Cummins Inc. (CMI) Earnings & Analysis

Latest quarter

Cummins reported Q2 FY2026 revenue of $9.5 billion, above the $9.3 billion consensus, while adjusted earnings per share of $6.94 missed the $7.33 consensus. Revenue rose from $8.6 billion a year earlier, and diluted earnings per share increased to $6.73 from $6.43.

CEO Jennifer Rumsey attributed sales growth primarily to global power-generation demand, particularly from data centers, and international construction markets. CFO Mark Smith said Power Systems revenue rose 19%, while Engine, Components and Distribution revenue also increased. He said Accelera revenue rose on higher electrified powertrain and electrolyzer sales.

Cummins reported gross margin of 26.1%, down from 26.4%, and operating margin of 13.5%, down from 14.2%. Smith said higher volumes, joint-venture earnings and pricing increased gross profit in dollars, partly offset by tariffs and incentive compensation. He attributed higher selling, administrative and research expenses primarily to development costs for upcoming platforms.

Cummins reported free cash flow of $1.3 billion, compared with $554.0 million a year earlier. Smith said improved working capital was the main driver of higher operating cash flow.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

Jennifer Rumsey said data-center demand continued to build, including in China, and that Cummins had signed a multiyear agreement with a global hyperscaler for backup-power generators. She said the agreement gave the company visibility into future demand and supported capacity expansion already underway. Cummins also agreed to supply natural-gas generators and microgrid technology for a Texas computing data center, Rumsey said.

Asked about power-generation capacity, Rumsey said large generator sets would be operating at capacity and that some customers were taking smaller sets. She said some additional capacity would come online in 2027, with a larger increase in 2028 and further additions through 2030. Rumsey described demand for backup power as ahead of industry supply and said customers were asking Cummins to expand capacity faster.

On margins, Mark Smith said higher incentive compensation affected all operating segments in the second quarter but should run lower in the second half under the company’s forecast. Asked about Distribution, he said parts were not growing as quickly as power-generation installations and that higher incentive compensation disproportionately affected the people-intensive business. Smith expected company EBITDA percentage to rise in the second half from the first half and from a year earlier.

Rumsey said the EPA’s proposed emissions rule would allow Cummins to phase in new truck engines while continuing to offer current products during the transition. Asked about demand next year, she expected some moderation but said the transition should be less abrupt than previously anticipated; she did not quantify that outlook. Smith said Cummins expected to pass non-conforming penalties on current products to the market, while the staggered launch would keep research and development costs elevated longer. He also expected warranty accruals to rise as new platforms made up more of the product mix.

Guidance

In its November update, following the Q2 call, Cummins said it expected FY2026 revenue growth of approximately 10.0%, compared with its previous 10% to 13% range. The company expected an EBITDA margin of approximately 18.2%, compared with its previous 18% to 18.5% range, excluding charges related to the first-quarter sale of the low-pressure fuel cell business.