Caterpillar Q1 Earnings Call Highlights

Caterpillar NYSE: CAT reported a strong start to fiscal 2026, citing resilient end markets, record orders and a record backlog as the company raised its full-year sales outlook and detailed expanded plans to increase large reciprocating engine capacity amid accelerating data center demand.

First-quarter results, backlog, and capital returns

Chairman and CEO Joe Creed said the company delivered “a strong start to the year,” with first-quarter sales and revenues of $17.4 billion, up 22% year over year, and adjusted profit per share of $5.54, up 30% from the prior year. Caterpillar posted an adjusted operating profit margin of 18%.

Caterpillar’s backlog grew to a record $63 billion, an increase of $28 billion, or 79%, compared with the first quarter of last year. Creed said all three primary segments contributed to both year-over-year and sequential backlog growth, and that total first-quarter orders were an “all-time record.”

The company returned $5.7 billion to shareholders during the quarter through share repurchases and dividends. CFO Andrew Bonfield said about $5 billion of that total was share repurchases, including a $4.5 billion accelerated share repurchase program that “may last for up to 9 months.”

Manufacturing, energy and transportation (MP&E) free cash flow was nearly $600 million, which Bonfield said was higher than expected and about $350 million above the prior year, driven by stronger profit. Capital spending was about $700 million in the quarter. Caterpillar ended the period with an enterprise cash balance of $4.1 billion, plus $1.3 billion in “slightly longer-dated liquid marketable securities,” Bonfield added.

Tariffs and profitability drivers

Management repeatedly highlighted that first-quarter profitability came in better than expected, with both Creed and Bonfield pointing to favorable manufacturing costs, including lower-than-anticipated tariff costs.

Creed said costs related to tariffs introduced since the beginning of 2025 were approximately $600 million in the quarter, and described the result as favorable to the company’s earlier estimate. Bonfield said the $600 million compared with the $800 million estimate provided in January, “primarily due to an adjustment related to the computation of tariffs incurred in 2025.” He said the adjustment was reflected in corporate items, only impacted the first quarter, and did not affect segment margins.

Bonfield also noted adjusted profit per share included a discrete tax benefit of $0.15 and said the favorable adjustment to tariff costs benefited the quarter by about $0.31. Excluding discrete items, Caterpillar’s estimated annual effective tax rate was 23%.

Segment performance: Power and Energy leads volume, Construction benefits from dealer inventory build

Caterpillar reported sales to users growth across all three primary segments, though management pointed to timing-related impacts in some end markets.

• Power and Energy: Segment sales were $7.0 billion, up 22% year over year, with Bonfield citing strength in power generation. Segment profit rose 13% to $1.5 billion, while margin fell 170 basis points to 20.6%. Bonfield said tariffs reduced segment margin by about 270 basis points and that higher manufacturing costs included spending related to capacity expansion and higher depreciation. Creed said sales to users rose 32%, with power generation up 48% driven by demand for large gensets and turbines for data centers and “an increasing mix towards prime power.”
• Construction Industries: Sales rose 38% to $7.2 billion, higher than expected, driven largely by volume including a seasonal dealer inventory build. Bonfield said dealer inventory increased by a “more typical $1.5 billion” in the quarter compared with a slight decrease a year earlier. Segment profit increased 50% to $1.5 billion and margin improved 160 basis points to 21.4%, though tariffs reduced margin by about 550 basis points. Creed said sales to users rose 7% for a fifth consecutive quarter, with North America slightly better than expected, aided by non-residential construction and rental activity.
• Resource Industries: Sales rose 4% to $3.8 billion, but Bonfield said the year began “a bit slower than we had anticipated,” citing timing and short-term production delays. Segment profit fell 39% to $378 million and margin declined 700 basis points to 10.0%. Tariffs reduced margin by about 500 basis points, and Bonfield said price realization was impacted by the timing of discounts on a short-term basis. Creed said sales to users rose 6% but were below expectations due to delivery timing.

Financial Products revenue increased 9% to $1.1 billion and profit rose 14% to $245 million, driven by higher average earning assets and improved margins at insurance services, partly offset by higher SG&A. Bonfield said customer financial health remained strong, with past due at 1.39% and an allowance rate of 0.86%, which he described as matching the company’s “lowest ever levels reported in any quarter.”

