative quarter the of included ago. to the results, $XX included XXXX the retirement Fourth Atmus separation separation related costs separation billion a related $X.X million which of was and to billion Atmus of the voluntary regulatory business. costs million a XXXX This related business. to million fourth programs, costs or of and of $XX U.S. $X.XX of compares to resolve related costs EBITDA to $XX loss year XX.X% compared results to $XXX agreement

costs. or and and XX.X%. ago Excluding of those from offset items, sales year development increased increased to EBITDA selling, a was volumes EBITDA more pricing research $X.X or increased dollars compared than $X.X administrative as higher expenses billion XX.X% inflation billion and

the create particularly Accelera will and Engine, the in invest technologies expense and the in advantages we products to segments. Components Research as in that increased and in fourth continue the future, development quarter

was compared EBITDA driven revenues strong or XXXX billion to we sales the XX.X% of X.X% XXXX. In XXXX, or by most demand than higher addition quarter to was of capital XX% the addition, global continue working $X strong and of $X.X within billion, the focus of fourth $XX.X quarter billion $XXX operating compared fourth XXXX billion, record a in the Meritor were flow to cash for sales of XXXX million markets. $X.X across at management on business. in very as

the XXXX of compares million to voluntary million results, costs of which results regulatory $X.XX included billion noted $XXX of $XX related Russia I business. our resolve to previously U.S. costs costs and the This reduction the separation the in to to to related related the of XXXX $XXX indefinite of headcount Filtration claims, the and related include of costs Filtration agreement business. operations suspension program the separation of to million

and XX.X% segment. EBITDA compared XX.X% exceeded, XXXX, benefits a sales items, those volume and improved costs. of billion and to administrative, pricing Systems percent and in and billion for or for $X was Excluding record selling sales year-over-year EBITDA as inflation of the XXXX or the Power higher development research Distribution, increased $X.X of Components

full the business business, XXXX with a first of in EBITDA their up the segment year particular, in of in Power XX.X% Our transformation encouraging. performance finished effort, sales, and focused Systems XX.X% improvement year from This of completed XXXX. is

see will expect our further gains this year. margin You we from that guidance

tremendous reach. in of year date in finished that XXXX our our of its the very pleased sales, did improve continue job value business. addition and with to opportunities a as of from across business expand EBITDA XX.X% of full XXXX I'm Meritor Meritor executing capture segments, to Cummins global margins up employees X.X% performance we with as our In the to program

in cash addition, as cash and Strong of operating of significant focus they leaders record a from in a our to $X forward. priority primary XXXX. areas. XXXX for will In proud flow efforts employees' $X a was of billion, deliver XXXX billion one help continue be on top generation increase moving I'm our

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

guidance XXXX but year, with that or Atmus full business. planned of include cost continues to Our the any separation excludes benefits the associated for

X% its for with XXXX forecast market and the half forecasting to we demand of anticipate is rate, markets, some peak the of softening to be truck. continue XXXX, of our We the at in to of sales further be the our compared heavy-duty and America of XXXX, in off Early to key of North are second slowing half XX.X% first which revenue year. in we particularly total in XX.X% range down to the to regions EBITDA as X% the XXXX heavy-duty in current expect slightly company

projected Industry is production America units trucks to a XX% to in XXX,XXX be XXXX, for decline XX% year-over-year. North in XXX,XXX heavy-duty to

truck market, we compared units, market In to medium-duty to down XXXX. XXX,XXX to be X% XXX,XXX to expect flat size

expected trucks model XX% launch pickup for fourth we quarter. America to XXX,XXX year shipments engine North year-over-year to X% to in XXXX, be our the prepare to a as are units in in decline XXXX Our XXX,XXX

down of and and in truck demand X% joint down a including revenue, in total range XXXX. project a XX% we to ventures, expect demand to China, We're medium-duty in projecting range X% increase market. up to X% heavy-duty up truck and of light-duty In X%

We replacement economy to demand be the demand. a driver, moderating be the but sluggish effect and biggest by may weakened expect export

market, pace market. the for natural to see truck Despite the the share China performance in recovery XXXX we approximately we XX-liter in as strong expect the engine heavy-duty for slow continued of gas achieved XX%

joint demand. project In primarily ventures strong generation on-highway X% power driven revenue, in by we including to total India, increase XXXX, and

