10-K: Cummins Navigates Market Shifts, Boosts Power Systems

Cummins Inc. reports a decrease in 2025 net income and sales, driven by on-highway truck market weakness and Accelera restructuring, but sees strong growth in power generation and increased cash from operations.

Summary

• Net sales decreased by 1% to $33.7 billion in 2025, down from $34.1 billion in 2024.
• Net income attributable to Cummins Inc. decreased by 28% to $2.8 billion ($20.50 diluted EPS) in 2025, compared to $3.9 billion ($28.37 diluted EPS) in 2024.
• The decrease in net income was primarily due to the absence of a $1.3 billion non-taxable gain from the Atmus divestiture in 2024, lower demand in on-highway commercial truck markets, and $458 million in charges from Accelera actions in the second half of 2025.
• These declines were partially offset by strong growth in power generation markets, especially data center and commercial sectors, favorable non-tariff pricing related to updated light-duty automotive engine products, and lower compensation expenses.
• Cash provided by operating activities significantly increased by $2.1 billion to $3.6 billion in 2025, mainly due to the absence of $1.9 billion in Settlement Agreement payments made in 2024.
• The Accelera segment recorded total charges of $458 million in 2025, including a $210 million goodwill impairment and inventory write-downs, due to deteriorating electrolyzer and hydrogen markets and reduced government incentives.
• The company intends to stop new commercial activity in the electrolyzer space, while continuing to fulfill existing customer commitments.
• The Distribution segment's sales increased 9% and EBITDA increased 31%, driven by higher demand in North American power generation markets.
• The Power Systems segment's sales increased 16% and EBITDA increased 44%, primarily due to improved demand in power generation markets in North America and China.
• Engine segment sales decreased 7% and EBITDA decreased 16% due to lower demand in North American heavy-duty and medium-duty truck markets.
• Components segment sales decreased 13% and EBITDA decreased 12% due to lower demand in North American heavy-duty and medium-duty truck markets and the Atmus divestiture.
• The company's global pension plans were 112% funded at December 31, 2025.
• The Board authorized a 10% increase in the quarterly dividend to $2.00 per share in July 2025.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a mixed report. While strong performance in Power Systems and improved cash flow from operations are positive, the significant decline in net income (due to the absence of a one-time gain and Accelera charges) and weakness in core engine markets present headwinds. The strategic shift in Accelera highlights challenges in new energy ventures.

Positives

• Net cash provided by operating activities increased by $2.1 billion to $3.6 billion in 2025, primarily due to the absence of $1.9 billion in Settlement Agreement payments made in 2024.
• Distribution segment sales increased 9% and EBITDA increased 31%, driven by strong demand in North American power generation markets, especially data center and commercial markets.
• Power Systems segment sales increased 16% and EBITDA increased 44%, primarily due to higher demand in power generation markets, especially data center and commercial markets in North America and China.
• Gross margin increased by 0.6 percentage points as a percentage of sales, driven by strong power generation growth and favorable non-tariff pricing.
• Selling, general and administrative expenses decreased by $150 million (5%) and 0.3 points as a percentage of sales, mainly due to lower compensation expenses.
• Research, development and engineering expenses decreased by $67 million (5%) and 0.2 points as a percentage of sales, mainly due to lower compensation expenses.
• Equity, royalty and interest income from investees increased by $74 million (19%), primarily due to increased earnings at Chongqing Cummins Engine Co., Ltd. and Beijing Foton Cummins Engine Co., Ltd.
• Interest expense decreased by $41 million (11%) due to lower weighted-average interest rates.
• The company's global pension plans were 112% funded at December 31, 2025, with U.S. plans 115% funded and U.K. plans 105% funded.
• The Board authorized a 10% increase in the quarterly dividend to $2.00 per share in July 2025.
• The debt to capital ratio improved to 36.0% at December 31, 2025, from 38.4% at December 31, 2024.
• Cash and marketable securities on hand were $3.6 billion at December 31, 2025, and the company has access to $4.0 billion in credit facilities.

