Running a cyclical business is always a challenge. Companies like Cummins (NYSE:CMI) have to do the best they can during the good times while preparing for inevitable downward phases of the business cycle, and that can make for extraordinary performance at times followed by much less exciting results. Only long-term investors can truly appreciate the effort that goes into putting together a strategic plan that accounts for the ups and downs that Cummins faces.

Coming into Tuesday's second-quarter financial report, Cummins investors had high hopes that improving conditions would lead to good results from the engine maker. As it turned out, Cummins managed to outpace even those optimistic views, and its outlook for the near future reassured shareholders even more. In particular, one key area helped to drive gains for the industrial company, and there's reason to believe that the boost that Cummins has gotten there will continue.

Green power generating equipment with Cummins logo in a storage facility with several other similar units.

Image source: Cummins.

Cummins races forward

Cummins' second-quarter results were solid. Sales hit a new quarterly record, rising 21% to $6.13 billion. Net income jumped 29% to $545 million, and that produced earnings of $3.32 per share. After accounting for one-time items, adjusted earnings of $4.14 per share were well ahead of the consensus among those following the stock for $3.67 per share on the bottom line.

The growth that Cummins enjoyed came across its footprint. In North America, sales climbed 22%, outpacing slightly the 18% rise in revenue internationally. Cummins saw the best performance in China, Europe, and Latin America, in addition to its home market.

For the most part, Cummins also saw balanced performance from its various business units. As we've seen previously, the components segment had the best sales gains, rising 30% on especially strong results in North America. Power systems had a 23% segment sales growth rate, followed by engines at 17% and distribution at 16%. Operating income grew at a generally slower rate across the business, including just a 4% rise for components, but double-digit percentage gains in engines and distribution helped support the bottom line. In addition, the power systems division did the best, with adjusted operating income more than doubling from year-ago levels.

CEO Tom Linebarger was happy about how things went. "As a result of strong customer demand for our products, solid execution from our global manufacturing and supply chain teams, and continued focus on cost reduction," Linebarger said, "the company delivered record quarterly sales and earnings per share in the second quarter." He also said that Cummins is on track to deliver full-year record performance as well.

What's next for Cummins?

As we saw last quarter, Cummins also pushed its guidance for 2018 higher. It now expects that revenue will jump 15% to 17% for the full year, up another 3 to 4 percentage points compared to what it predicted just three months ago. However, there'll be some downward pressure on pre-tax operating earnings because of tariff costs and higher commodity prices for the raw materials that Cummins needs in order to produce its goods.

Some of the growth that Cummins expects should come from its recent acquisition plans. The company will buy electric-powered vehicle systems specialist Efficient Drivetrains in order to beef up its presence in the alternative noncombustion engine area, and a joint venture with China's JAC Motors should open more doors to the lucrative Chinese market. At the same time, Cummins said that it expects to return 75% of operating cash flow as dividends and stock buybacks, up from previous forecasts for 50%.

In particular, power systems has a lot of potential. That part of the business got hit when the company's mining and energy industry customers came under pressure due to low commodity prices over the past several years. More recently, prices have started to bounce back, and that's set the stage for a potentially steep recovery for the customers that buy equipment from Cummins in the near future.

Cummins investors were pleased with that news and the general conditions that the underlying business is seeing, and the stock climbed 4% on Tuesday following the announcement. If power systems and other key areas keep doing well, then Cummins will be in line to keep delivering good performance over the long haul.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Cummins. The Motley Fool has a disclosure policy.