Power Systems segment external sales increased 19% for both the three and six months ended June 30, 2025, driven by higher demand in power generation markets. The Distribution segment also grew, with external sales up 7% and 11% respectively, primarily due to increased power generation demand in North America.

The Accelera segment, focused on electrified power systems and hydrogen production, saw a 5% decrease in sales for the three months but a 2% increase for the six months ended June 30, 2025. The segment remains in the early stages of commercialization, with production from its Amplify Cell Technologies LLC joint venture not expected until 2027.

The divestiture of the remaining 80.5% ownership of Atmus Filtration Technologies Inc. was completed on March 18, 2024, resulting in a $1.3 billion non-taxable gain recognized in the prior year. This transaction significantly impacts year-over-year net income and EPS comparisons for the six-month period.

Selling, general and administrative expenses decreased $49 million (0.4 percentage points of net sales) for the three months and $117 million (0.5 percentage points of net sales) for the six months, primarily due to lower compensation expenses. Research, development and engineering expenses also decreased, contributing to improved operating income.

In July 2025, the Board of Directors authorized an increase to the quarterly dividend by approximately 10%, from $1.82 per share to $2.00 per share. This decision reflects management's confidence in future cash flow generation and commitment to returning value to shareholders.

The company issued $2.0 billion in senior unsecured notes in May 2025 and settled $700 million of interest rate lock agreements. Additionally, new 3-year and 5-year credit agreements were entered into, maintaining $4.0 billion in committed credit facilities to provide backup liquidity for general corporate purposes.

Management explicitly highlights uncertainty regarding North American emissions regulation for 2027 as a key challenge. This regulatory ambiguity could impact future product development, compliance costs, and market demand for certain engine products.

Demand for medium-duty and heavy-duty trucks in North America is expected to decline in the second half of 2025, following an 8% decrease in Engine segment sales for the three months ended June 30, 2025, mainly due to lower demand in these markets.

The uncertain tariff environment continues to create market volatility and potential impacts on supply chain and product costs. While the net impact of tariff costs was immaterial for the current quarter, management expects these costs and related recoveries to increase, posing a material adverse risk to future results.

The company demonstrated strong competitive positioning in power generation, data center, and commercial markets, driving significant sales increases in the Power Systems (up 19%) and Distribution (up 7-11%) segments. This diversified strength helps mitigate the impact of weaker demand in North American on-highway truck markets.

Gross margin improvements were primarily attributed to favorable non-tariff related pricing, particularly from the launch of updated engine products in light-duty markets. This indicates the company's ability to command pricing power and successfully introduce new offerings in competitive segments.

The Accelera segment's focus on electrified power systems, battery, fuel cell, and hydrogen production technologies positions Cummins for future market shifts. While currently in early commercialization, these investments are critical for maintaining a competitive edge as markets adopt alternative power solutions.

Gross margin as a percentage of net sales increased by 1.5 percentage points for the three months and 1.8 percentage points for the six months ended June 30, 2025, reaching 26.4%. This was primarily driven by favorable non-tariff related pricing and lower material costs, indicating improved operational efficiency in procurement and pricing strategies.

Selling, general and administrative expenses decreased by $49 million (6%) for the three months and $117 million (7%) for the six months, largely due to lower compensation expenses. Research, development and engineering expenses also saw reductions, highlighting management's focus on controlling costs across operations.

Inventories increased to $6,287 million at June 30, 2025, from $5,742 million at December 31, 2024, leading to a decrease in inventory turnover from 4.4 to 4.0. While working capital improved overall, this increase in inventory could indicate potential future working capital demands or a buildup in anticipation of demand.

Despite a decrease in R&D expenses for the current periods, research activities continue to prioritize the development of new products, improvements to meet future emission standards, and advancements in fuel economy. Significant efforts are also directed towards electrified power systems and hydrogen production technologies.

The Accelera segment is dedicated to designing, manufacturing, selling, and supporting electrified power systems, including battery, fuel cell, and electric powertrain technologies, as well as hydrogen production. This segment represents the company's strategic investment in next-generation power solutions.

The joint venture, Amplify Cell Technologies LLC, aims to manufacture battery cells for electric commercial vehicles and industrial applications. Cummins has contributed $255 million to this venture, with production anticipated to begin in 2027, underscoring a long-term commitment to advanced battery technology.

The Board authorized a 10% increase in the quarterly dividend to $2.00 per share, following $502 million in dividend payments during the first six months of 2025. This indicates a strong commitment to returning capital to shareholders and confidence in sustained free cash flow generation.

Cummins issued $2.0 billion in new senior unsecured notes in May 2025 and settled interest rate swaps, demonstrating active management of its debt portfolio. These actions, along with new credit facilities, maintain strong liquidity and financial flexibility for future investments and operations.

Capital expenditures for the six months ended June 30, 2025, were $393 million, with an estimated $1.4 billion to $1.5 billion planned for the full year, primarily in North America. Additionally, the company has contributed $255 million to the Amplify Cell Technologies LLC joint venture, signaling investment in new product lines and capacity expansions.

The Accelera segment's focus on electrified power systems, battery, fuel cell, and hydrogen production technologies directly supports environmental sustainability. These investments demonstrate Cummins' commitment to developing and commercializing solutions that reduce carbon emissions and meet evolving climate change regulations.

The company continues to manage the implications of the April 2024 Settlement Agreements with U.S. environmental agencies regarding emissions certification, having made $1.9 billion in payments in Q2 2024. This highlights the significant financial commitment to addressing past compliance issues and ongoing efforts to meet regulatory standards.

Management identifies evolving environmental and climate change legislation and regulatory initiatives, including potential bans or limitations on diesel products, as ongoing risk factors. The uncertainty around 2027 North American emissions regulations specifically highlights future sustainability challenges and compliance costs.

While North American heavy-duty truck markets experienced weaker demand, leading to an 8% decrease in Engine segment sales, strong demand in power generation markets, especially in North America and China, boosted Power Systems sales by 19%. International sales (ex-US/Canada) increased 5% for the three months, indicating varied regional performance.

The company acknowledges ongoing exposure to geopolitical risks, currency fluctuations, and an uncertain tariff environment. While the financial impact of tariffs was immaterial in Q2 2025, management anticipates increased costs and potential trade disruptions to materially affect future results, particularly in global markets like China, India, and Brazil.

The signing of the 'One Big Beautiful Bill Act' on July 4, 2025, which enacts significant changes to U.S. federal income tax rules, introduces new regulatory considerations. The company is currently assessing the impact on its financial statements, adding a layer of uncertainty to the future operating environment.