tapebrief
CMI · Q2 2025

CMI · Q3 2025 Earnings

Cautious

Cummins

Reported November 6, 2025

30-second summary

Cummins printed $8.32B in Q3 revenue (-1.6% YoY, -8.9% QoQ) with GAAP EPS of $3.86 and a 10.2% operating margin, dragged by $240M of non-cash electrolyzer impairments and a North America truck cycle that played out roughly as guided. Power Systems again carried the quarter — $2.0B revenue (+18.3% YoY) at a 22.9% EBITDA margin — while Engine fell 10.6% and Components fell 14.5%. Management now expects Q4 North America on-highway engine shipments down a further ~15% sequentially (a moderation from the 25–30% Q2-to-Q3 drop), called Q4 a potential cycle bottom, kept the full-year outlook withdrawn, and announced a strategic review of the electrolyzer business with more charges to come.

Headline numbers

EPS

Q3 FY2025

$3.86

Revenue

Q3 FY2025

$8.32B

-1.6% YoY

Gross margin

Q3 FY2025

25.6%

Free cash flow

Q3 FY2025

$1.01B

Operating margin

Q3 FY2025

10.2%

Key financials

Q3 FY2025
MetricQ3 FY2025YoYQ2 FY2025QoQ
Revenue$8.32B-1.6%$8.64B-3.8%
EPS$3.86—$6.43-40.0%
Gross margin25.6%—26.4%-80bps
Operating margin10.2%—14.2%-400bps
Free cash flow$1.01B—$0.55B+81.8%

Guidance

Cummins withdraws full-year 2025 revenue and profitability guidance due to persistent North America on-highway weakness; guides Q4 engine shipments to decline ~15% from Q3 (improving from 25-30% Q2-to-Q3 drop), while signaling further electrolyzer charges.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

MetricPeriodPrior guideActualΔResult
North America on-highway engine unit shipmentsQ3 FY202525% to 30% decline from Q2 levelsEngine segment -10.6% YoY; Components -14.5% YoY; North America revenue -4%In-line with guidance (25-30% decline from Q2 implied Q3 weakness; actual Q3 shows Engine/Components contraction and North America weakness as guided)Met

New guidance

MetricPeriodGuideYoY
Effective tax rateFY2025Approximately 26.5%—
North America on-highway engine unit shipments declineQ4 FY2025Approximately 15% decline from Q3 levels—
Electrolyzer business chargesFY2025Further charges anticipated; strategic review underway due to weak demand outlook—

Changes to prior guidance

MetricPeriodPrior guideNew guideΔResult
2025 revenue outlook
FY2025
Not provided in Q2 guidance (full-year outlook suspended)Withdrawn — no replacement—Withdrawn
2025 profitability outlook
FY2025
Not provided in Q2 guidance (full-year outlook suspended)Withdrawn — no replacement—Withdrawn

Segment KPIs

Q3 FY2025
SegmentQ3 FY2025YoY
Distribution$3.172B+7.5%
Power Systems$1.996B+18.3%
Engine$2.605B-10.6%
Components$2.329B-14.5%
Accelera$0.121B+10.0%
Engine Segment EBITDA Margin10.0%—
Distribution Segment EBITDA Margin15.5%—
Power Systems Segment EBITDA Margin22.9%—
Components Segment EBITDA Margin12.5%—

Other KPIs

Q3 FY2025
SegmentQ3 FY2025
EBITDA Margin14.3%
Operating Margin10.2%
North America Revenue Growth-4%
International Revenue Growth+2%

Management tone

Q1 → Q2 → Q3 arc: Tariff and EPA uncertainty → Truck cycle cratering, guidance pulled → Cautious hope for a Q4 bottom, electrolyzer impaired.

Last quarter management called recent truck orders "amongst the weakest three or four-month periods we've had in the last 20 years." This quarter the language softened to conditional bottoming — but only just. The anchor from the call: "At the risk of sounding cautiously optimistic, I hope that demand in North America on highway markets is close to bottoming in the fourth quarter in what has been a protracted and difficult slowdown." "Hope" is doing a lot of work in that sentence. The Q4 -15% sequential guide is materially better than the Q2-to-Q3 25–30% drop, but management explicitly tethered any 2026 recovery to "broader economic sentiment and the clarity of trade and regulatory policies" — variables they do not control.

The electrolyzer disclosure is the cleanest tone break across the three-quarter arc. In Q1 and Q2 Accelera was framed as a growth investment carrying near-term losses; this quarter Cummins took $240M in non-cash electrolyzer charges and announced a strategic review with a warning that "there may be further charges as we respond to a very weak demand outlook." In Q&A, management described the electrolyzer market collapse as "sharper and more dramatic" than any downturn in their career. The signal is that this isn't a margin-improvement project anymore — it's a structural rethink with more pain queued up, plausibly culminating in an exit or scope reduction similar to the prior fuel cell restructuring.

