What is the full-year outlook for sales to users, and how should we think about channel restocking in the back half of the year?

Management expects continued STU growth momentum, reflected in strong orders. Dealer inventory in Q2 was higher than expected due to strong STU growth. A more normal seasonal drawdown of CI dealer inventory is expected in Q4, but the year-end inventory level is planned to be higher than last year to support future growth. The backlog in RI and CI is a function of production capacity, and increased production could reduce backlog if STU remains strong. “We expect STU's growth momentum, and I think that's reflected by both strong orders in RI and CI. And also in the second quarter, we mentioned dealer inventory was a little higher than we expected, and that's really due to the momentum we continue to see in to growth.”

Given the inventory swing in CI, will its volume growth slow? Can P&E volume growth pick up, especially with new capacity coming online, to offset any CI slowdown?

CI will see seasonality with a Q4 inventory drawdown, but the base for growth is getting higher. P&E continues to ramp production, and capacity is coming online incrementally, not in 'cliff events.' The constraint in P&E is production speed, not demand. P&E volume growth is expected to pick up as production increases. “The percentage of increase in power and energy, as you rightly state, is not a demand issue right now. It's just going to be a matter of how fast we can continue to increase production.”

Are you sold out for 2027/2028? How are you strategically approaching slots, and are you saving any? What is the evolving mood towards gas recip prime?

Lead times are extended: gas prime engines are into late 2028, and turbines are a little longer, into 2029. Diesel gensets are also extended into 2028. Caterpillar works closely with customers to schedule deliveries and protect long-time oil and gas customers. There is some flexibility, but demand is very high. “I mean, I think particularly large engines, we're into '28 in gas prime, late '28 for sure and then turbines a little bit longer than that.”

CAT

Caterpillar (CAT) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 4, 2026

Source: earnings call transcript

Executive summary

Caterpillar Q2 FY26 — Record Sales and Strong Backlog Growth

Caterpillar achieved record sales and revenues in Q2 FY26, driven by robust demand across all primary segments and strong price realization. The company saw significant backlog growth, particularly in Power and Energy, and is actively expanding capacity to meet customer needs. Strategic investments and tariff impacts are influencing the operating profit margin, but management remains confident in its long-term growth strategy and commitment to shareholder returns.

Highlights

Sales and revenues reached a record $20.5 billion, up 24% year-over-year.
Adjusted profit per share increased 73% year-over-year to $8.17.
Backlog grew sequentially by $9 billion to $72 billion, up 92% year-over-year.
MP&A free cash flow was a record $5.1 billion.
Financial Products past dues reached a record low of 1.31%, down 31 basis points year-over-year.

Concerns

Tariff costs (excluding IEEPA recoveries) were approximately $400 million in the quarter, impacting segment margins (CI 340 bps, RI 260 bps, P&E 90 bps).
Industrial sales to users in Power and Energy were down due to a decline in engines sold in marine applications.
Sales to users in EAME were lower than anticipated due to softness in the Middle East.
Softer economic conditions are expected in Asia Pacific outside of China.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 Sales and Revenues Growth	Mid- to high teens growth high materiality	FY26	High
Full-year 2026 Adjusted Operating Profit Margin	Higher than previous expectations, near the bottom of the target range (excluding IEEPA recoveries) high materiality	FY26	Medium
Full-year 2026 MP&E Free Cash Flow	Top half of annual target range ($6 billion to $15 billion) high materiality	FY26	High
Full-year 2026 Tariff Costs (excluding IEEPA recoveries)	Around $2.2 billion medium materiality	FY26	High
Full-year 2026 Restructuring Costs	Approximately $300 million to $350 million low materiality	FY26	High
Full-year 2026 Estimated Global Annual Effective Tax Rate	Approximately 23% low materiality	FY26	High
Full-year 2026 Capital Expenditures	Approximately $3.5 billion medium materiality	FY26	High
Q3 FY26 Sales Growth	Strong sales growth medium materiality	Q3 · FY26	High
Q3 FY26 Adjusted Operating Profit Margin	Higher than prior year medium materiality	Q3 · FY26	High
Q3 FY26 Tariff Costs	Around $600 million medium materiality	Q3 · FY26	High
Q4 FY26 Construction Industries Dealer Inventory Reduction	Over $1 billion medium materiality	Q4 · FY26	High
10-megawatt medium-speed gas reciprocating engine platform shipments	Begin in Q4 medium materiality	Q4 · FY26	High
10-megawatt medium-speed gas reciprocating engine platform capacity	About 1.5 gigawatts medium materiality	Next 18 months	High
Gas Prime Engine Lead Times	Late 2028 medium materiality	Late 2028 · FY28	High
Turbine Lead Times	Beyond 2029 medium materiality	Beyond 2029 · FY29	High
Diesel Genset Lead Times	Into 2028 medium materiality	Into 2028 · FY28	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Power and Energy Sales increase driven by higher sales volume and favorable price realization. Profit increased 30% YoY. Margin increase mainly due to higher sales volume and favorable price, partially offset by unfavorable manufacturing costs (including higher depreciation from capacity expansion). Segment margin was higher than anticipated due to lower-than-expected manufacturing costs, including tariffs. Segment Margin: 24.6%Segment Margin YoY Change: +250 bpsSales to Users Growth: 33%Power Generation Sales to Users Growth: 72%Oil and Gas Sales to Users Growth: 6%	$8.2 billion	17%	—	$2 billion
Construction Industries Sales increase primarily due to higher sales volume (driven by higher sales to end users and dealer inventory increase) and favorable price realization. Profit increased 57% YoY. Margin increase mainly driven by profit impact of higher sales volume. Segment margin was higher than anticipated due to stronger sales volume, partially offset by higher manufacturing costs, including freight. Segment Margin: 23.3%Segment Margin YoY Change: +320 bpsSales to Users Growth: 22%Dealer Inventory Increase: $400 million	$8.3 billion	35%	—	$1.9 billion
Resource Industries Sales increase primarily driven by higher sales volume and favorable price realization. Sales were better than anticipated due to higher sales volume driven by favorable services revenues growth. Profit increased 23% YoY. Margin increase mainly due to profit impact of higher sales volume, partially offset by unfavorable manufacturing costs. Segment margin was higher than anticipated due to higher sales volume. Segment Margin: 14.9%Segment Margin YoY Change: +40 bpsSales to Users Growth: 17%	$4.6 billion	20%	—	$693 million
Financial Products Revenues increased due to higher average earning assets across all regions. Profit increased due to higher average earning assets, favorable impacts from equity securities and insurance services margins, partially offset by a higher provision for credit losses. Past dues are the lowest since 1998, and the allowance rate is the lowest ever reported. Profit Growth YoY: 32%Past Dues: 1.31%Past Dues YoY Change: -31 bpsAllowance Rate: 0.84%Retail New Business Volume Growth: 9%	$1.1 billion	10%	—	$328 million