We expect the trucks for to year. X% be flat up for to industry demand

decline and weak X% shrinking demand year-over-year, construction, by For China. XX% global export investment we to in expect a primarily property driven

Sales global major in markets by up down horsepower are center, strong to expected high increase Revenues driven in to the the XX% to our remain mission-critical data be markets. X% expected XXXX. power engines We global increases to project market are X% generation in X%. to and mining and continued

is flat While expect primarily and XXXX. North for engines that driven a largely XXXX, the oil efforts happened XXXX, management in of we decreased of second expect by And of demand XX% increase aftermarket, for for in the by decrease market half destocking demand as an gas XX% range to the in small America. through to and we X% us, to industry for inventory throughout to be expected

to expect million million to we the In compared $XXX XXXX. Accelera, sales million be to $XXX $XXX year full in

over pipeline in continued which XX growing to of a the XX to orders, expect deliver as as have of We growth months expect course next electrolyzer components. the well we electrified

In a cash for revenues flow. summary, XXXX operating year was and record

share. related U.S. per EBITDA, Excluding XXXX resolve and also to agreement earnings income to the claims, a year record the for was net regulatory impacts

we were America revenues at end high the second North demand half of of the truck production expectations, our in moderating XXXX anticipate While in XXXX.

be in the demand sales. resiliency moderating to partially this and presence strong offset generation power a given Accelera expect by our improved business, aftermarket Distribution market, We strong

XXXX. we business to and in Cummins reduce steps continued success position are taking addition, optimize for In cost, our

position our keep returning and We customers to to technologies are to new future, investing cash bringing in strong a in the investors.

for May City. scheduled to in further close, out invitations I like our forward and to discussing shortly. officially Analyst New look our I York Day XX strategy sent now would that As be announce is expect to I

Mark? to turn our Mark, discuss Now in let detail. me results financial more over will it who

Mark Smith

Thank morning. and good a everyone. will you, Jen, acknowledge this I cold morning, heavy I've

XX% focus year our guidance. reflecting of rougher, doubled cash flow We delivered a strong if consideration. our and billion, working revenue grew So more our take solid than sales quarter, for the line the operational demand Compared to I on capital. our usual and into EBITDA employees fourth XXXX, expectations in to a more meeting please exceeding sound than margins our customer and record full $X operating dour in that delivering with improving little and results

QX fourth on performance. quarter Now XX.X% net EBITDA were let loss or and $X.X revenues $XXX full negative billion, million into me the of year go sales. of a and details was more

year, full the or we $X billion was of For record of and billion, a $XX.X X.X% reported sales. revenues EBITDA

to charge QX As previously in Jen of mentioned, $X.XX a onetime disclosed regulatory we settle U.S. recorded billion claims. the

Fourth $XX million a voluntary $XX quarter and in Atmus and associated quarter million million million previous results of fourth of for the in with separation also associated of of programs. with costs year, to the quarter included the compared retirement in XXXX and $XXX planned million $XX total separation Costs $XX the year. full the fourth were the

costs retirement of the on of related fourth performance voluntary in the business year our in provide separation following results clarity in the comments. of our regulatory full year programs, indefinite Atmus suspension of operational excluding and now included suspension and Russia. To my also XXXX to the Full million our XXXX associated planned quarter Russia $XXX operations settlement, and operations costs with the indefinite of separation

year stronger by a an were driven revenues generation XX% in improved America increased billion, QX power across North products. $X.X increase from of ago. demand end multiple for pricing markets X% Sales and

capabilities Improved billion or particularly $X.X ago. demand, a of XX%, sales centers. Accelera stronger flow, EBITDA investment quarter segment. was costs, was International quarter costs gen of sales development power by the compensation our driven Higher now and offset to compensation variable or operating strong the XX.X% for year global revenues compared by for driven increased the by $X.X in pricing increased full data exceeded cash year. higher expectations primarily XX.X% and were in billion which for

