Cummins has a data-center boom. Pickups still pull it back.
Power Systems earned more from every sales dollar. Weak pickup orders pushed the annual sales outlook toward its previous low end.
The boom in data-center power is delivering record earnings for Cummins. It still was not enough to preserve the top end of the company's sales outlook.
Cummins now expects annual sales to rise about 10%, compared with the 10% to 13% range it issued in August. Weak North American pickup orders are pulling the forecast toward its previous low end, even as demand for generators and larger truck engines stays strong.
The split shows why a successful power business can improve the quality of earnings without lifting every part of a diversified manufacturer.
The power business is doing its part
Power Systems earned $582 million before interest, taxes, depreciation and amortization in the September quarter, up from $457 million a year earlier. Its EBITDA margin rose to 25.4% from 22.9%, meaning it earned more from each dollar of segment sales.
Cummins attributed the improvement to strong demand for power generation, particularly at data centers, and favorable pricing. The Engine and Components businesses also earned more as medium- and heavy-duty truck demand improved.
Pickup demand moved the other way. Light-duty automotive sales in the Engine business fell to $500 million from $583 million. Chair and chief executive Jennifer Rumsey said weaker pickup orders affected the third quarter and are expected to persist through year-end.
| Measure | August forecast | November forecast |
|---|---|---|
| Sales growth | 10%–13% | About 10% |
| EBITDA margin | 18%–18.5% | About 18.2% |
The margin forecast remains within the earlier range. Both versions exclude a first-quarter charge from the sale of a fuel-cell business and settlement of customer obligations.
The earnings jump has more than one cause
Group sales rose 13% to $9.44 billion. Reported earnings per share more than doubled to $8.25 from $3.86, but last year's result included $240 million of Accelera goodwill and inventory charges.
Removing those prior charges lifts last year's comparison to $5.59 a share, according to Cummins' own presentation. This quarter also benefited from favorable tax items worth $0.54 a share. These effects sit alongside the stronger operating performance.
Growth was uneven elsewhere too. Distribution EBITDA fell to $461 million from $492 million despite higher sales, as higher variable compensation costs absorbed part of the benefit from power demand.
The cash supports the recovery
Operating cash flow for the first nine months rose to $3.21 billion from $2.09 billion. Much of the improvement came from a smaller working-capital outflow, particularly changes in payments to suppliers and accrued expenses. Capital spending was $741 million, and Cummins paid $854 million in dividends and $827 million for share repurchases.
The company still expects fourth-quarter sales to exceed the third quarter and set a new record. The next test is whether strong power and larger-truck demand can deliver that finish while pickup orders remain weak. The Cummins company profile follows those targets, cash and debt, and the changes in its newer energy businesses.