Cummins’ 2026 Earnings Call: Contradictions on 2027 Power Generation Capacity and B-Series Platform Timeline

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Date of Call: Aug 4, 2026

Financials Results

• Revenue: $9.5B, up 9% YOY
• EPS: $6.73 per diluted share, up 4.7% YOY
• Gross Margin: 26.1%, down 30 basis points YOY

Guidance:

• Total company revenues expected to increase 10% to 13% in 2026 (raised from 8% to 11%).
• EBITDA margin expected to be 18% to 18.5% (raised from prior guidance).
• North America heavy-duty truck industry production forecast raised to 240,000-250,000 units (up from 230,000-250,000).
• North America medium-duty truck industry production forecast raised to 130,000-140,000 units (up from 125,000-135,000).
• China total revenue (including JV) expected to increase ~15% (raised from up 10%).
• Global power generation revenues expected to increase 15% to 25%.
• Accelera revenues expected to be $350-$400M (raised from $300-$350M).
• Capital investments expected to be $1.35-$1.45B.

Business Commentary:

Revenue and EBITDA Growth:

• Cummins Inc. reported record sales of $9.5 billion for Q2 2026, an increase of 9% compared to Q2 2025.
• The company's EBITDA was a record $1.7 billion, or 17.5% of sales, compared to $1.6 billion, or 18.4% of sales, a year ago.
• Growth was driven primarily by higher global demand and power generation markets, particularly from data centers and international construction markets.

Power Generation Demand:

• Revenues in North America Power Generation increased by 19%, driven by continued strong data center demand.
• Sales of power generation equipment in China increased 88% in Q2 2026 due to accelerating data center demand.
• The increase in demand was supported by additional manufacturing capacity brought online at the end of 2025.

North American and Chinese Markets:

• North America revenues increased 8% compared to Q2 2025, with industry production of medium-duty trucks up 8%.
• In China, revenues, including joint ventures, were $2.3 billion, an increase of 30% year-over-year, driven by accelerating data center demand and improving truck and construction markets.
• The growth in China was supported by strong export demand, particularly in Africa and Southeast Asia.

Outlook and Strategic Investments:

• Cummins raised its full-year outlook, expecting total company revenues to increase 10% to 13% in 2026, up from prior guidance.
• The company plans to expand its global capacity and broaden its power generation portfolio, including the development of a 130-liter natural gas genset.
• These strategic moves are in response to growing global investments in data centers and the proposed EPA regulations for the industry.

Sentiment Analysis:

Overall Tone: Positive

• Executives highlighted 'record second quarter sales,' 'strong operating cash flow,' and 'positive momentum.' They raised full-year revenue and EBITDA guidance, citing 'increasing demand,' 'strong recent order activity,' and 'greater regulatory clarity.' Jennifer Rumsey stated, 'This balanced approach also helps maintain product availability, continue bringing new, innovative products to market, and support a successful industry transition.'

Q&A:

• Question from Jamie Cook (Truist Securities): Given the incremental clarity on EPA 2027, how are you thinking about the setup for 2027? Also, regarding distribution margins, could you talk about the change in margin guidance?
  Response: Outlook for 2027 is smoother with less abrupt demand moderation due to the extended transition period allowing continued sales of current products. Distribution margin guidance lowered due to mix shift (slower parts growth) and higher incentive compensation; underlying business has strong growth and margin expansion potential.

• Question from Steve Volkman (Jefferies): What is the rough reset for incentive compensation for next year? On PowerGen, why is the growth target range 15% to 25% given capacity constraints?
  Response: Incentive compensation reset for 2027 is approximately $200M, with Q3/Q4 expenses about $25M lower per quarter than Q2. PowerGen growth range depends on capacity from new investments and demand for smaller gensets as large ones remain constrained.

• Question from Jerry Rebich (Wells Fargo): How are you thinking about sustaining teen-type growth in Power Systems? What are expectations for engine margins in Q4 and the product transition impact in 2027?
  Response: Power Systems growth cadence remains as previously outlined with capacity phasing in through 2030. The 2027 engine transition is eased by extended limited production, allowing smoother ramp and customer trials, which should support operations and margins.

• Question from Stephen Fisher (UBS): Why are incremental margins in Power Systems better than the 25-30% expectation? Could there be a pre-buy in 2027 for 2028 technology?
  Response: Stronger demand in China and efficient ramp-up drove better margins. A pre-buy in 2027 is possible but expected to be more cautious and integrated with the smoother transition, not as pronounced as before.

• Question from Angel Castillo (Morgan Stanley): What are the financial implications of the EPA 2027 transition on pricing, costs, and margins? What is the shape of the backup power backlog and regional demand?
  Response: Pricing for new engines reflects their value; NCPs will be passed to market. R&D costs stay elevated slightly longer but product coverage costs are lower. Backlog remains very strong with capacity constraints in the U.S., China, and Southeast Asia.