Negatives

• Net sales decreased by $432 million (1%) in 2025 compared to 2024.
• Net income attributable to Cummins Inc. decreased by $1.1 billion (28%) to $2.8 billion in 2025, and diluted EPS decreased by $7.87 (28%) to $20.50.
• The absence of the $1.3 billion non-taxable gain from the Atmus divestiture in 2024 significantly impacted the year-over-year net income comparison.
• The Accelera segment recorded total charges of $458 million in 2025, including a $210 million goodwill impairment, due to deteriorating electrolyzer and hydrogen markets and reduced government incentives.
• The company intends to stop new commercial activity in the electrolyzer space.
• Engine segment sales decreased $837 million (7%) and EBITDA decreased $271 million (16%) due to lower demand in North American heavy-duty and medium-duty truck markets.
• Components segment sales decreased $1.5 billion (13%) and EBITDA decreased $193 million (12%) due to lower demand in North American heavy-duty and medium-duty truck markets and the Atmus divestiture.
• The effective tax rate increased to 25.4% in 2025 from 17.0% in 2024, primarily due to the absence of the non-taxable Atmus gain and the impact of the One Big Beautiful Bill Act.
• The One Big Beautiful Bill Act resulted in a $39 million increase to tax expense in 2025.
• Potential non-cash expense of up to $127 million if NHTSA and EPA finalize proposed rules regarding emission compliance credits.

Risks

• Incurrence of additional claims, costs, and expenses, and adverse reputational impacts from the 2024 Settlement Agreements regarding emissions certification and compliance, including potential stipulated penalties for non-compliance.
• Increased scrutiny from regulatory agencies and unpredictability in the adoption, implementation, and enforcement of increasingly stringent and fragmented emission standards globally.
• Evolving environmental and climate change legislation and regulatory initiatives, which may adversely impact operations, competitive landscape, and demand for products.
• Changes in tariffs and other trade disruptions (e.g., embargoes, sanctions, export controls), particularly with China, could adversely impact production costs, customer demand, and competitive position.
• Deregulation or reduction of incentives for new products and technologies could impair investments in future products and negatively impact long-term growth and competitiveness.
• Unanticipated changes in the effective tax rate, adoption of new tax legislation, or exposure to additional income tax liabilities.
• Significant compliance costs and reputational and legal risks from global operations subject to complex commercial, trade, anti-corruption, and data privacy regulations.
• Future bans or limitations on the use of diesel-powered vehicles or other applications could have a material adverse impact on the diesel business over the long term.
• Vulnerability to raw material, transportation, and labor price fluctuations and supply shortages, potentially exacerbated by climate change effects.
• Challenges in accurately aligning manufacturing capacity with fluctuating demand in cyclical markets, leading to under-utilized capacity or failure to meet customer demand.
• Significant earnings derived from investees not directly controlled, with more than 50% from China-based investees, exposing net income to risks from their actions or inactions.
• Risk of large truck manufacturers and OEM customers discontinuing outsourcing engine supply needs, experiencing financial distress, or undergoing a change-in-control.
• Product recalls for performance or safety-related issues, leading to reputational risk, loss of customers, reduced revenue, and recall costs.
• Variability in material and commodity costs, which may prevent timely passing of additional costs to customers and result in declining margins.
• Development of new technologies materially reducing demand for current products, or failure to successfully develop new technologies and products to effectively address the energy transition.
• Lower-than-anticipated market acceptance of new or existing products or services.
• Exposure to potential product liability claims, which can be expensive to defend and damage customer confidence.
• Adverse impacts from the effects of climate change and increased costs due to new or more stringent climate change regulations, accords, or mitigation efforts.
• Risks associated with repositioning the portfolio through strategic acquisitions, divestitures, or exiting product lines, including additional costs, management distraction, and integration challenges.
• Interest rate risks, including reduced demand for products and increased borrowing costs from rising interest rates, and potential non-cash impairment charges on goodwill assets.
• Challenging markets for talent and the ability to attract, develop, and retain key personnel.
• Exposure to potential security breaches or other disruptions to IT environment and data security, including risks from increasing use of AI.
• Challenges with properly managing the use of artificial intelligence (AI) in business and products, potentially resulting in reputational harm, competitive harm, and legal liability.
• Political, economic, and other risks arising from operating a multinational business, including international conflicts, trade protection measures, and public health crises.
• Significant competition in the regions served, including from new technologies and local manufacturers in emerging markets.
• Increasing global competition among customers, which may affect existing customer relationships and limit benefits from customer growth.
• Failure to meet sustainability expectations or standards, or to achieve sustainability goals, could adversely affect business, results of operations, and financial condition.
• Adverse impacts from work stoppages and other labor matters affecting the company, its customers, or suppliers.
• Foreign currency exchange rate and other related risks, including exchange controls and currency devaluations.
• Significant declines in future financial and stock market conditions diminishing pension plan asset performance and adversely impacting results of operations, financial condition, and cash flow.
• Risks arising from the price and availability of energy, influencing demand for products.

