Good day, ladies and gentlemen, and welcome to the Q2 2019 Cummins, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to James Hopkins, Executive Director of Investor Relations. You may begin.

Thank you, Michel. Good morning, everyone, and welcome to our teleconference today to discuss Cummins results for the second quarter of 2019. Participating with me today are our Chairman and Chief Executive Officer, Tom Linebarger; our Chief Financial Officer, Mark Smith; and our President and Chief Operating Officer, Rich Freeland. We will be available for your questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions and strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements, because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed Annual Report on Form 10-K and any subsequently filed Quarterly Reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures and we refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website at www.cummins.com, under the heading of Investors and Media. With that out of the way, we'll begin with our Chairman and CEO, Tom Linebarger.

Thank you, James. Good morning. I'll start with a summary of our second quarter results and finished with a discussion of our outlook for 2019. Mark will then take you through more details of our second quarter financial performance and our forecast for the full year. Revenues for the second quarter of 2019 were a record $6.2 billion, an increase of 1% compared to the second quarter of 2018. EBITDA was a record $1.1 billion, or 17%, compared to $897 million, or 14.6%, a year ago. Lower campaign costs, positive pricing and lower material costs more than offset our increased investments in research and engineering, the impact of tariffs and lower joint venture income in China. Engine business revenues were flat in the second quarter compared to a year ago. Revenues in North America, increased by 7%, driven by higher industry production of heavy and medium duty trucks, as well as continued strong demand in construction markets. International revenues declined by 15%, primarily as a result of lower demand in Chinese light duty truck and construction markets. EBITDA margin for the quarter was 15.4%, compared to 13.4% for the same period in 2018. Lower campaign costs, improved pricing and lower material costs more than offset lower joint venture income increased investment in research and engineering, and the negative impact of tariffs. Sales for our distribution segment grew by 2% year-over-year, driven by higher demand for power generation equipment in North America. Second quarter EBITDA was a record $172 million or 8.5% of sales, compared to 7.3% in the second quarter 2018. EBITDA margins benefited from higher volumes and positive pricing. The second quarter revenues for the component segment declined by 2%. Sales in North America increased 5%, driven by higher truck build rates, while revenues in international markets declined by…

Thank you, Tom and good morning everyone. I'll start with a quick summary of the drivers of our strong financial performance in the second quarter, and then comment on our revised outlook for the full year. Second quarter revenues were a record $6.2 billion, up 1% from a year ago. Sales in North America grew 7%, and International revenues declined by 6%, currency movements negatively impacted overall company revenues by 2%. Earnings before interest tax depreciation and amortization or EBITDA were a record $1.1 billion or 17% of sales for the quarter. EBITDA increased by $161 million over the second quarter last year, as a result of stronger gross margins and higher other income, which more than offset increased research and development expenses and lower joint venture income. Gross margin of $1.6 billion, or 26.4%, improved by $201 million. Results for the second quarter of 2018 included a $181 million charge for an engine system campaign. In addition to lower campaign costs, improve pricing benefits from material cost reduction programs more than offset the impact of higher tariffs year-over-year. Our selling administrative and research costs $880 million increased by $48 million year-over-year, driven primarily by new product development in the engine components and Electrified Power segments. Joint venture income declined by $14 million, driven by weaker demand in light duty truck and power generation markets in China, in addition to some increased expenses in China associated with the launch of new on highway products, to meet the new National 6 emissions regulations. Other income of $43 million increased by $18 million, primarily driven by $18 million of mark-to-market gains on the investments that underpin our non-qualified benefit plans. The mark-to-market gains were recorded other income in the income statement, and with eliminations in our segment reporting. The effective tax rate…