Now billion basis favorable of into with or by more an compensation partially line little the $XXX volumes, $X higher detail. million offset from points go was costs each expenses. or sales, a driven Gross coverage improved The year. increase margin I'll item higher were and XX product XX.X% of prior by margins pricing and bit

costs. to and growth income to was compensation to year due XXXX. increased ago, in million expenses fees base million venture million, the research invest of increase products the $XX recovering increased development, higher quarter. from in the and recovery $XX a admin demand from an Selling, customers to million Other China in due in $XXX will we as fourth variable primarily Joint technology $XX XX% of slowly future continue new low a due from that income by also drive or

rates in of Interest in tax regulatory million by the portion to debt. was driven million, rate the effective quarter interest from year, the all-in nondeductible due rate The fourth prior $X with an expense associated the was negative increase our principally floating costs XX.X%, settlement. higher $XX on

diluted negative $XX.XX was planned diluted share, includes the $X.X share associated separation All-in per per costs or $XX.XX costs costs separation $X.XX per loss of Atmus. and which or or with of for voluntary retirement with regulatory $X.XX net million $XX the of share and with million settlement, $XX share billion associated the or programs of diluted $X.XX associated per the quarter diluted billion

working the higher lower business. year, the expansion cash of than million $X.X an strong flow capital quarter inflow fourth of was by Operating billion, last driven $XXX our a and earnings across

the were full full results ago, of the driven year $X year and a growth. strong XX% billion record XXXX, organic or For a revenues year a of billion, $XX.X from by up Meritor inclusion

America North organic continued and improving XX%. strong market truck by North sales conditions Within pricing, and sales increased numbers, driven those growth American for XX% generation in strength products, improved increased slowly in global economic international Sales the power XX%, demand was in China.

XX.X% modest-to-favorable volumes, XXXX, billion was by increase a or that higher the favorable year EBITDA investments $X.X mark-to-market all from underpin by an points expenses. from driven life costs of basis increase for for pricing the was of offset $X.X company-owned that compensation year. partially impact higher logistics or our of XXX sales plans, billion prior The and percent and in insurance EBITDA

billion ago. of billion diluted All-in share $X.XX $XX.XX or diluted net regulatory of related costs of the million share $X.XX costs fourth diluted include earnings diluted per $X.XX $XXX implemented to per the $X.XX or costs related related that $X.X Atmus, separation or per share to were per to a per compared million we diluted the or share year programs or quarter. during to net $XX.XX share million earnings of $XXX $XX settlement, XXXX voluntary the separation

company. and fuel-agnostic our we and across particularly Capital billion, were new to cash year as and $X an to invest with income core a record drive of capabilities in increase related from from the from operations XXXX, business. XXXX result forecast million platforms line Full to $X.X capital in expenditures operating continue within inflow our as the of products higher $XXX the a growth, was expansion of working a lower ago year much in billion, of doubling

XX% we've deliver flow the X to And least shareholders. over at cash cash Our XX% long-term and goal years, share of of operating of repurchases to returned form operating flow past the dividends. is in

-- via allocation we focused XXXX, on Page our happen mirror the acquisition will last of XXXX following I've We X, sorry wrong growth, That that. and cash our capital investments we shareholders dividend If dividend of for -- returning way. I In all-in currently in and those can organic million priorities debt about gone times. reduction some expect the on year. jumped to the deployment $XXX that Meritor.

summarize XXXX operating results the XXXX. provide the segments guidance for I'll and now for

operations to with the suspension it our the Russia the going of XXXX. with If Atmus, that need exclude separation will that retirement going costs in costs to related I again, say the I'm associated I forward separation associated in the of results costs discuss the voluntary to and indefinite the and

EBITDA segment year. of or record XX.X%, XX%. than $XX.X increase to $XXX compared higher revenues billion, Components record of prior an XX% XX.X% were was sales the million a

For XXXX, X% to revenue the decrease margins EBITDA total the Components XX.X% business of range to X% in for and be expect XX.X%. we to to

record to XX.X% segment, North was most In to truck second billion, project decrease to EBITDA most XXXX X%. to is increased the dollar a be American prominently the the year. in and half revenues XX.X%. range XXXX In a X%, the due X% in expected heavy-duty market, For $XX truck the sales X% for ago. the of second revenues moderation of Engine projected will XX.X% increased XXXX, EBITDA XX.X% we or Engine million to half likely in in or the -- $XX.X to compared of business terms, EBITDA year

of In XX.X% the increased $XX.X record ago EBITDA a sales as from XX.X% to revenues to Distribution improved The segment, and XX%, percent XX% ago. year a billion. increased by compared a year to a

to X% to EBITDA of XX.X% X% year. revenues up for to XX.X% margins the in range be down Distribution expect and the We between full and down be --