Updated 2026 outlook: low double-digit sales growth, revised tariff expectations

Creed said Caterpillar is “not forecasting material impact to our 2026 outlook at this time” despite increased uncertainty tied to geopolitical events and elevated energy prices. The company raised its full-year forecast, now anticipating low double-digit growth in 2026 sales and revenues. Creed attributed the higher outlook to resilient end markets and execution, and said the company was tracking ahead of its large engine capacity expansion plans.

Incoming CFO Kyle Epley said Caterpillar expects strong sales growth across each of its primary segments in 2026, driven mainly by volume and price. Excluding tariffs, Epley said the company expects to be in the top half of its adjusted operating profit margin target range, but including tariffs the adjusted operating profit margin is expected to remain near the bottom of the target range. Management said the improved sales outlook supports a higher full-year margin outlook than it expected in January.

Epley revised Caterpillar’s estimate for 2026 tariff costs to $2.2 billion to $2.4 billion, down from the $2.6 billion estimate provided last quarter, based on current volume assumptions. He said expectations for tariff costs in the second through fourth quarters “has not changed significantly since January,” but the estimate changed due to updates following a U.S. Supreme Court ruling on IEPA tariffs, removing those tariffs and adding Section 122 tariffs. He said the company is not currently including any IEPA-related refunds and expects to “ramp up our actions to mitigate our tariff costs in the back half of the year.”

For the second quarter, Epley said Caterpillar anticipates another quarter of strong sales growth versus the prior year and expects tariff costs of around $700 million, compared with around $400 million last year. He said Caterpillar expects about 50% of second-quarter tariff costs in Construction Industries and 25% each in Power and Energy and Resource Industries.

Epley also said MP&E free cash flow is expected to be higher than 2025’s $9.5 billion, and reaffirmed a 2026 capital expenditure forecast of approximately $3.5 billion. Restructuring costs are expected to be approximately $300 million to $350 million in 2026.

Strategy: expanding large reciprocating engine capacity and raising 2030 growth targets

Caterpillar’s call centered in part on surging demand tied to data center power needs. Creed said that since the company announced initial capacity expansion plans in January 2024, “our large reciprocating engine backlog has grown by more than 3.5x,” with some orders extending into 2028. He also said Caterpillar is seeing higher demand for prime power applications, which management expects to translate into long-term service and aftermarket opportunities.

Creed announced Caterpillar will increase its large reciprocating engine capacity from 2x 2024 levels to “nearly 3x 2024 levels.” He said the additional investment will begin as soon as possible but would primarily occur from 2027 through 2029, with expectations for incremental units as early as 2027. Management said MP&E capital expenditures are expected to average 4% to 5% of MP&E sales through 2030.

As a result of the capacity increase, Caterpillar raised its 2030 growth targets. Creed said the company now expects the compound annual growth rate for total enterprise sales and revenues to be between 6% and 9% from 2024 to 2030, and the target for power generation sales has increased to more than 3x sales by 2030 from a 2024 baseline.

In the Q&A, Creed said the capacity decision is “mostly driven by power generation,” reflecting the scale of data center capital spending, though he also noted strong oil and gas order performance. Addressing questions about gigawatts, Creed said the company estimates the additional investment “will give us another 15 gigawatts of capacity annually when we’re done with this installation,” while cautioning that the mix differs from prior baselines.

The company also highlighted recent actions and portfolio moves, including the launch of “Cat Compact,” a new customer experience for compact equipment, and the completion of its acquisition of RPMGlobal in February, which Creed said adds mining software technology capabilities that complement Caterpillar’s existing technology portfolio.

Caterpillar also marked a leadership transition, with Creed noting Kyle Epley will succeed Bonfield as CFO effective the day after the call. Bonfield, on his final earnings call before retirement, said he was proud of the company’s performance and expressed confidence in Caterpillar’s foundation and future opportunities under Epley’s leadership.

About Caterpillar NYSE: CAT

Caterpillar Inc is a global manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and locomotives. The company's product portfolio includes earthmoving machines such as excavators, bulldozers, wheel loaders and off‑highway trucks, as well as a range of power generation products including generator sets and power systems for industrial and commercial use. Caterpillar serves customers across heavy construction, mining, energy, transportation and related industries with both equipment and integrated technology solutions.

In addition to manufacturing, Caterpillar provides a broad range of aftermarket parts and support services, including maintenance, repair, remanufacturing and fleet management tools.

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