Thank you, Mark. As you remember, we announced on April 29th and then discussed in our first quarter earnings call that we'd initiated an internal review of our emissions certification and compliance processes for our pickup truck applications as a result of conversations with the EPA and the California Air Resources Board. Our review continues, and we are proactively working closely with the EPA and CARB and other agencies to address their questions. During conversations with the EPA and CARB about the effectiveness of our 2019 pickup truck applications, the agencies raise concerns that certain aspects of our emission systems may reduce the effectiveness of our emission control systems and did not fully comply with the requirements for certification. As a result, our internal review has been largely focused on the agency's concerns. We are working closely with the agencies to enhance our emission systems to improve the effectiveness of our pickup truck applications, and to fully address the agencies requirements and meet the expectations of our customers. Consistent with the values and the history of the company, which include a strong commitment to compliance, we’ll work with regulators and other agencies to address the issues identified in our internal review and develop future technologies that will advance our industry. It's too early to conclude on any changes that we will make to our processes and organization as a result of our internal review. It's also too soon to know what the response of the regulators will be to our view, or to determine any potential financial consequences. Now, let me give it back to James to open for Q&A.

Thanks, Tom. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. And if you have additional questions, please rejoin the queue. Michel, we're now ready for our first question.

Our first question comes from Jamie Cook of Credit Suisse. Your line is open.

Hi, good morning. I guess two questions, one for Mark one for Tom. Mark, just on the change in engine guidance understanding you took your sales down a little -- the margins I guess were down a little lower than what I would have thought, so if you could just help me understand the puts and takes there? And then Tom, a question for you on 2020 understanding you probably want to frame that more, when we get to your Analyst Day or the fourth quarter, but can you just -- given you touched so many markets, can you give us some view on how you're thinking about 2020 given the macro concerns out there, and then any positives and negatives, investors should think about outside of the markets that could help or be a drag on Cummins that are within your control? Thank you.

Okay, Jamie, so quickly the two main drivers of the lower margins for the engine business, lower top-line outlook which in part is due to a kind of leveling off of parts demand in North America, and then of course the lower outlook for joint venture, it is principally driven by China, especially driven by Canada lower outlook for the light duty market, which is really all negative impact the JV earnings which constrict off the EBITDA percent. So those are the two primary reasons otherwise everything else is pretty much in line.

And with regard to next year I will just make a few general comments, Jamie and of course we'll be very detailed when we get to the Analyst Day about what we're seeing. But broadly speaking, as you know many of our markets are either at or near cyclical peaks in our view, which means that inevitably we will start to see some of these markets decline. We don't know the exact quarter, we done a fairly detailed projection for the U.S. truck market because there's a lot of data and it’s easier to do. But even that has some variance depending on who in the industry you ask. Most of the other markets have more variance as to when people think they thought but many of them will inevitably fall at least to some degree, so we are prepared for 2020, and even into 2021 for markets to be relatively lower cyclically, at least many of our major ones and we are prepared in the following sense. We are already managing our cost to make sure that our capacity levels and cost levels will be at the right place when it's time and making sure that we're the first to be ready and the first to react. And so, a lot of our focus is on ensuring that were prepared from a cost structure point of view for that cyclical downturn that's how we ensure that in the next downturn we have better margins than the prior downturn. The second thing is that our products are performing incredibly well, that's why you see many of our market share projections sort of tipping towards the higher end of our estimation for the year as because we think our products are performing very well. We think that serves us well in…

Thank you. That was helpful. I will get back in queue.

Our question comes from Steven Fisher of UBS. Your line is now open.

Thanks. Good morning. On your down 10% earnings from JVs in your guidance. I think that implies around flat for the second half versus down 15% to 20% in the first half that, how much of that is easier comps or is it an expected pickup in sales, emission guidance for something else.

So, I think we will start to see a tail off certainly on a system side of our joint venture earnings towards the back half of the last year, so your method is exactly right, Steve. There is no assumption [ph], it is just kind of leveling out in aggregate and flat in the second half of the year.

Okay. And then could you just clarify the parts outlook to what extent are you already seeing a lower demand exiting the quarter, I think you had 2% growth disclosed in the distribution segment. So, has that already started to turn negative or are you just adjusting production and anticipation of lower demand later this year and the next year?