CAT operating KPIs by quarter

CAT operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Mar 2025 Q1 FY25	Jun 2025 Q2 FY25	Dec 2025 Q4 FY25	Mar 2026 Q1 FY26	This call Jun 2026 Q2 FY26	Change vs prior quarter
Backlog	$35B Our backlog of $35 billion is a record. Source: earnings call transcript	$37.5B Our backlog is at a record level of $37.5 billion. Source: earnings call transcript	$51B Our backlog grew to a record level of $51 billion, an increase of $21 billion or 71% compared to last year. Source: earnings call transcript	$63B Backlog grew to a record level of $63 billion, an increase of $28 billion or 79% compared to the first quarter last year. Source: earnings call transcript	$72B Our backlog grew sequentially by $9 billion to $72 billion. Source: earnings call transcript	+14.3%
Employees United States	50K+ Our largest manufacturing base is in the United States where we employ over 50,000 full-time employees, and we continue to be a net exporter. Source: earnings call transcript	50K+ We have over 50,000 employees in the US We operate out of 65 key locations in 25 different states. Source: earnings call transcript	—	—	—	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Total Backlog $72 billion Q2 FY26

Up $9 billion sequentially, up 92% YoY

59% expected to be delivered over the next 12 months. This percentage has been fairly stable over the past three quarters.

Power and Energy Backlog Nearly 2x bigger Q2 FY26

YoY

Compared to Q2 FY25, particularly strong in oil and gas (gas compression).

Product announcements

Product	Type	Timeline	Details
10-megawatt medium-speed gas reciprocating engine platform	launch	Shipments expected to begin in Q4 FY26

Deals & partnerships

Major Projects (dealer-owned joint venture) Specialized fully CAT dealer-owned rental joint venture focused on supporting customers with multibillion-dollar projects across North America.

Major Projects will serve customers developing large-scale infrastructure, including transportation, energy, manufacturing, and data center builds. First units delivered in Q2.

Skycatch Acquisition of a technology company specializing in high-frequency, high-precision, large-scale spatial data capture and AI capabilities.

Acquisition completed in July, further enhancing capabilities following the recent acquisition of RPMGlobal. Skycatch technology allows customers to identify, measure, and interact with data.

Capital programs

Turbine Capacity Expansion underway

Benefit:2.5x 2024 levels

Announced in November, this capacity will serve oil and gas and power generation applications and support aftermarket services. The Onaga, Kansas facility repurposing is part of bringing this capacity online sooner.

Onaga, Kansas Facility Repurposing completed

Benefit:250,000 square foot facility converted to package PGM130 for data center power generation

Repurposed an existing facility that previously produced work tools for Cat construction equipment. Converted in under 12 months, substantially less than building a new factory, to bring turbine capacity online sooner.

Risks & headwinds

Tariff Costs Q2 FY26, Full-year FY26

$400 million in Q2 FY26 (excluding IEEPA recoveries), $2.2 billion for full-year FY26

Mitigation:IEEPA tariff recoveries ($392 million in Q2 FY26), adjustments to computation of previously incurred tariffs, ongoing execution of mitigation plans, aiming to operate around midpoint of adjusted operating profit margin target range over time.

