Caterpillar Q4 Earnings Call Highlights

Key Points

• Caterpillar reported record full-year revenue of $67.6 billion and a record Q4 of $19.1 billion, with backlog jumping to $51 billion (+71%); the company generated $9.5 billion MP&E free cash flow and returned $7.9 billion to shareholders in 2025 (including $5.2 billion of buybacks).
• Management warned that tariffs are a growing drag — after $1.7 billion net headwinds in 2025 they expect about $2.6 billion of incremental tariff costs in 2026 (roughly $800 million in Q1), which will keep margins near the bottom of target despite expected sales growth.
• Power & Energy outperformed, with sales up 23% to $9.4 billion and segment profit up 25% as data‑center demand (Power Generation +44% in Q4) drove growth, including a notable 2 GW order for the Monarch Compute Campus.

Caterpillar NYSE: CAT reported record results for both the fourth quarter and full year 2025, with executives emphasizing strong demand across end markets, a sharply higher backlog, and ongoing pressure from tariffs that the company expects to intensify in 2026.

Record revenue and backlog in Caterpillar’s centennial year

CEO Joe Creed said Caterpillar delivered full-year sales and revenues of $67.6 billion, the highest in company history. He highlighted full-year adjusted operating profit margin of 17.2%, adjusted profit per share of $19.06, and MP&E free cash flow of $9.5 billion. The company deployed $7.9 billion to shareholders during 2025, including $5.2 billion of share repurchases and $2.7 billion of dividends. Creed noted Caterpillar has increased its dividend for 32 consecutive years.

Caterpillar’s backlog grew to a record $51 billion, up $21 billion, or 71%, from the prior year. Creed said “robust ordering activity across all three primary segments” contributed to the increase. In response to analyst questions, he added that strong order rates were not confined to Power and Energy; Construction Industries posted one of its best quarters ever from an order standpoint, and Resource Industries had one of its strongest quarters since 2021, supported by heavy construction demand in North America and mining orders in South America tied to copper.

Fourth-quarter results exceeded expectations on Power and Energy volume

Fourth-quarter sales and revenues were $19.1 billion, an all-time quarterly record and up 18% year over year. Creed and CFO Andrew Bonfield said results came in better than expected, primarily due to higher-than-anticipated volume in Power and Energy, where Caterpillar shipped more product than planned at year-end.

Bonfield reported adjusted operating profit of $3.0 billion and an adjusted operating profit margin of 15.6%. Adjusted operating profit was about flat versus the prior year, while operating profit declined due to items excluded from adjusted results. Adjusted profit per share was $5.16, excluding $0.52 of restructuring costs and a $0.48 mark-to-market gain related to pension and other post-employment benefit plans.

Bonfield said the year-over-year decline in quarterly margin was primarily due to higher manufacturing costs driven by tariffs. He added that excluding tariffs, fourth-quarter margin was higher than the prior year. Incentive compensation also weighed on margin versus expectations.

Segment performance: construction and mining pressured by tariffs, Power and Energy surges

Caterpillar’s three primary segments all saw higher fourth-quarter sales, but profitability and margin trends diverged.

• Construction Industries: Sales rose 15% to $6.9 billion. Segment profit decreased 12% to $1.0 billion, with margin at 14.9%, down 470 basis points. Bonfield attributed the margin decline mainly to tariff-driven manufacturing costs, which he said impacted margins by about 600 basis points, along with higher incentive compensation and slightly unfavorable price realization.
• Resource Industries: Sales increased 13% to $3.4 billion, largely from dealer inventory changes. Segment profit fell 24% to $360 million, with margin at 10.7%, down 510 basis points. Bonfield said tariffs had about a 490 basis point impact, and he also cited incentive compensation and slightly unfavorable price realization.
• Power and Energy: Sales grew 23% to $9.4 billion, beating expectations on volume in Power Generation and Oil and Gas. Segment profit rose 25% to $1.8 billion and margin increased to 19.6%. Bonfield said the tariff impact was about 220 basis points, but volume and price more than offset it.

Bonfield also discussed Financial Products, where revenues increased 7% to about $1.1 billion and segment profit increased 58% to $262 million. He said past dues were 1.37%, down 19 basis points year over year and the “lowest year-end on record,” while the allowance rate of 0.86% was the lowest ever reported in any quarter.

2026 outlook: sales growth expected, but tariff costs set to rise

For 2026, Creed said Caterpillar expects full-year sales and revenues to grow “around the top” of its 5%-7% long-term compound annual growth rate target, supported by the record backlog and “healthy end markets.” He said all three segments are expected to see volume growth, along with positive price realization of about 2% of total sales and continued services revenue growth. Bonfield added that the company expects a higher year-end machine dealer inventory in 2026, reversing a $500 million decline in 2025 and providing a tailwind.

However, management warned that tariffs remain a key swing factor. Creed cited net incremental tariff headwinds of $1.7 billion in 2025. Bonfield said the absolute dollar value of new tariffs imposed in 2025 was $1.8 billion, and that the company’s mitigating actions that could be specifically attributed to tariff mitigation amounted to around $100 million, resulting in the net impact.

For 2026, Bonfield said Caterpillar expects incremental tariff costs of around $2.6 billion, about $800 million higher than 2025, measured against a 2024 baseline. He emphasized this tariff cost estimate does not include pricing actions. Incremental tariff costs are expected to be around $800 million in the first quarter—similar to the fourth quarter of 2025—with improvement toward the second half of the year as actions to reduce exposure take effect.

On profitability, Creed said full-year adjusted operating profit margin should exceed 2025 levels but remain near the bottom of the target range given tariff impacts and investments tied to growth strategy. Bonfield added that excluding incremental tariffs, the company expects adjusted operating margin to be in the top half of its target range at the anticipated sales level, but near the bottom of the range including tariffs.

Capital expenditures are expected to be around $3.5 billion in 2026, driven largely by capacity expansion plans, and MP&E free cash flow is expected to be slightly lower than 2025. Bonfield also said Caterpillar expects to enter into a larger accelerated share repurchase than the $3 billion ASR executed in early 2025.

Data centers and prime power featured prominently in Power and Energy discussion

Executives repeatedly pointed to data center-driven demand as a key driver of Power Generation growth. Creed said Power Generation sales to users increased 44% in the fourth quarter, driven by demand for large gensets and turbines used in data center applications. For 2025, Power Generation sales exceeded $10 billion, representing year-over-year growth of more than 30%, according to Creed.

Management also highlighted a large new order announced the day before the call: a 2 GW order of reciprocating generator sets for a prime power application from American Intelligence and Power Corporation for the Monarch Compute Campus. Creed said the order will be reflected in first-quarter 2026 backlog and deliveries are expected to start in late 2026 through 2027. He described it as one of Caterpillar’s largest single orders for complete power solutions and said it is one of four data center prime power orders the company has booked with at least 1 GW of Caterpillar equipment.

In response to questions about battery energy storage systems, Creed said the AIP order is “mostly” natural gas generator sets, with batteries representing a small portion when included as part of a complete system offering.

Caterpillar also discussed upcoming reporting changes: Bonfield said the company will file an 8-K in March to recast historical periods to reflect the movement of its rail division from Power and Energy to Resource Industries, with no impact to enterprise-wide assumptions.

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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