Steven, its Rich. Let me give just a little background on parts, some perspective. We are parts and service business for last three years which has grown about 10% a year, since we put more and more product out there and more complex power trains, we've seen some pretty rapid growth in that. What we forecast about 4% to 5% growth again this year, including pricing and what we've seen is bit of a fall back on that. And mostly in North America as we look to truck utilization, the data is not a strong here, but our hypothesis is that older trucks are not being run as heavily and so therefore our parts and service down a bit. And when that happens, we've seen -- there will be some adjustment, kind of in dealer inventories and adjustment there. We don't think inventories are bloated at this time or excessive. I think just some prudent trimming of inventories is what I would expect to see. Again, this reduction that we put on our forecast basically says we will still be flat to last year. So, at a record levels and so it remains bullish going forward. We're putting out about 1.5 million engines a year, so over the last three years. So those engines move into the parts consuming business. So, we think a little bit of adjustment second half of the year, bullish long term.

Great, thanks, Rich.

Our next question comes from Rob Wertheimer of Melius. Your line is open.

Actually, yeah. My question was on parts, and that that was fantastic color Rich, on the past growth rate, et cetera. Just out of curiosity, I mean, you mentioned it all tickets bloated, how much of your sales goes to non-Cummins, I guess distribution? If you're willing to give that number? And then, do you think is the six-month adjustment? And then, were kind of all clear. Part of the reason I'm asking is just we didn't see this sort of slowdown as you had in pack car, obviously selling to someone markets.

Yes, so I would say, I don't have exact numbers in but more than half, the channels putting split more than half going to through non-OEM channels. So, there is a wide range of customers buying inventory.

What Mark is saying is more than half of go through OEM dealer channel versus our own channel. And that's in the truck side. And as you said, the adjustments, the adjustments in parts, they're kind of hard to predict this time. Because there relatively small adjustments in grand scheme of parts inventories, but they can have an effect on a quarter. And we see this every downturn there are some adjustment. And frankly, we're not that good at predicting much quarter it is. So, we're now kind of we were surprised that it was now, but it was. And I think what Rich is saying is that every time we see this, we see it every downturn, it tends not to be lasting very long. Parts is a very stable business, our services business, so, we don't expect it to keep going down, we expect it to level off. And then we expect to see it continue to increase in future quarter. So, we're just trying to be prudent that it seems inevitable in a downturn that dealers will adjust some inventories. And we saw a little bit of that in this second quarter and we expect to see a little bit more of it as we go on second half of the year. But we'll see, right what happens. And like you said, everybody is going to have different circumstances depending on where they're holding inventory, how much they're holding and all that kind of. I think we should just expect variability, but it's inevitable if you just look over the cycle that parts inventory dropped some in the downturn, and then they rise up again as things start to rise.

Perfect. Thanks, Tom.

Our next question comes from Ann Duignan of JPMorgan. Your line is open.

Hi, good morning.

Hi, Ann.

Maybe you could walk us through the different regions of your business and comment a little further on which one markets you see as being at peak. I mean, everybody understands North America heavy duty, and maybe the impact that has on components also. But what other end markets do you feel are post peak?

