CMI Q2 Deep Dive: Power Systems Strength Offsets North America Truck Downturn

Engine manufacturer Cummins (NYSE:CMI) reported Q2 CY2025 results topping the market’s revenue expectations, but sales fell by 1.7% year on year to $8.64 billion. Its non-GAAP profit of $6.43 per share was 23.5% above analysts’ consensus estimates.

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StockStory’s Take

Cummins delivered results in Q2 that led to a notably positive reaction from the market, driven by strong execution in its Power Systems and Distribution segments, which offset ongoing weakness in North America’s truck market. Management credited record profitability in these two segments to robust demand for power generation equipment, particularly for data centers, and operational efficiencies. CEO Jennifer Rumsey explained, “Record performance from these segments, along with strong operational execution across our entire company, led to EBITDA increasing 310 basis points year-over-year despite North America heavy- and medium-duty truck volumes declining 30% from a year ago.”

Looking ahead, Cummins’ guidance is shaped by expectations of continued strength in power generation demand and ongoing uncertainty in North America truck markets. Management highlighted that the trajectory of freight activity, evolving trade and tariff policies, and regulatory clarity will be key variables affecting truck segment recovery. Rumsey noted, “The duration of this reduced demand in North America truck markets will largely depend on the trajectory of the broader economy, the evolution of trade and tariff policies and the pace at which regulatory clarity emerges.” The company plans to maintain cost discipline while investing in critical product launches, particularly those tied to upcoming emissions regulations.

Key Insights from Management’s Remarks

Management attributed Q2’s outperformance to robust power generation demand, effective pricing, and operational improvements, while also emphasizing the growing impact of tariffs and ongoing softness in North America truck volumes.

• Power Systems surge: Demand for power generation equipment, especially for data centers and mission-critical applications, drove record performance in the Power Systems segment. Management noted that the company’s Centum Series generator sets gained particular traction due to their power output and compact design, supporting growth across commercial, healthcare, and infrastructure sectors.
• Distribution margin gains: The Distribution segment benefited from higher power generation sales and strong aftermarket parts performance. Operational improvements and positive pricing dynamics led to margins exceeding historical targets, with notable contributions from improvements in international operations.
• North America truck headwinds: North America heavy- and medium-duty truck volumes declined sharply, with management citing continued low freight demand, higher interest rates, and customer hesitation due to regulatory and tariff uncertainty. This led to lower engine and component sales, with management anticipating further weakness in the coming quarter.
• Tariff impact and mitigation: Tariffs negatively affected profitability in Q2, with management estimating a $22 million net impact. Efforts to mitigate included negotiating cost recovery with customers and increasing dual sourcing, but full offset is only expected by Q4 as supply chains adjust.
• Operational efficiency and restructuring: Management highlighted successful targeted restructuring in production and ongoing focus on operational efficiency, which improved margins despite volume headwinds in the Engine and Components segments. Lower compensation expenses and stable product quality also contributed to profitability.

Drivers of Future Performance

Cummins’ outlook for the remainder of 2025 centers on continued power generation strength, while truck market weakness and tariff uncertainty are seen as key headwinds for revenue and margins.

• Persistent North America truck softness: Management expects North America truck demand to remain subdued in the coming quarters due to a combination of weak freight activity, ongoing regulatory and emissions uncertainty, and the impact of tariffs. This is expected to pressure revenue and margins in the Engine and Components segments until market clarity improves.
• Power Systems and Distribution stability: The Power Systems and Distribution segments are forecast to remain strong, underpinned by robust demand for backup power in data centers and other critical infrastructure. Additional capacity coming online in Power Systems is expected to support growth, while Distribution continues to benefit from parts and service revenue streams.
• Tariff recovery and regulatory clarity: The company anticipates reaching near price/cost neutrality on tariffs by Q4, but the timing and magnitude of further tariff changes remain unpredictable. Regulatory developments, particularly regarding emissions standards for 2027, will influence the pace and focus of new product launches and associated capital investments.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will focus on (1) the pace of recovery in North America truck orders and any signs of stabilization, (2) execution of tariff mitigation strategies and progress toward price/cost neutrality, and (3) the ramp-up of new Power Systems capacity to meet sustained data center demand. We will also watch for regulatory updates on emissions standards, which could drive future product launches and capital allocation.

Cummins currently trades at $399, up from $361.76 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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