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Cummins (CMI), a manufacturer of power generation and propulsion equipment and technologies, blew out 1Q25 EPS expectations, driven by record results in its Power Systems segment and strong operational execution. However, earnings and EBITDA still faced significant yr/yr declines, with net income plunging by nearly 59% to $824 mln and EBITDA margin contracting to 17.9% from 30.6%, reflecting softer demand in certain markets, higher costs, and the absence of one-time gains from the prior year. Also, CMI withdrew its FY25 guidance, citing growing economic uncertainty driven by tariffs, which could disrupt supply chains, increase input costs, and pressure margins.

Tariffs pose a significant risk to CMI, especially for its Components and Engine segments, where higher costs for imported materials or reduced demand from tariff-impacted customers could erode profitability.

• The Power Systems segment emerged as the clear standout in Q1, with revenue surging by 19% yr/yr to a quarterly record of $1.6 bln, propelled by robust demand in global power generation markets. Geographically, North America and Europe were particularly strong, led by sustained investments in data centers, where CMI's power solutions are critical. CMI also saw resilient aftermarket demand for rebuilds in industrial applications like mining.
• CMI's smaller Accelera segment, which posted an 11% yr/yr sales increase to $414 mln, was another area of strength. Accelera focuses on zero-emissions technologies, making it a key component of CMI's Destination Zero strategy -- an initiative that emphasizes sustainability and supports customers' transition to clean energy. In Q1, growth was fueled by rising electrolyzer sales and progress in its hydrogen production technologies.
• On the other end of the spectrum, the Components segment experienced a sharp 20% yr/yr revenue drop to $2.7 bln, primarily due to the divestiture of Atmus Filtration in March 2024, which significantly reduced the segment's scope. Further weighing on the segment's growth was weaker demand in heavy-duty truck markets, supply chain disruptions exacerbated by hurricanes, and competitive pricing pressures in North America.
• CMI's Engine segment experienced a 5% yr/yr sales decrease to $2.8 bln, driven by declines in light-duty automotive and heavy-duty truck sales. The segment faced challenges from reduced pickup truck engine production and a broader slowdown in freight activity. The good news, though, is that segment EBITDA margin improved to 16.5% from 14.1% in the year-earlier period, bolstered by stratetic pricing initiatives and operational efficiencies.

CMI's 1Q25 earnings showcased much better-than-expected earnings, underpinned by exceptional Power Systems performance and solid Accelera growth. However, the withdrawal of 2025 guidance amid tariff-driven uncertainty has heightened investor concerns as potential cost pressures and demand disruptions could challenge the company's profitability and growth in the near-term.