In, most of the truck markets are at or near peak. I mean, Brazil is a notable exception, because it's kind of running along the bottom, but most of the others. So, India is already on the way down, China look like it's on the way down. Heavy duty, you talked about, medium duty is holding strong, but it's been up for a while. So, it just, and Europe is the one we are not sure about. But even that showed a little weakness in this last quarter. It's hard to say exactly how much what that means. But we've heard some rumblings out of Europe that some of the truck makers are getting concerned. So, it's sort of hard to find a truck market that doesn't feel peakish, if not already headed down the other side. It looks to us like mining is a little bit of a different story. It doesn't look like it's at peak, but it's definitely leveled off. I mean, there's just nothing else to say about that. Now, whether it's going to turn back up again or just sort of steadily grow we're not sure that's kind of our view is that it's going to have a slow growth from here for a little bit longer, but there's no question that compared to a year ago. It's leveled off. And so that that doesn't look like it's got a whole bunch more left in it. And then I'd say construction markets. U.S. construction markets still strong but at some point, if after the truck market, it feels like construction market has to also tail down and we already think China's got to start tailing down because China has been up for a while and unless they continue to stimulate the market is likely to head down. India, India has got some -- the government has continued to invest and stimulate there, and we think they probably still will. So, India might hold up a little longer on the construction side. But again, that's some of them. But you remember and we show where we kind of put all the markets up there. We'll bring that that to the Analyst Day, and we'll kind of put all the markets on there. But suffice it to say those we look at that there's more kind of up and around the top of the that little hills and then there are at the bottom on their way up. So, we're just being realistic about what that means for revenues in 2020.

Okay, I appreciate that. I'll leave it there. Thanks.

Thank you.

Our next question comes from Jerry Revich of Goldman Sachs, your line is open.

Yes. Hi. Good morning, everyone.

Jerry, hi. Good morning.

Tom, I'm wondering now that you folks have Isuzu joint venture setup, can you just update us on the market share opportunity for you folks on light duty diesel globally. I'm wondering, if you could flush out what the opportunities set is and what the strategy is now with the joint venture and how it fits in for the company's overall opportunity set.

Sure, it's early days in that joint venture, but we're really pleased with our conversations. It's a terrific company, I mean it's not a company that we had done a lot of business with until we started having conversations with them. But although we've always been impressed with them from afar, they we kind of feel like at least in the off-highway market where we see each other, they're the one the engine that we think is actually competitive to ours, and we think highly of them. So anyway, we've had terrific conversations, but we are early days as to kind of what the market share opportunity. But here's how we're thinking about it together, is that the two companies are both spending a lot of investment -- putting a lot of investment into the various technologies that will occupy the commercial industrial equipment space. So, think about not only diesel but natural gas and hybrid and electrification and fuel cells and start to think about what that means. Then they also have a truck business which has to identify -- also has to do autonomous safety, other integration of their vehicle. So, they're thinking about all the investments they need to make in that all the investments they need to make in power train and coming up and thinking that tips us over a company our size. So, but they need to be leading, there's no room for laggards, there is not going to be any second place is there, I mean, they're the strongest truck company in Japan, they have a terrific market share in Southeast Asia and they're the second largest and diesel engine maker with us. So, what we're going to try to do is figure out how we can make sense and rationalize these investments…

That's really interesting. And on the shorter-term side, you folks are preemptively looking at markets where demand could be weaker. Can you just update us on your framework for detrimental margin, so the detrimental margins were really in the teams on this revision, which was nice to see, are you optimistic that you can achieve better detrimental than the mid-20s that I believe you’ve targeted in the past?

Well, we will give you a more precise of that in the Analyst, Jerry, as we get a closer view on those markets, but as clear goal of improving cycle-over-cycle earnings, and you're right, yes, in the second half of this year, we will be in the kind of mid-teens, I think we've got to balance that against just some of the investment needs in the near-term on some of the new technologies. So, we'll come out and give you a clear answer, but you should be clear, that we committed to improving those earnings on the down cycle as well as the up.

Thank you.

Our next question comes from David Leiker of Baird. Your line is open.

Good morning, everybody.

Thank you, David.

I wanted to talk a little bit, how you get a great amount of detail in terms of year-end markets and what you're looking for. I was wondering if we could dig into a little bit further in terms of that pace of production going into the third quarter and fourth quarter. We're hearing different things from different folks that, build rates may hold up through the end of the year. But just you're seeing lower -- you're thinking that daily build rates actually fall as we go through Q4. That something you're thinking that might happen? Are you seeing that in some of the schedule says you look further out towards the end of the year?

