Engine manufacturer Cummins (NYSE: CMI) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 2.7% year on year to $8.17 billion. Its non-GAAP profit of $5.96 per share was 21% above analysts’ consensus estimates.

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StockStory’s Take

Cummins’ first quarter results were shaped by robust performance in its Power Systems segment and strong aftermarket demand, even as core North American truck markets softened. CEO Jennifer Rumsey emphasized the launch of new engine platforms and the acquisition of hybrid retrofit technology as key factors in operational improvement. She noted, “We achieved impressive results in the first quarter with record financial performance in our Power Systems business,” while cautioning about increasing uncertainty from trade tariffs and regulatory changes.

Looking ahead, management withheld full-year guidance due to the evolving impact of tariffs and unclear regulatory timelines, particularly for emissions standards in North America. Rumsey described the environment as highly uncertain, stating, “The breadth and changing nature of the tariffs have introduced a great degree of uncertainty and mean that at this time, we are unable to predict with confidence our expected performance for the year.” The company is closely monitoring demand trends across segments, with particular focus on aftermarket strength and the timing of new product introductions.

Key Insights from Management’s Remarks

Management attributed the quarter’s profitability to a combination of operational improvements, segment-specific momentum, and proactive pricing, while also flagging near-term risks from trade policy and regulatory uncertainty.

• Power Systems Margin Expansion: Operational enhancements and broad-based demand—especially in data centers, mining, and rebuilds—drove record profitability, with aftermarket sales exceeding expectations.
• Aftermarket and Pricing Gains: Aftermarket volumes increased across several segments, supported by successful price increases and cost control, notably within the engine and distribution businesses.
• Data Center Demand: Accelerating demand for data center backup power in both the U.S. and China contributed to growth, but management clarified that aftermarket strength was broad-based and not solely tied to this market.
• Product Launches and Acquisitions: The introduction of the X10 and B7.2 engine platforms and the acquisition of First Mode’s retrofit hybrid technology for mining/rail reinforced Cummins’ focus on decarbonization and product renewal.
• Tariff and Regulatory Complexities: Management highlighted that tariffs had minimal impact in Q1 but expect growing effects in future quarters, particularly as inventory and supply chain mitigation options diminish. They also noted ongoing uncertainty around 2027 emissions regulations and the potential for additional tariffs under Section 232 investigations.

Drivers of Future Performance

Management’s outlook is shaped by the potential duration and scope of tariffs, regulatory changes, and mixed demand signals across end markets, all of which introduce significant unpredictability for the remainder of the year.

• Tariff Uncertainty: The evolving landscape of U.S. and international tariffs is expected to impact both costs and demand, with management planning to pass on costs where possible but acknowledging some lag and risk to overall economic activity.
• Regulatory Timeline: Pending emissions regulations in North America create uncertainty for new product adoption and customer purchasing decisions, with the 2027 NOx rule and potential changes to greenhouse gas standards being closely monitored.
• Aftermarket and Power Systems Resilience: Management views the Power Systems and aftermarket segments as having more predictable multi-year demand, with the ability to reallocate orders if needed, while on-highway engine and components businesses remain exposed to cyclical swings.

Top Analyst Questions

• Jamie Cook (Truist Securities): Asked about the quantifiable impact of tariffs and visibility by segment; management declined to provide specifics, citing ongoing uncertainty and noted actions to mitigate and pass on costs.
• Jerry Revich (Goldman Sachs): Inquired if Power Systems margins are sustainable and about regulatory impacts on engine platforms; management said margins reflect underlying improvements but may fluctuate with demand and regulatory clarity.
• Angel Castillo (Morgan Stanley): Sought detail on near-term tariff effects and aftermarket drivers; management stated tariff impacts were immaterial in Q1 but will grow, and aftermarket strength is broad-based, not just data center-driven.
• Tim Thein (Raymond James): Probed on expectations for parts demand and joint venture income; management expects parts demand to remain resilient but noted joint venture income could be lumpy and may moderate.
• David Raso (Evercore ISI): Questioned whether demand concerns stem from actual price pushback or general macro uncertainty; management attributed order caution to broader economic and regulatory uncertainties rather than direct price resistance.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be tracking (1) the impact of newly enacted and potential tariffs on both costs and order volumes as mitigation strategies phase out, (2) the pace and outcome of regulatory developments around 2027 emissions standards and Section 232 investigations, and (3) sustained strength in Power Systems and aftermarket demand, including the adoption of new engine platforms and decarbonization technologies. Execution on these fronts will be critical for assessing Cummins’ resilience in a volatile environment.

Cummins currently trades at a forward EV-to-EBITDA ratio of 11.5×. In the wake of earnings, is it a buy or sell? Find out in our free research report.

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