cost favorable XX% Systems down than also basis XXXX, Power strong expect XXX to actions. range X%, and up reduction year. by and XX.X% billion we were in points EBITDA last of was revenues revenues XXXX, a certain higher segment, pricing, or of X% XX.X%. In or than higher In EBITDA record the Power to volume to XX.X% driven Systems $X.X be the

million increased -- to to to $XXX whilst net we operating investments million increase $XXX million million XXXX of of million. $XXX targeted products. to expect make future technologies in between we that revenues level we losses revenues -- In with million the the Accelera of at improving net current $XXX loss performance EBITDA Accelera to reduce in continue as in range $XXX Accelera will the $XXX and our a and XXXX, anticipate

be X% in X%, of EBITDA to revenues range company XXXX We currently XX.X%. project to down company and XX.X% to margins the

Our effective growth. 'XX, tax the XX% items. billion discrete excluding Capital range likely of to to be support rate critical in we approximately continue future is expected $X.X to $X.X billion as be make investments in to investments any will

to To summarize, strong sales we products been XXXX, enabling and and XXXX. continue continue us operating generation sheet. strong record Cash a of uncertainty, shareholders economic we focus investing profits terms in and balance delivered strong in to a as cash maintaining will returning has be even during new enter to

moderation improve in markets reflected the in and truck indicated, we of the cycle, guidance. business our situation XXXX, navigate market expect as several our in key taken cycle-over-cycle the U.S. in do performance economic in Jen in XXXX. reduce especially actions good to As in our to a We've costs already

conditions, step reposition as our is in exchange next to mark-to-market seek our future. portfolio our offer Atmus our as we intention the an the separation split for off remaining the ownership to to in through Subject

launch to shareholders earlier, decision stated days. launch shares offer, choice exact exchange in shares as proposed tender common will Atmus offer. have exchange the conditions, for early the our market could terms their coming the none stock, Cummins' offer to of of common As or stock all, of as the timing depend per the occur of of on some subject of exchange the the part as The to will, but an of

costs guidance a include benefits completion now exclude of for shares of The this the outstanding the separation. exchange. are or year Cummins entirety the benefits and Atmus of Our for to the of of for XXXX expected assumes to lower Cummins results any inclusion number consolidated upon

as guidance completed. our the when update and separation is will We

today. Thank you for your interest

it back turn to Chris. me let over Now

Christopher Clulow

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

queue. please question, first If an you have ready the rejoin for question. we're Operator, additional our

Operator

[Operator Instructions]

from is question first Goldman Jerry with Sachs. Revich Our

Jerry Revich

broadly from of like so Chris, normally, to selling when folks can Jennifer, regulations, out regulations, margin but a play your wondering average of you just then have on talk folks and I share prior embedded looks higher the you we the you do Mark, from the business couple folks. know you just out the value about comment add. parameters cycles some where And new we've to could just the thoughts? engine of could you to seen how warranty the have I'm given you for double compared we're increase. see expect high-level increased if price your years dynamic 'XX that on emission engine margins tend It expansion

Jennifer Rumsey

for Thanks question, the Yes. Jerry.

course. as So past, with of look And content launch as we have at see price the to also with them. regulations, us for from accordingly typically, customers value increase, we seen then new product our and opportunity an creating you've emissions a in

do products, So new we looking in to launch we fuel-agnostic continue that platforms. engine these are particular, as to

our speaking high rate that to until a we we we've up costs at see bump platform. are Of course, a also accrue warranty capability of in because typically demonstrated

launch profitable as watch really we believe is investing well other as our the bring in But for that's So business products. performance key the the now improving the factor future to we on us for of position company growth. value see focusing that right what to customers doing as platforms these you those and will operating

Jerry Revich

XXXX, you to extent stand could on unit in a guide? your the costs And Okay. relative be per upside the where labor industry separately, can that of comment Super. what hours versus today I logistics can And normal? then source ask given that the high saw to

Christopher Clulow

drive has more continue that I and think we've Jerry, XXXX, more Yes, -- to been as through efficiency. progressed

We're plans. to have the us in efficiency iron hiccups getting allow time drive And out. Some experienced that on our delivery. beginning are to better more supply to we does of that chain

we're So I the think to year. the of that half latter progress see as continuing we through

in as continue expect, to mentioned, to drive bit, a the we space bit and a volumes efficiencies. America truck particularly those North heavy-duty As both we -- come can Jen down Mark and moderate