Future Outlook

Cummins anticipates strong demand in its Power Systems business, including power generation and industrial markets, and expects its aftermarket business to remain stable. However, the company projects weak demand for medium-duty and heavy-duty trucks in North America during the first half of 2026. Increases in costs, tariffs, and inflationary pressures are expected to negatively impact earnings, as could potential trade disruptions. The slower adoption of zero-emission solutions has reduced Accelera's near-term revenue outlook, leading to restructuring and continued near-term operating losses despite expected gradual cost structure improvements. Changes in government policies, such as reduced incentives or revised emissions standards, may impact Accelera's ability to compete and recover investments. The board of the Amplify Cell Technologies LLC joint venture is reviewing investment timing due to changing market adoption projections. There is a potential non-cash expense of up to $127 million if proposed NHTSA and EPA rules regarding emission compliance credits are finalized. The effective tax rate for 2026 is expected to be approximately 24.0%, excluding discrete tax items. Capital expenditures for 2026 are estimated between $1.35 billion and $1.45 billion, with over 65% allocated to North America.

Management Comments

• "We are a global power leader committed to powering a more prosperous world."
• "Our five reportable segments... offer a broad portfolio, including advanced diesel, electric and hybrid powertrains... and zero emissions technologies like battery and electric powertrain systems."
• "We deliver dependable, cutting-edge solutions tailored to our customers' needs, supporting them through the energy transition with our Destination Zero strategy."
• "We are committed to making people's lives better by powering a more prosperous world. That prosperity includes strong communities, robust business and environmental sustainability."
• "Our business and sustainability strategies are intentionally and intricately aligned through Destination Zero – our company’s commitment to sustainability and helping our customers navigate the energy transition while growing our business."
• "We intend to stop new commercial activity in the electrolyzer space, subject to information and consultation in accordance with local legal requirements. We will continue to fulfill existing customer commitments."
• "Our financial condition and liquidity remain strong. Our solid balance sheet and credit ratings enable us to have ready access to credit and the capital markets."
• "We believe our access to the capital markets, our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund targeted capital expenditures, dividend payments, debt service obligations, projected pension obligations, common stock repurchases, joint venture contributions and acquisitions through 2026 and beyond."

Industry Context

StockSavvy.ai notes that Cummins is navigating a complex energy transition, evident in its "Destination Zero" strategy and investments in electrified power systems, while simultaneously facing challenges in traditional diesel markets (on-highway trucks). The strong performance in power generation, particularly data centers, highlights a resilient segment benefiting from broader digital infrastructure trends, offsetting some weakness in core engine markets. The decision to halt new electrolyzer commercial activity reflects the volatile and uncertain nature of emerging clean energy markets, where government incentives and market adoption rates are critical.

Comparison to Industry Standards

• Cummins' 2025 net sales decreased 1%, which may contrast with varying performance among competitors in the heavy-duty truck market (e.g., PACCAR, Daimler Truck Holding AG) depending on their specific product mix and geographic exposure.
• The strong growth in Cummins' Power Systems segment (16% sales increase, 44% EBITDA increase) in data center and commercial markets suggests it is outperforming or capturing significant market share in this specific niche compared to general industrial trends, potentially indicating a competitive advantage against rivals like Caterpillar and Generac in this area.
• The Accelera segment's significant impairments and decision to stop new electrolyzer commercial activity indicate a more cautious approach to certain zero-emission technologies compared to some competitors (e.g., BYD Company Limited, BorgWarner Inc.) who may be more aggressively expanding in these areas, or who have different market exposures or government support.

Management Changes

Corporate Governance

Legal Proceedings

• Subject to numerous lawsuits and claims arising from ordinary business, including product liability, personal injury, warranty, product recalls, intellectual property infringement, contractual liability, tax reporting, distributor termination, workplace safety, environmental, and asbestos claims.
• Reached Settlement Agreements in December 2023 (finalized April 2024) with the EPA, CARB, DOJ, and California Attorney General's Office to resolve regulatory civil claims regarding emissions certification and compliance for certain pick-up truck engines.
• Recorded a $2.0 billion charge in the fourth quarter of 2023 to resolve matters addressed by the Settlement Agreements, in addition to previously announced charges of $59 million for recalls.
• Made $1.9 billion of payments required by the Settlement Agreements in the second quarter of 2024.
• Subsequent to Q2 2024, immaterial amounts related to stipulated penalties for non-compliance were recorded, with potential for further penalties and adverse consequences for future non-compliance.
• In communication with other non-U.S. regulators regarding matters related to engine emission systems, potentially leading to additional regulatory review.
• Became subject to shareholder, consumer, and third-party litigation regarding matters covered by the Settlement Agreements, with potential for additional litigation.
• Conducts significant business operations in Brazil, subject to complex Brazilian federal, state, and local labor, social security, tax, and customs laws, leading to ongoing litigation regarding their application.
• Identified as a potentially responsible party under environmental statutes at fewer than 20 manufacturing and waste disposal sites, with expected aggregate future remediation costs not material.