Higher SG&A and R&D Expenses Q2 FY26, ongoing

Offset margin benefit from higher sales volume in Q2 FY26

Mitigation:Strategic investments aligned with 2030 goals are driving these expenses, indicating a long-term growth strategy.

Softer Economic Conditions in Asia Pacific (outside China) Q2 FY26, expected to continue

Kept overall Asia Pacific region below expectations in Q2 FY26

Mitigation:Anticipate moderate conditions in China with full-year growth in above 10-ton excavator industry off low levels of activity.

Middle East Market Challenges Q2 FY26, ongoing

Lower than anticipated sales to users in EAME in Q2 FY26

Mitigation:Currently anticipate only a limited impact on EAME sales to users overall, with strength in Europe and Africa offsetting some of the softness.

Unfavorable Manufacturing Costs Q2 FY26

Impacted Power and Energy segment margin (partially offset favorable price/volume), impacted Resource Industries segment margin (partially offset favorable sales volume)

Mitigation:Includes higher depreciation from capacity expansion, which is a strategic investment for future growth. Lower-than-expected tariff costs partially mitigated overall impact.

Dealer Inventory as Headwind to CI Sales Volume H2 FY26

Expected reduction of over $1 billion in Q4 FY26

Mitigation:Dealer inventory is planned to end the year higher than last year in anticipation of future end market growth, suggesting a strategic build rather than a demand issue.

What to watch in Q3 FY26

CI Dealer Inventory Drawdown

Q4 FY26

Current Increased $400M in Q2 FY26

Target Over $1 billion reduction

Why it matters

This will indicate the typical seasonal pattern and management's confidence in future end market growth, as well as its impact on H2 sales volume.

We also expect a more typical reduction in Construction Industries dealer inventory of over $1 billion in the fourth quarter.

Find out whether CAT delivers this. Inve re-checks your case every morning.

Q&A highlights

Is the 10-megawatt engine part of the 65 GW target, or additive? How confident is management in sustained data center demand through 2030, and is demand broadening beyond data centers in P&E?

The 10-megawatt unit is additive to the 65 GW target and fills a niche between high-speed engines and industrial turbines. Management is highly confident in sustained demand, with customers not slowing down and placing orders into 2029-2030. Demand is broadening, with strong growth in oil and gas (gas compression) and mining equipment, not solely reliant on data centers.

“There is a lot of discussion around AI demand. We have constant discussions with our customers. And all I can tell you is what our discussions with them is no one is slowing down at the moment. In fact, if we can get more units out, they're asking us to give them more units.”

asked by Michael Feniger · answered by Joseph Creed

2 min read 6 chapters

Detailed narrative

Record Sales and Strong Demand Drivers

Caterpillar achieved a historic milestone with $20.5 billion in sales and revenues in Q2 FY26, a 24% increase year-over-year. This growth was primarily fueled by strong sales volume and favorable price realization across all three primary segments. Key drivers included robust demand for large gen sets and turbines in data center applications, increased sales in gas compression, and strong rental fleet loading in Construction Industries, particularly in North America.

Backlog Expansion and Long-Term Visibility

The company's backlog expanded by $9 billion sequentially to $72 billion, representing a 92% increase year-over-year. All primary segments contributed to this growth, with Power and Energy customers placing orders as far out as 2030. Approximately 59% of the current backlog is expected to be delivered over the next 12 months, indicating sustained momentum and long-term visibility for future revenue.

Strategic Capacity Expansion and Agility

To meet surging demand, particularly in power generation, Caterpillar is resuming production of its 10-megawatt medium-speed gas reciprocating engine platform, adding 1.5 gigawatts of capacity with shipments starting in Q4. This was achieved by leveraging existing supply chains and internal capabilities with minimal investment.

Additionally, the company repurposed a 250,000 square foot facility in Onaga, Kansas, in under 12 months to package PGM130 products for data centers, demonstrating agile capacity management.

Market Dynamics Across Segments

Power and Energy saw 33% sales to users growth, with power generation up 72% driven by data centers. Construction Industries' sales to users grew 22% for the sixth consecutive quarter, supported by nonresidential and infrastructure projects in North America. Resource Industries' sales to users increased 17%, driven by mining, heavy construction, and quarry & aggregates, with most key commodities remaining above investment thresholds.

Financial Strength and Shareholder Returns

Caterpillar generated a record $5.1 billion in MP&E free cash flow in Q2 and deployed $2.2 billion to shareholders through share repurchases ($1.5 billion) and dividends. The company announced an 8% dividend increase in June, marking its sixth consecutive year of high single-digit quarterly increases.

Financial Products reported its lowest past dues since 1998 at 1.31% and lowest allowance rate ever at 0.84%, reflecting strong customer financial health.

Tariff Impacts and Mitigation

The company recognized $392 million in IEEPA tariff recoveries in Q2. However, tariff costs, excluding these recoveries, were $400 million, impacting segment margins (CI 340 bps, RI 260 bps, P&E 90 bps). Management expects full-year tariff costs to be around $2.2 billion and is actively executing mitigation plans, aiming to manage the impact over time and operate around the midpoint of its adjusted operating profit margin target range.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.