And think would overall on the hour cost that the So leveled period know, We labor through the per as I a have months, say continue cost somewhat I better. them will flat. down long labor get more of has went to rising. of settled the course of a X last through, out. you And and become much

Mark Smith

Yes, us, which in for I the -- shipping Middle logistics we've near would a some want it's of say anxiety the there's Jerry. concern term, in don't some down actually bit in events and the reversing little seen in and the to of near increased bit about East the of delays overstate It's a have obviously been term. little I that. a costs, trend going

Operator

Our question Tim is with Thein from Citigroup. next

Timothy Thein

you -- market? the terms on a clarification. shipments on total -- But was to it, that of... heavy-duty on North a America said that on-highway, for engine relative medium-duty and Mark, And bit in X% Is heavy a comment -- just XX%. one, call maybe of that the Or was for to comments just in down XXX,XXX,

Christopher Clulow

year. heavy-duty So Tim, been to the down for XX%, our that's that's had to XX% on and the yes, we the we X% The XXX,XXX. -- a guide to medium have XXX,XXX on flat, medium-duty, at market, down and

So...

Jennifer Rumsey

color. just unusual has give this been mean little a an And I I'll cycle.

the quarter the markets 'XX that the the it seeing the dropoff saw high slight improved second time end frame customer peak in half, into trucks we and that course in not that our We guide, of all prevented had as of the but going second you're supply 'XX, was as from to in usage really very of much industry over saw XXXX. with some the has think and high fully meeting and constraints demand forecast QX. I

feeling in watch the quite strong, good continuing happens. look about medium-duty particular, what to and market Backlogs

the half into and go the still of softening shallow We a as are second we year. predicting further cycle

So that how some numbers behind that. color is describe -- I just those would

Timothy Thein

terms Okay. one that can I of second had on implied got be after. high Chris a on what I The the And is then And you the the of follow share, market just decrementals on a in but XXs income of percent 'XX. a question segment that. with number. kind kind up drag implied maybe the for -- JV will in obviously, Engine certainly the

piece, to to out for that's maybe But every for Parts call specifically, that the piece Cummins. single the anything maybe you'd curious, 'XX through year-over-year outlook. outlined pronounced But in the and I'm parts headwind but for was guidance not And you that margin for that go the off-highway else just for relevant performance Engines.

Mark Smith

significant that that Good around other you plays a our of in coverage. Tim. any but was not sales cover And business. Engine how We're the you that's change, factor the main We'll out, there there thing bit didn't baked assumptions list. expecting that question, just higher our a didn't product but in into product coverage guidance is or see percent the as warranty that's little

Operator

Raso is with question David from next Our Evercore ISI.

David Raso

course question. for other size to recede? they've out energy right it's you of curious, bigger-picture years, a point we a maybe is challenge if decade-long look to and substantial your a, more something if a lot relative look couple lot at, And or I'm the there given a transition not, it, and of an last the But that names Just sort there's cost program? discussed. run cost a a you there I of been a inflection a little of separation a larger in you you're see the maybe on begin recognize there's X, costs your the of expenses. call of is out real thought strong program had margins. involved just more just I of over just in profitability that next been know year

do? horizon curious that spend something something really if mean idea -- cost inflection or down just on can or proactively that coming on So our you it cost changes the inflection the maybe I that, an be side you've -- you see maybe of

Jennifer Rumsey

thanks the question. for David, Yes,

just to It's and to First, the said time energy I'll reality right? that, take going regions, decades you an S is markets transition, would say, I it's decade-long different long, on I time. look take across transition you The occur. that to going think put if for

business do to in And R&D investment and products we engines use investment it's really own solutions. in transition, that position a in fuel-agnostic begin those of Cummins. decide to And customers high-efficiency the we though fuel got or Engine are gas natural a in then as continue platforms, to think help not to these will invest and their to have really engine Engine and capital major they customers are us invest as We period that whether going as also platforms we've flexibility that. diesel hydrogen-based well with the to peak in

the in so with to see you the investment on in we're how of launch few in got battery we Accelera those the solution while platforms market investments we are saw And us having period then that years higher leading moving. we're We're lower do higher frame, time in looking those business. a share R&D the the joint And products. opportunities 'XX, we based 'XX venture. until like investments next pacing And cell at a we've and revenue also seeing of course, levels somewhat where