Okay. Hey David, this is Rich. So, a few things. One, we're not seeing it in the short-term schedules, they remain strong. We see out our visibility through Q3. And what we're doing just planning for a scenario, where production begins to fall off as the backlog goes down. And so, we have no visibility to that. We've just seen it in past cycles that some OEMs don't run at this elevated rate, because people are working pretty close to capacity right now. As a backlog comes down, what we've seen in past cycles is people begin, don't run full steam all the way to the backlog is gone. They begin to moderate their production schedules. So, we haven't seen a lot of that, we built that into our guidance, but that will happen in Q4. And of course, there is a scenario where that doesn't happen. And we're prepared for that also. But that's the vision we have is more on what we've seen in past cycles, David.

Okay, great. Thanks. And then just one additional item on the balance sheet. The working capital numbers pretty high. It looks like receivables and inventory. Mostly just any thoughts on that and where you think that trends over the second half of the year? Thanks.

I think, when we look at our metrics business. There are pretty similar to where we were last year, our inventory hasn't certainly kind of leveled off in the second quarter. So, I would expect to be in that kind of the 20% of sales range for working capital overall, past dues were in pretty good shape, collections are in good shape. So yes, but to the extent we're facing some weaker outlook then would expect to bring it down. And there would be some positive cash flow impact from that earlier in the downturn.

I was looking on the cash flow statement and your pretty significant use of working capital in this quarter versus the same quarter last year?

Yes, that's just Q2 this one of the strongest quarters ramping up from Q1, which I don't see…

Okay, great. Thank you.

Our next question comes from Adam Uhlman of Cleveland Research. Your line is open.

Hi, guys. Good morning.

Good morning, Adam.

I had a follow-up on David's question on the cash flow. I guess, the share repurchase has been kind of low so far this year. And you reiterate the plan of returning 75% of the operating cash to shareholders this year. I'm just wondering, if any depending deal activity or potential deal activity could lead to a pause in that share repurchase plan for the second half of the year?

I guess, there are a number of factors that go into share repurchase in any given quarter. But we just restarted our current expectation is we'll get to around 75% of operating cash flow item. I guess there are some scenarios in which that could be a little bit different. Those are not the ones that we see right now for this year.

Okay. Got you. And then on the power gen markets, it sounds like the data center demand has been holding up relatively strong. I wonder, if you could talk through what you're seeing with your order rates? Have you seen any kind of -- any softness within the data center market and just how much visibility do you really have on the global gen set market at this time?

That remains -- that look strong, as far out as we can see. And then the core activity is good. Our hit rate on getting market share on that. So, I mean, the general consensus is, we're not giving 2020 guidance, but that looks strong through the end of the year into next year at least.

And the bright spot, Adam has been this China side. One of the things we've always been worried about is how big is the data center market relative to the total, because we've kind of been looking at it as a U.S. and maybe European phenomenon. But now we're seeing starting to see developing countries, especially China, build out data centers and because of our position in that market that had kind of the premium end of the market. We've been actually been able to develop quite good share. And our team in China has done a terrific job ensuring that as these data center markets start to build out that come in since the player that they look to. So, I think, again, that's a big reason why you're seeing continued strength in data centers is that although it's just one segment of the market, we're seeing it build globally. So, it's -- I think that's steadied out the growth and kept it robust for longer.

Yeah, we're seeing a little bit of increase in our military business, and then a little bit of weakness in the all these segments in North America, which has been on a multiyear strong run. So that's feels like it's cycling down a little bit.

Great. Thanks.

Thanks, Adam.

Our next question comes from David Raso of Evercore ISI. Your line is open.

Hi, good morning. I'm just trying to gain comfort with the margins. Obviously, the downside operating leverage which is really critical to the story looking into 2020. So, I'm just trying to understand like say the engine division. If a year ago, we adjust for that campaign charge. We just saw the engine business year-over-year have up sales a little bit, but profits down over $40 million. While the second half of the year, engine business supposed to have revenues down over $200 million, but profits only down about $40 million to $50 million. So just coming off that second quarter performance, it obviously is implying the second half is a lot better, despite somewhat notable sales decline. Can you help build some confidence on what is changing in the second half? I assumed materials, -- I'm just trying to understand after that second quarter, our comfort with the second half margin for engines.