• Question from Kyle Menzies (Citi): How far out are you booking orders for the 95-liter genset? Are lead times extending for diesel gensets?
  Response: Demand is strong with orders now booking into the second half of 2028; lead times are extending as capacity is sold out, consistent with growing demand.

• Question from David Rosso (Evercore ISI): What is customer appetite for 2027 trucks regarding penalty engines vs. lower milligram engines with credits? What is PowerGen capacity for next year?
  Response: Customers are interested in both current and new products; initial purchases likely favor current offerings. PowerGen capacity details were deferred, but it will be higher.

• Question from Tim Thien (Raymond James): What is the outlook for parts demand in North America on-highway? How does visibility in China data center demand compare to North America?
  Response: Parts demand is strengthening with aging fleets. Visibility in China is similar, with strategic customers placing multi-year orders and demanding faster fulfillment.

• Question from Rob Wertheimer (Mellius Research): If competitors have credits, can they avoid passing NCP costs? Any margin impact expected?
  Response: Credits do not generally offset NCPs fully; cumulative credit usage is limited. Cummins does not anticipate significant margin impact from this dynamic.

• Question from Kristen Owen (Oppenheimer and Company): How are you thinking about underlying replacement demand vs. pre-buy? What are warranty accrual expectations for the 2027 transition?
  Response: Underlying demand is improving, supported by better fleet economics and reduced regulatory uncertainty. Warranty costs will tick up slightly with new product launches but should normalize over time, benefiting from the extended transition period.

Contradiction Point 1

2027 Power Generation Capacity Outlook

Contradiction on whether specific 2027 capacity guidance will be provided.

David Rosso (Evercore ISI) - David Rosso (Evercore ISI)

2026Q2: Specific 2027 capacity guidance will be provided later in the year. - Mark Smith(CFO)

1) What is customer appetite for 2027 North American trucks... 2) What will power generation capacity be in 2027 vs. 2026? - David Raso (Evercore ISI)

2026Q2: The company declined to provide specific capacity guidance at this time. - Mark Smith(CFO)

Contradiction Point 2

Timing of Incentive Compensation Expense Reset

Contradiction on the timing of the H2 2026 incentive expense benefit.

What are Jamie Cook's expectations for Truist Securities' next earnings report? - Jamie Cook (Truist Securities)

2026Q2: For H2 2026, the expense will be lower by about $25 million per quarter than in Q2. - Mark Smith(CFO)

Considering the incremental clarity on EPA 2027 and the earnings power in the back half of 2026, how are you thinking about the setup for 2027, and what caused the significant lowering of distribution margin guidance? - Steve Volkman (Jefferies)

2026Q2: For context, Q3 and Q4 2026 expenses will be about $25 million lower per quarter than Q2 due to the top-up related to record 2026 projections. - Mark Smith(CFO)

Contradiction Point 3

B-Series Platform Launch Timeline

Contradiction on when the new B-Series platform (diesel) will launch, impacting 2027 product availability.

Jerry Rebich (Wells Fargo) - Jerry Rebich (Wells Fargo)

2026Q2: The ability to have limited production of both new and old products simultaneously is a positive change... The staggered approach allows for a measured transition... - Jennifer Rumsey(CEO)

How do you plan to sustain the high growth rate in power systems for 2027 compared to 2026, and what are the expectations for the engine product transition in 2027 and its impact on operations? - Kyle Menges (Citigroup Inc.)

2026Q1: The launch of the B platform (diesel variant) has been delayed to January 2028... For 2027, the current B-Series platform will continue to be offered... - Jennifer Rumsey(CEO)

Contradiction Point 4

Power Systems Incremental Margin Outlook

Contradiction on the drivers and trajectory for incremental margins in the Power Systems segment.

What were the key takeaways from the earnings call? - Stephen Fisher (UBS)

2026Q2: The better-than-expected incremental margins are primarily driven by stronger demand in China, which boosted joint venture earnings and overall efficiency during the ramp-up. - Mark Smith(CFO)

Why are incremental margins in power systems higher than the prior 25%-30% range? - Jerry Revich (Wells Fargo Securities)

2026Q1: The Power Systems business has strengthened, and Cummins is confident in its performance... The goal is to expand margins. - Mark Smith(CFO)

Contradiction Point 5

Tariff Impact on 2026 Margins

Contradiction on the net impact of tariffs on EBITDA margins for 2026.

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2026Q2: The ongoing tariff regime continues to pressure margins, especially in Engines and Distribution. - Mark Smith(CFO)

What is the approximate dollar amount of the incentive compensation reset for 2027, and why is the power generation revenue growth guidance (15%-25%) so wide, including what factors drive this range? - Steven Fisher (UBS)

2025Q4: Tariffs are not a significant dollar hit; the main impact is on EBITDA percentage via inflated COGS and recoveries. - Mark Smith(CFO)

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