We've there. grow, with the of Blue revenues electrolyzer will components. improve that of parts Bird help buses electrified margin up the businesses As those and we business ramping X,XXX improve and performance delivered now

will of last looking done we to we're Cummins is, improve the do how I'd has at say continue our do, thing then parts we and And business. different as

investment playing And talked performance. so on we and I Distribution Power business that about the in last our you acquisition Distribution North business, following in there, the America focus had a started margin that of business. the Systems year focused see out the improving

there. playing out that see You

look The of Meritor performance can integration, and then we that market cost. and improve we're continuing to places demands business at watch operating our and

voluntary that reduction And as year. year last the reduction we this actions we in revenue so us some see took help

technologies to to allow all while together us So the in we're products investors, things to returns and come investing continue sure those our to key making for future. our improve

David Raso

and in a the can America a North goes hop be you're maybe experience I'll shipped? of you Just us the All truck if Just on, between be the lag any right. early to inventory, and And relate cadence. looking you to declines of the that what's sense cadence just to the from little sense the quick of give idea cadence year the perspective real would cadence, I'll cadence as the for and industry trying how different? an your how lead get declines, you the industry an off,

Jennifer Rumsey

Great. Yes.

build. some there's supplying have that obviously, engines into lead in So truck we

lead build our So rates. build rates engine will slightly truck

running were second first perspective, year, year. the I But ended toward of of earlier, end of as the pretty said and where quarter we the into through year a going as the hold and forecasting half steady think we softening from the is part we're guide some to we then second the

Mark Smith

the with isn't the in move really there hours. more truck, expect difference little for two, line would that that's medium-duty the bit a In between heavy-duty, see vulnerability us a much And to then market where market. market largely and we and

Jennifer Rumsey

that We've drive And in changeover volumes pickup. then last got the the lower dynamic product is in pickup. QX will

Operator

Angel Stanley. question next is with Our Castillo from Morgan

Angel Castillo Malpica

that cadence bit the little a half for wanted to unpack second I more. just

there I area think aftermarket last was you indicated that a an quarter, signal giving of maybe had of a bit softening. a bit was was you a that

higher and continuing first you you maybe into that came of of indicated see that half. the I kind in things think your at the end expectations,

through or I kind can confidence kind the tell gives we signs X% So half of the of in actually as slowdown that up guess, you year? seeing year, kind position think second kind of about in of any second half customer of as commentary what terms what aftermarket you're pick and you for an slowdown and now us, flat up to we that from expectation to

Mark Smith

Yes. that have go -- a with first go question. I'll

to First of element Parts of We be all, lower destocking we across I'd in continuing trend. we management. demand our very on just customer pronounced attribute a aftermarket, lower a say don't say, production some -- QX, or flow would expect that to largely cash which in I saw

We recover Parts the on be expect to pretty year. QX steady from and levels across

combined customers. and course, economics rates most now, easing principal that edging decent we thing slowly and which of levels. really say to the our of spot of the the right concern. of slowly in what's backlog you've us heavy-duty quite truck combined, what's backlog builds, It's more continue broader orders direction, backlog. the the our the then operators. trucks OEM been moving And customers, down. underlying the has the the much happening heard the And is that's That's other been concern than the at not gives with the On still our concern It's activity, major don't freight of fleet giving hasn't right us well, from the to so truck health have

So it we guidance are other this our than really. don't we observations -- weighing downturn isn't but those consideration. conservative might pronounced and any have else's, more at I cycles our anybody into kind factors those, prior are in that seen isn't And think the beyond point, have that's of

Angel Castillo Malpica

you're you wanted That's higher to XX bit pivoting unpack talk over we exit from deliveries I start you the that electrolyzers little next that curious foresee you will as to rate as least to helpful. can backlog And business trends of cadence in in profitability? have maybe exit I of kind months, about And -- terms maybe us, XXXX profitability the maybe XQ? of XQ it. of then seeing on and of Got the terms guess, of at kind be a to Accelera. those? to what kind what the And of XX that to deliver just on in the

Jennifer Rumsey

Yes.

that product. to scale do in and can in And existing the plant investment a still are R&D we have to manufacturing businesses period Accelera up are invest of the investments Fridley, really So we're we begin fortunate electrolyzers. making produce heavy within pretty that and we to to both

see I level and for And record we at continue to is, a demand noted, backlog as growing electrolyzers.