Yes, David, it's Mark. So, I think we've just got some moving parts in some of those different comparisons. So, number one, the first a tougher compound China JV earnings partly due to adjustment in light duty, I think that comp gets a little bit easier in the second half of the year. And then we're lapping with a higher tariff run rate, remember the actual tariff expenses in the first half of the year close to zero. And so, we're just kind of lapping on those higher numbers. And then of course, we're doing relatively well on certainly on the heavy-duty market share. So, I think by and large, there is nothing heroic in the second half of the year, we've taken down our outlook for part, as Tom said, some of the actually weaker outlook are leveling off, maybe a better way to describe it already occurred in the second quarter. So, we're not expecting a significant down shift. For those, I think, are the major moving parts, not a significant amount of change in price, or material cost, first half to second half.

Yeah, I guess, I pushed back a little bit on the JV income. I mean JV income was down about 10% in engines year-over-year. It seems like the second half is not terribly different, in the context of your overall company JV income for the second half. So, is there some number around the materials or something about mix that we can again, gain comfort that we can handle that biggest sales decline in the second half with ...

That was just really back up to the overall company guidance, we've delivered something like 71% for the full -- for the first half of the year, we're at 16.25% to 16.75%. We've kind to maintain the margin guidance on a slightly weaker revenue outlook. So generally, things are going pretty according to plan on the cost side. So, I've got I think we would what we know today, that's our best guidance, and I don't think there's anything heroic in the numbers.

I appreciate that. Okay. Thank you very much.

Thank you.

Our next question comes from Alex Potter of Piper Jaffray. Your line is open.

Yeah, hi, guys. If you could comment a bit on the light duty policy changes that you're seeing impact demand in China in the truck markets and the reclassification from light duty to medium duty? Is there -- well, first of all, I guess any qualitative commentary you can offer on that policy would be helpful. But then secondly, is there a reason to think that you could have demand shifting to the medium duty side of the market as a result of this and if so, presumably, the Domfront [ph] joint venture should be able to capitalize on that?

Thanks, Alex. Just a couple of qualitative points and I'll let Rich add if he has more. This is the -- if you're in China, they call this the blue-plate issue, you get a blue plate if you're light duty. And if you -- and what this means is you have easier driver licensing requirements. It's closer to a car license, and you can access the very inner parts of the city, you can imagine why that would be a smaller vehicle, lighter vehicles, less congestion, et cetera. And the rules were already in place, it's just that they didn't enforce them quite as tightly in every city, and so now what they've done is they've, just picked the day and all of a sudden enforcement started. To say that it had disruption in the market would be an understatement. So, I, when I was in China recently, there wasn't a single OEM that didn't complain about this, because it just all of a sudden happened and it created absolute havoc in the market. So, my -- I'm wondering, in part, if there'll be some sort of compromise proposal to kind of rationalize this a little bit, because it really takes a lot of vehicles that were previously being sold and used in cities and brings them outside of the city. And again, it's not just the fact that you have to spend more money to get more licenses that you can't actually get into all the spots. So that there's a significant change and the ones that can get in have to be very lightly loaded. And so, you're now you're afraid moving capacity has just reduced significantly. So anyway, there that there's a bunch of that going on, I'd say there's only so much you can figure out…

Okay, thanks. Thanks very much. That's super helpful. And then I guess one you mentioned the relationship for Foton there, I noticed that you Yuchai just announced the joint venture partnership of some kind with, with Foton, is there a potential for overlap there with what Cummins does? I guess any commentary there would be helpful as well.