On guidance posture, the message hardened from "we'll reinstate when visibility improves" (Q2) to an explicit February 2026 target paired with the qualifier that reinstatement is "subject to" trade and regulatory clarity. A second consecutive deferral, now with a date but heavy conditionality, tells you management has decided to skip 2025 entirely as a guidance year. That's not a posture a company adopts when it expects upside.

Tariffs continued their trajectory from "manageable" (Q1) to "multiples of tax benefits" (Q2) to "nearing full recovery for prior tariffs but assessing incremental Section 232 impact" (Q3). Management characterized the net quarterly tariff impact in "tens of millions of dollars" but declined repeatedly in Q&A to break out Section 232 vs. IEPA exposure or model rebate scenarios — the most evasive topic on the call, and a genuine signal of unresolved 2026 modeling risk.

Recurring themes management leaned on this quarter:

Tale of two economies: strong power generation demand offsetting North America truck market collapseTariff mitigation through pricing recovery, though magnitude of costs increasedElectrolyzer business strategic review due to reduced U.S. government incentivesNorth America heavy and medium-duty truck volumes down sharply (40% and 55% respectively)Record performance in power systems and distribution segments driven by data center demandReliance on trade policy clarity and EPA regulation review for 2026 planning

Risks management surfaced:

Continued weakness in North America on-highway truck markets persisting through end of 2025Geopolitical tensions posing risks to semiconductor supply and rare earth mineral productsFurther charges anticipated from electrolyzer business as demand outlook remains very weakOngoing addition and adjustment of tariffs creating ongoing challenges and uncertaintyTrade policy instability impacting ability to provide 2026 guidance with confidence

Q&A highlights

Jamie Cook · Truist Securities

How should we think about engine margins in Q4 and ability to cover tariff costs? Also, given strong power systems margins (touching 50% incrementals), should Cummins raise margin targets for that business?

Engine business likely approaching a trough with no dramatic improvement expected in Q4 despite tariff recovery; volume pressures persist. Power systems margins expected to remain strong but unlikely to maintain the current trajectory of incremental margin improvement in future years; company committed to profitable growth investment.

Engine margins not expected to reach 8% EBITDA in Q4Power systems achieving ~50% incremental marginsProduct changeovers and engineering costs remain elevated through product launches$200 million in capacity expansion investment in power systems

Angel Castillo · Morgan Stanley

Given stronger-than-expected data center demand, what are you evaluating on capacity expansion for large diesel engines and natural gas engines? Can you quantify Section 232 tariff headwind and likelihood of U.S. engine manufacturing rebate?

Capacity doubling on large engines nearing completion; actively evaluating additional capacity expansion given strong demand visibility. No decisions yet on natural gas engine expansion for prime power. On tariffs, management cannot quantify specific impact without more regulatory details; well-positioned given U.S. manufacturing footprint but too many unknowns to model rebate scenarios.

2024 data center power generation revenue: $2.6 billion (half from power systems, half from DDU)2025 data center market revenue expected up 30-35%Tariff impact in 'tens of millions of dollars' negative per quarterDevelopment cycles for new engine products typically multi-year

David Russell · Evercore

What percent of Accelera losses are from electrolyzers? How much can the announced actions reduce losses from 2025 to 2026?

Electrolyzers represent less than half of Accelera segment losses but write-down doesn't materially change loss trajectory. Management actively evaluating deeper cost reduction actions similar to fuel cell restructuring; electrolyzer market collapsed faster than anticipated with order gestation delays creating multi-year revenue gaps.

Electrolyzer losses less than 50% of total Accelera segmentElectrolyzer market decline described as 'sharper and more dramatic' than any prior downturn in management's careerLong gestation period between orders and revenue recognition creating forecast gaps into 2026-2027Non-cash impairment charges recorded in Q3

Rob Worthmeyer · Milius Research

What are the engineering challenges of expanding natural gas engines to large sizes for data center prime power? How has the data center backup vs. prime power mix evolved?

Natural gas development for larger engines is multi-year cycle requiring assessment of product gaps and market demand; Cummins has capability but no decisions made yet. Data center market remains heavily skewed toward backup power (doesn't run often); prime power opportunities being explored through peak shaving and storage solutions but early stage.