So deliver growth Electrified our into performance business margin Same that Components in the production there. and business in grow thing and improving out as begin backlog electrolyzer the of revenues is to portion the as rate that the going market. we grow, revenue you'll to then see we see

You'll see improvement. margin performance

are key of to have together in making we battery that, thing our investment we venture. cell to vehicles for that that will in supply commercial investment, a allow beginning now take in we XXXX a we're the us And course, of here U.S. and have ensure which to leading advantage available is and over the invest One joint of that believe both security included is market. domestic incentives sell ensure time and our customers supply, into this

Operator

question with Our Melius from Wertheimer Research. next is Rob

Robert Wertheimer

market. obviously, in center data some I or very don't large if happening mean, market visibility it's us on give many thoughts strong. the what and engine you I that like. how wonder of could have I years what's know you looks

curve. multiyear I capacity a don't update your expansion. room that and a primary where if capacity to us Your of market -- give could if you so wonder an I it grow into know competitor your kind announced dynamics is kind on there. Like of

Jennifer Rumsey

is center with several an Data increasing in has storage other and years, investments. trend the been Yes. growth market market, cloud and artificial for with data intelligence cloud exciting the now

very for market very, strong. to XX%, to continue XX% strong is very up backlog that guided see We demand. We

and and will grows. business And us that looking We're on course, the product that market have. that help underlying we the that the about feeling offering performance at we make the that capacity focus of can improving to market demand good of business sure our as meet

Mark Smith

years. over Probably trend secular the couple next clearest the of

Jennifer Rumsey

Yes, I it continue. will think

Robert Wertheimer

on you to far the share seems And right? then probably capacity, as too to and about that you're have out, quote being your asked room or do 'XX don't capacity want think you to Maybe 'XX? to but though much it grow in

Jennifer Rumsey

just we demand. look that are I center meet will to at data our we'll growth and we capacity expect trend that, Yes, will continue market say continue, we and to and that of positioned how

Robert Wertheimer

somewhat in ] the that inherent in that's Or there's sneak just medium-duty. the medium-duty, I'll out. bit the than of I'm by OEMs demand one constrained anything if narrative kind And large Perfect. interest Okay. stop rates more of as coverages Class [ a if where of can wondering X production, flattish? outlooks or industry there. on and has year that's that else. reflected helped over medium-duty a is market prioritized more If being I kind

Jennifer Rumsey

constraints chain this a mean year, there in experienced 'XX were supply in I the number of Yes. certainly, continued frame even into the and -- particular. part early of and OEMs rails,

we some [ customers really market So demand where quite strong. and We, in medium-duty have product, our you the hold is strong a flat to course, pent-up heavy-duty. market, market that of the are, than pretty to we're ] seeing for to It's of in there in from the now. it continue as and expect continued demand that left-off saw, position

Operator

is with from question JPMorgan. Our next Zakaria Tami

Tami Zakaria

your highlighted you last scenarios at think I So Day. adoption the Analyst

today, billion how As So seems hosting of fast affects Accelera updates versus know year, this $X that? you're slow And you billion XXXX? to but your any Day as target of do the today, which think more I $XX of another by scenario, revenue Analyst that likely? on

Jennifer Rumsey

Yes.

that are there we What May. in regulations for expect Analyst that as and to we going pacing of our would the our the at are would that view is incentives And drive high said, did Day in lower are that look last I that a maybe a more you that those occurring. adoption, kind adoption that you say refresh see sure As scenario actually we're towards and of Day, Analyst think. low helping make at continuing of is can with how scenarios to start adoption to to and what to a of investment we we line managing we we're go into end

Tami Zakaria

Got it.

So there? towards, out on have the a Accelera say, version, somewhat more leaning a it's impact or that targets you the negative, if let's does dampening have floor that slowing

Jennifer Rumsey

range revenue within Analyst fall electrolyzer we for growth XXXX of gave those and we're we that still a of range a the is portion that I the the with that portion in Yes. that the recall -- would that of as scenarios in Day suggested business in mean large consistent still within -- well. Accelera

Operator

& Kaye next question Noah with Company. from Oppenheimer is Our

Noah Kaye

kind trying you're And First shareholders. where and just you flow to profile. impacts on we sort return exit leverage bit. dynamics end capital that year? the of a the housekeeping average? this year are I'm of about of But question. typically cash the to have a aiming to target XX% to Obviously, a we cash settlement to as the flow thinking year return How understand

Mark Smith

the some and to Yes. dividend in cycle as initial that our delevering. how We'll same start with the way we're Noah, stance. evaluate least more at year. see last Board with year, invest the continue in year as going to That's But start the focus so our we that's the business, stance the we unfolds.