So I -- here's the situation as you know, each of the OEMs has a number of businesses and another number of segments that they're trying to make sure that they're competitive and, and, you know, they use domestic engines and some of those segments and they use joint venture engines with us in other segments, and then a fair bit of those for export. And so, they always have to have multiple partnerships to cover themselves. Not to mention there are a number of government programs where they need to have domestic engine supply to comply with it. So we are, you know, we're now after, after many, many years there, we're now getting more used to this kind of thing where we, we think we've got the engine thing, good to go. And then all of a sudden, there's another partner in, but again, al-in-all, we still feel very good about our partnership with photon. And Rich, I know has spent some recent time with him, so I want to let Rich comment to on the photon partnership.

Yes, so I would say our relationship with photon is as good as it's been in recent years. In fact, both relationship there and then the customers view of the Foton Cummins product. So, in fact, our share of Fotons so is up from 46% a year-ago, to in the mid-60s now. And so again, I think it's just as Tom says, the nature of the business there's going to be multiple options, always and so our strategy remains the same to work with the partners develop the best power train product and let customers choose, since we've kind of get used to it there will be customers will have multiple options, but right now I feel really good where we're positioned with Foton.

Okay. Thanks, guys.

Thanks, Alex.

Our next question comes from Noah Kaye of Oppenheimer. Your line is open.

Good morning, and thanks for taking the questions. First a shorter-term question on 2019 pricing, I believe you've been expecting about an 80-bps growth from pricing and I think a lot of that had to do with the parts business. You know, what are the current expectations, and can you still get that sort of price growth in parts if we're seeing lower activity levels?

I think this puts and takes around the business. But that's round about where we said at the start of the year. So yes, a little bit lower on parts. But overall, we're in that 80 basis points range for the year. Again, the pricing hasn't gone down, just a little bit a little volume gain.

Okay, that's helpful. And then longer-term I mean that you just formally adopted the CO2 regs, for the first time for heavy duty trucks. You already talked about potential Euro 7. Can you talk a little bit about the potential tailwind there for new components business over the coming years and how you think you are positioned? And maybe even kind of contextualize some of your recent investments, electrification, fuel cells, in light of those red?

I think, thanks for that. No, I do think those are just those regs. By the way, those are tough and draconian. There isn't a single OEM that is feeling nonplussed about those. But here's what I say is it they are just -- they are emblematic of what we're going to see across the world. And so, and especially now that regulators have in their sights, some of these new technologies, which look like they have lower, at least local emissions and the potential to potentially be economically viable. Things like of course, electrified power trains, or hybrids, or fuel cells, et cetera. Once they have those in their sights, and they think they can be economically viable, they are going to shove regulations harder, for obvious reasons. And Europe is, of course, one of them. But we will see them inevitably in the U.S. and elsewhere. So, we think that the content - and that's kind of linked back to my conversation, when Jerry asked me about Isuzu. I think all of our customers, and Cummins are all seeing significant investments required in power trains, power train components, and systems. And as well as in vehicles in order to be competitive and at the front end of their markets. Everybody has a good view of what those kinds of might be. But the amount of investment, the number of models that have to be covered, the different regulations that they're going to have to meet cities, countries regions, it looks daunting. So, what we're -- what we think is that that's the space where Cummins has historically been most successful. When that's kind of the technology challenge in front of us, we've made a bunch of investments, as you know, in EV, in hybrid in diesel and natural…

Right. And it would seem to me just that in a market where you're providing a lot of subcomponents currently. And you're going into alternative power trains, where not every OEM is going to do a vertically integrated, power train. I mean, they may spec their motors outside or something like that. I mean, there's more of a gain opportunity, it would seem to me at lease.

It seems to me too. Although I'm sure there'll be plenty of others that also see that. So, we'll show up with others there too. But I agree with you that it looks like an opportunity to us. We just don't want to get our cart in front of the horse. It's up to our OEMs to announce what they think. But we will be pushing hard to help those OEMs meet that standard with technology and components that we have.

Thanks so much.

Thank you.

Great. So, with that, it looks like we're at the end of our hour. So, I'd like to thank everybody for your interest in Cummins today. And as always, I'll be available for any follow up questions this afternoon. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.