Backup power remains primary data center use case due to high reliability needsStationary energy storage solutions being evaluated for data center applicationsNatural gas product development timelines typically multi-yearPeak shaving opportunities being pursued with existing product portfolio

Kyle Mingus · Citigroup

Accelera appears to be tracking to guidance despite electrolyzer weakness—can you break out e-mobility vs. electrolyzer performance and profitability differences? Also, how does NOTS 2027 uncertainty affect 2026 product launch cadence?

E-mobility (primarily U.S. bus applications) showing strong progress from significant losses to sustainable, stable margins; electrolyzer demand collapsed unexpectedly with orders drying up faster than any prior market in management's experience. On NOTS 2027: development continuing with team prepared to launch assuming 2027 regs stay in place; hoping for regulatory certainty soon but planning for multiple scenarios.

E-mobility transitioning from negative gross margins to 'a lot more stable and sustainable' performanceElectrolyzer revenue tracking 'way off' from original growth curve expectationsE-mobility volumes still 'somewhat muted' relative to $35B company scaleRegulatory uncertainty on NOTS 2027 being 'challenging' for team focus

Answers to last quarter's watch list

Q3 North America heavy- and medium-duty truck shipments declining 25–30% sequentially — Resolved in-line. Engine revenue -10.6% YoY and Components -14.5% YoY, with North America revenue -4%, consistent with the guided sharp sequential drop. Management characterized the Q3 weakness as matching the prior quarter's expectations and now guides a further -15% sequential decline in Q4. Status: Resolved negatively (the decline materialized as guided; the cycle did not surprise to the upside).
Power Systems EBITDA margin holding above 22% with data center momentum — Power Systems delivered $2.00B revenue (+18.3% YoY) at a 22.9% EBITDA margin, comfortably above the 22% threshold and modestly above Q2's 22.8%. Management is actively evaluating additional large-engine capacity expansion beyond the current doubling near completion. Status: Resolved positively.
Tariff price-cost truly normalizing in Q4, or slipping into 2026 — Management said Cummins is "nearing full recovery for those tariffs announced prior to the third quarter" but is still assessing incremental Section 232 medium- and heavy-duty vehicle impact. Net tariff drag remains "tens of millions" quarterly; management declined to quantify the 2026 trajectory or rebate scenarios. Partial recovery on the original tariffs, but new tariff layers and Section 232 push full normalization into 2026. Status: Resolved negatively.
Whether a full-year outlook is reinstated on the Q3 print, or deferred again — Deferred. The FY2025 outlook remains withdrawn for a second consecutive quarter, with reinstatement now targeted for February 2026 alongside the 2026 outlook, conditional on trade and regulatory clarity. Status: Resolved negatively.
Engine and Components incremental margin behavior on the down-volume quarter — Engine EBITDA margin compressed to 10.0% (from 13.8% in Q2) on a 10.2% sequential revenue decline; Components EBITDA margin compressed to 12.5% (from 14.7% in Q2) on a 14.0% sequential revenue decline. Implied decremental EBITDA margins are roughly 38% (Engine) and 28% (Components). Management indicated Q4 engine EBITDA margin should hold above 8% — pushing back on an analyst's 8% downside scenario — with downward pressure from lower volume but no step-change worse than Q3's 10.0%, supported by tariff recovery catch-up and cost actions. Status: Resolved negatively (decremental margins are at the painful end of historical ranges).

What to watch into next quarter

Whether Q4 North America on-highway engine shipments actually decline only ~15% sequentially, as guided, or come in worse. A miss to the downside would invalidate management's "Q4 marks the bottom" framing and push the trough into 2026.

Size and scope of additional electrolyzer charges in Q4 or alongside the February reinstatement. The Q3 $240M impairment is explicitly described as not necessarily final; watch whether the strategic review concludes in a partial or full exit.

Whether FY2026 guidance is in fact reinstated in February 2026, or deferred a third time. A third consecutive deferral would signal that policy uncertainty has become a structural rather than transient impediment to forecasting.

Engine segment EBITDA margin in Q4 holding above the 8% floor management implied. The decremental margin pattern at the trough will set the floor for 2026 earnings power assumptions.

Power Systems EBITDA margin trajectory and any formal announcement of incremental large-engine capacity expansion beyond the current doubling. Sustained 22%+ margin combined with new capacity commitments would underwrite the data center growth thesis into 2026.

Section 232 net tariff impact quantification once the regulatory details settle. Management's repeated refusal to model rebate scenarios is the single largest unquantified 2026 swing factor.

Sources

  1. Cummins Q3 2025 Form 8-K, Exhibit 99 (press release): https://www.sec.gov/Archives/edgar/data/26172/000002617225000036/cmi2025q38-kex99.htm
  2. Cummins Q3 2025 earnings call transcript (prepared remarks and Q&A)

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