XX% more we've Of little any needed given right more cash course, this we is returned generated than approach until see the in the -- we more part in than anyway, of cycle. the we've bit a think where significantly years wisest in we've our then now But year.

Noah Kaye

Right.

to do you as get of year? the end delever expect we So the to

Mark Smith

Yes.

Noah Kaye

what just terms Can you're bit for the stimulus? in guide Okay. through low and the of China the envisioning? of it end And end then wide. on Is then seeing kind the Just you're scenarios truck us end and a seems of high assuming. range contingent through talk you the us walk high

Mark Smith

going visibility, actually weak low of but market very to happen. come just reflects we've yet right? off signals as Yes. base, That the what's a to really So from isn't clear there

for case hard a lower overall a we think just today. are the economy me of that's the to lot pace sluggish. where continues But be we than So to of can -- build

side, stimulus don't And the have time. in we China. to which point at on room for time brilliant so that expected upside time really in But insight happened leaves from this something has than

not cloudy the products. to JVs. launching in revenues quite well and conviction continuing of China, the bullish outlook more both from The is market in with the customers, there doing OEMs We're is yet. We're and on outgrow the performance consolidated our

need outperform. at just year. not tangible overall. help the like as But as we'd we're to the from of market bit of set We the all little So it's start a

have at look stronger the an view a year. of we'll of you course, with points the provide to data and same the by end QX hopefully, tend Of update,

Jennifer Rumsey

of Coming the... out

Mark Smith

my And rest is Yes. the the done morning. voice for of

Jennifer Rumsey

I of answer and the rest Chris questions. the will

Operator

question final Our of is America. with Michael Feniger Bank from

Michael Feniger

flesh comment up. Just of on of out flat reduction, the you just about I to payment focus dividends. mentioned, the has Atmus, a buybacks. a kind I in Because Mark There count XXXX? priorities heard the slightly Can know been with debt share was release in

of Atmus framework can year, should through there? you think the 'XX as of the and some of the how we puts maybe move reiterate kind in takes Just we about

Mark Smith

on be, investors and of in shares main all obviously, is will for The own shares their -- will impact up shares. will we and for operation this they strategy Cummins Cummins step, there final retire pursuing set their growth Atmus Yes. swap exchange Atmus

share of acquisition, little share our opportunities share or exchange returns. up Meritor stopped for go is investors. We've to organic because basic delevered more more through which the But is reason drifting the our deleveraging if on down bit the We best the separation. we've here to changing our down count go count So will to will The months successful. count then we generate -- work. what to post in that's we go, and it's telegraphing the share returns capital the are hasn't past The the way either repurchase XX been to got a our well. been through growth going we'll investors continue evaluate as whether

Michael Feniger

And better. want let you I and to enough. get Fair Mark, go

Meritor, I on maybe just EBITDA is think little $X.X you I 'XX, million. there's revenue billion, $XXX for question quick think a about a Just above bit

of relative trends the help Components, your in when how Just kind anything us on guide? to Components 'XX, think can about you we unpack for of guide 'XX 'XX that overall Meritor that how in

Mark Smith

because I'm largely the and say I Got flow. of it. that's than cash record feeling And sound, better I will

full its the So goals first for for were a read segment had year. is that We a year we into of for to bumpy on not first we achieved a little said Meritor sure bit Meritor. my data breaking we at the It this read start, start had as transparency voice. how provided investors after a make when doing purposes on acquired I own. the don't

how and rolled all going improvement we're is XXXX, Ken got to but pleased his and Hogan safe say we've doing the it's that's into really team. further the with team guidance, there, into in Meritor So

going forward. that about excited we're So

So thank you. Thanks, everybody. Appreciate it.

Jennifer Rumsey

Thank you.

Operator

closing to question-and-answer comments. the would conference over like for Chris back This I will conclude our to session. turn

Christopher Clulow

all everybody. the your day. you, our continued of Thank participating you teleconference appreciate I That for and concludes interest.

be the will for available call. the always, Relations Investor care. questions Take after As team

Operator

will conference. This conclude you. Thank today's

may participation. You disconnect your you this at and lines for thank your time,

Cummins (CMI) 6 Feb 242023 Q4 Earnings call transcript