Cummins (CMI 4.84%), a leader in power solutions, delivered its fourth-quarter earnings on Feb. 4. The company achieved revenues of $8.4 billion, surpassing analysts' consensus estimate of $8.07 billion. However, its diluted earnings per share (EPS) of $3.02 fell short of the expected $4.70. The quarter was generally positive, though, as several segments improved their profitability amid industry challenges.

Source: Analysts' estimates for the quarter provided by FactSet.

Business Overview

Cummins is a global power technology leader that designs, manufactures, and distributes engines, power systems, and components. It addresses markets ranging from traditional diesel engines to emerging hydrogen technologies. The company operates in five segments: engine, components, power systems, distribution, and Accelera (its hydrogen business). That diverse product portfolio is critical for market appeal and risk management. Its recent focuses have included inking strategic partnerships and expanding its footprint in sustainable technologies. These include the Accelera segment's work on electrolyzers and hydrogen fuel cells, and partnerships with automakers like Tata and Daimler.

Quarter Performance Review

Cummins reported mixed results during the quarter. Overall revenue was $8.45 billion, slightly below the previous year's $8.54 billion, but that still exceeded analysts' expectations by 4.7%. The engine segment saw a 2% decline in sales to $2.7 billion. Conversely, the distribution and power systems segments recorded sales increases of 13% and 22%, respectively, driven by strong demands for power generation.

The components segment, however, recorded a 17% decline in sales, which management attributed to weaker demand and the completion of its separation from its spin-off company, Atmus. Despite that, the segment posted an improved EBITDA margin. The Accelera segment's 23% sales growth was overshadowed by its substantial $431 million EBITDA loss, which was due in part to $312 million in noncash charges related to its strategic reorganization.

Cummins' earnings per share were adversely affected by the Accelera-related costs. Adjusted EPS was $3.04, missing estimates by $1.68. Nonetheless, net income improved significantly to $418 million from a loss of $1.43 billion in the prior-year period.

One-time events during the quarter, such as the Accelera reorganization, negatively impacted financials. Yet operational efficiencies helped buffer some earnings pressure.

Looking Ahead

Cummins' guidance for its 2025 revenue ranges from a 2% decline to a 3% increase. Though it anticipates some weakness in the North American heavy-duty truck market, management expects EBITDA to be between 16.2% and 17.2% of sales, and predicts improvements in profitability and cash flow.

Investors should keep an eye on Cummins' Destination Zero strategy developments, especially the forthcoming launch of its diesel-powered 15-liter engine and its expected growth in the medium-duty truck market.