Caterpillar Q3 Earnings Call Highlights

Key Points

• Caterpillar delivered record third-quarter results: Sales rose 17% year over year to $20.7 billion, adjusted EPS increased 45% to $7.20, and backlog nearly doubled to a record $78 billion. The company maintained its full-year outlook for mid- to high-teens revenue growth.
• Data-center and infrastructure demand are driving growth: Power-generation sales jumped 75% as customers ordered turbines and large engines for data centers, with orders extending into 2029–2030. Construction Industries also benefited from strong North American rental, residential and nonresidential demand.
• Tariffs and expansion spending remain margin pressures: Caterpillar incurred about $600 million in third-quarter tariff costs and expects roughly $2.2 billion for the full year, keeping adjusted operating margins near the bottom of its target range. Despite these costs, the company returned $2 billion to shareholders and maintained its free-cash-flow outlook.

Caterpillar NYSE: CAT reported record third-quarter sales and a sharply higher backlog as demand remained strong across power generation, construction and resource industries, with the company maintaining its full-year outlook for mid- to high-teens revenue growth.

Sales and revenue rose 17% year over year to a quarterly record of $20.7 billion, while adjusted profit per share increased 45% to $7.20. Adjusted operating profit totaled $4.3 billion and adjusted operating margin was 20.6%, up 310 basis points from the prior-year quarter.

Chairman and CEO Joe Creed said the results reflected “the durability of our end markets,” citing strong order rates across Caterpillar’s three primary segments. Backlog reached a record $78 billion, up about $38 billion, or 96%, from the third quarter of 2025. It was the fourth consecutive quarter of sequential backlog growth in each of the company’s primary segments.

Power generation demand drives growth

Power & Energy sales increased 18% to $8.8 billion, with segment profit rising 31% to $2.1 billion. Segment margin expanded 250 basis points to 24.4% as higher volume offset increased costs associated with capacity expansion, freight and materials.

Sales to users in Power & Energy rose 36%, led by a 75% increase in power-generation sales as customers continued to seek turbines and large reciprocating engines for data-center applications. Oil-and-gas sales to users rose 5%, supported by turbines and related services, while industrial sales declined amid softness in the Europe, Africa and Middle East region.

Creed said Caterpillar is taking orders for large reciprocating engines into 2029 and turbine orders into 2030. The company expects power-generation growth in 2026 to be driven by energy demand associated with data-center construction, cloud computing and generative artificial intelligence, as well as rising prime-power demand.

To expand large-engine production, Caterpillar plans to use part of its Winston-Salem, North Carolina, facility as a second assembly and testing location for its 3600 Series reciprocating engines. The project is intended to support oil-and-gas customers’ natural-gas compression needs and contributes to the company’s goal of nearly tripling large reciprocating-engine capacity from 2024 levels by 2030.

During the question-and-answer session, Creed said the company expects to ship its first restarted 10-megawatt MaK engine units during the fourth quarter and continue ramping production in 2027.

Construction and mining activity remain supportive

Construction Industries sales increased 18% to $8 billion, while profit rose 33% to $1.8 billion. The segment’s operating margin increased 250 basis points to 22.9%, supported by pricing and volume growth, partly offset by freight, tariff, technology and digital-investment costs.

Construction sales to users increased 20%, marking the seventh consecutive quarter of year-over-year growth. North American sales to users rose 27%, aided by dealer rental fleet investment and demand from residential and nonresidential construction activity. Caterpillar said loading of rental fleets was exceptionally strong in the quarter.

The company also highlighted its Major Projects dealer-owned rental joint venture, launched last quarter to serve large North American infrastructure, energy, manufacturing and data-center projects. Creed said the initiative supplements local dealer fleets and has seen strong customer interest.

Caterpillar separately announced a $1 billion investment to expand compact construction equipment manufacturing capacity in Sanford, North Carolina. The facility is expected to incorporate automation, digital production systems and integrated logistics capabilities.

Resource Industries revenue rose 15% to $4.6 billion, and segment profit increased 14% to $622 million. Operating margin was essentially unchanged at 13.5%, as higher volume and favorable pricing were offset by higher manufacturing and material costs, including tariffs.

Resource Industries sales to users increased 4%, below Caterpillar’s expectations because of shipping and commissioning delays in mining. The company said it expects those delayed deliveries to catch up in the fourth quarter. Caterpillar expects full-year resource-industry growth to be supported by demand for copper and gold, activity in Canadian oil sands, and heavy construction and quarry-and-aggregates markets.

The company also expanded autonomous hauling work with Luck Stone to two additional Virginia operations. Caterpillar said autonomous trucks at Luck Stone’s Bull Run Quarry have hauled more than 3.5 million tons since beginning operations in November 2024.

Tariffs, capacity investments weigh on margins

Caterpillar recorded approximately $600 million in tariff costs during the third quarter, excluding recoveries under the International Emergency Economic Powers Act. The company recognized $128 million in IEEPA tariff recoveries during the quarter, with nearly all of the amount reflected in corporate items.

For the full year, Caterpillar continues to expect about $2.2 billion in tariff costs, excluding reported year-to-date IEEPA recoveries of roughly $520 million. It does not assume additional IEEPA recoveries in the fourth quarter.

The company maintained its expectation that full-year adjusted operating margin, excluding tariff recoveries, will be near the bottom of its target range. Management cited strategic growth investments, tariffs and higher freight costs tied to elevated energy prices. Creed said Caterpillar aims to move toward the midpoint of its target range over the next several years while continuing to increase production capacity.

Fourth-quarter outlook and capital deployment

Caterpillar expects moderate consolidated sales growth in the fourth quarter compared with a strong prior-year period. Power & Energy is expected to post moderate growth, Resource Industries is expected to deliver strong growth, and Construction Industries sales are expected to be similar to the prior year.

In Construction Industries, Caterpillar expects a typical seasonal dealer inventory reduction of roughly $1.6 billion in the fourth quarter, compared with a $600 million reduction a year earlier. The resulting roughly $1 billion year-over-year headwind is expected to reduce segment sales volume despite continued strong end-user demand. The company expects dealer inventory at year-end to remain higher than in 2025 in anticipation of strong sales to users in 2027.

Manufacturing, power and energy free cash flow was $3.8 billion during the quarter, up about $600 million from a year earlier. Caterpillar returned $2 billion to shareholders, including $1.2 billion in share repurchases and nearly $750 million in dividends. The company maintained its full-year free-cash-flow outlook for the top half of its $6 billion to $15 billion target range and lowered expected 2026 capital expenditures to approximately $3.3 billion from a prior estimate of $3.5 billion.

About Caterpillar (NYSE:CAT)

Caterpillar Inc is a manufacturer of construction, mining, and industrial equipment. Its product portfolio includes excavators, bulldozers, wheel loaders, motor graders, articulated trucks, and other machinery used in construction, infrastructure development, mining, quarrying, forestry, and related industries. The company also produces diesel and natural gas engines, industrial gas turbines, generator sets, and other power-generation and transportation equipment.

Caterpillar operates through businesses focused on construction industries, resource industries, and energy and transportation.

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