Related Party Transactions

• Sales to nonconsolidated equity investees totaled $1,679 million in 2025, $1,392 million in 2024, and $1,548 million in 2023.
• Purchases from nonconsolidated equity investees totaled $2,168 million in 2025, $2,463 million in 2024, and $2,628 million in 2023.
• Accounts receivable from nonconsolidated equity investees were $523 million at December 31, 2025, and $432 million at December 31, 2024.
• Accounts payable to nonconsolidated equity investees were $263 million at December 31, 2025, and $281 million at December 31, 2024.
• Joint venture transfer prices may differ from normal selling prices, operating on a cost, cost-plus, or market value basis.
• The Amplify Cell Technologies LLC joint venture includes Accelera, Daimler Truck and US Holding LLC, PACCAR, Inc. (each 30% ownership), and EVE Energy (10% ownership).
• Komatsu Cummins Chile, Ltda. is a joint venture with Komatsu America Corporation.
• Eaton Cummins Automated Transmission Technologies (ECJV) is a consolidated 50/50 joint venture with Eaton Corporation plc.
• Cummins India Ltd. (CIL) is a publicly listed company in India where Cummins holds a controlling interest.
• Other partially-owned distributors are considered related parties.

Stakeholder Impact

• Shareholders are impacted by the 28% decrease in net income and diluted EPS, the 10% increase in quarterly dividend, and the ongoing share repurchase program.
• Employees are affected by lower overall compensation expenses, potential severance from Accelera restructuring, and the company's focus on talent development, competitive pay, benefits, and safety.
• Customers are impacted by lower demand in on-highway commercial truck markets, new product launches in light-duty automotive, strong power generation offerings (data center, commercial), and the discontinuation of new electrolyzer commercial activity.
• Suppliers face ongoing supply chain disruptions, raw material/transportation/labor price fluctuations, and the company's efforts to mitigate tariff costs.
• Creditors are impacted by the issuance of $2.0 billion in senior unsecured notes, the repayment of $500 million senior notes, and the company's maintenance of strong credit ratings and access to credit facilities.

Next Steps

• Continue to fulfill existing customer commitments in the electrolyzer space despite stopping new commercial activity.
• The Amplify Cell Technologies LLC joint venture board to review the timing of investments.
• Monitor potential finalization of NHTSA and EPA proposed rules regarding emission compliance credits, which could lead to a non-cash expense of up to $127 million.
• Expected capital expenditures of $1.35 billion to $1.45 billion in 2026, with over 65% invested in North America.
• Expected cash contributions of approximately $51 million to global pension plans in 2026.
• Repurchase outstanding shares from time to time to enhance shareholder value, with $2.2 billion remaining available under authorized plans.
• The definitive Proxy Statement for the 2026 annual meeting of shareholders will be filed with the SEC on Schedule 14A within 120 days after the end of 2025.

Key Dates

Recommendation

The filing presents a mixed financial picture. While strong cash flow from operations and growth in the Power Systems segment are positive, the substantial decline in net income and EPS, largely due to the absence of a prior-year one-time gain and significant charges in the Accelera segment, indicates underlying challenges. The strategic decision to cease new electrolyzer commercial activity, while prudent given market conditions, signals a setback in a key future growth area. Weakness in core heavy-duty and medium-duty truck markets is a concern. The dividend increase and share repurchase authorization provide some support, but the overall outlook is cautious, warranting a "Hold" as the company navigates market shifts and the energy transition.

Keywords

Diesel engines, Electric powertrains, Hybrid powertrains, Power generation, Aftertreatment systems, Turbochargers, Fuel systems, Transmissions, Axles, Brakes, Zero emissions, Battery systems, Electrified power systems, Hydrogen, Electrolyzer, SEC filing, 10-K, Financial results, Corporate governance, Risk factors, Sustainability, Destination Zero, Global power leader, Commercial vehicles, Industrial applications, Data centers, OEM, PACCAR, Traton, Daimler, Stellantis, Accelera, Atmus, Emissions compliance, Supply chain, Capital expenditures, Dividends, Pension, Cybersecurity