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    CAT
    Earnings call· Jun 2026(Q2 FY26)

    CATERPILLAR Q2 FY26 earnings call CAT

    Aug 4, 2026 Source

    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

    5

    • 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

    4

    • 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

    16
    CategoryTargetConfidence
    Full-year 2026 Sales and Revenues Growth
    Mid- to high teens growth
    high materiality
    High
    Full-year 2026 Adjusted Operating Profit Margin
    Higher than previous expectations, near the bottom of the target range (excluding IEEPA recoveries)
    high materiality
    Medium
    Full-year 2026 MP&E Free Cash Flow
    Top half of annual target range ($6 billion to $15 billion)
    high materiality
    High
    Full-year 2026 Tariff Costs (excluding IEEPA recoveries)
    Around $2.2 billion
    medium materiality
    High
    Full-year 2026 Restructuring Costs
    Approximately $300 million to $350 million
    low materiality
    High
    Full-year 2026 Estimated Global Annual Effective Tax Rate
    Approximately 23%
    low materiality
    High
    Full-year 2026 Capital Expenditures
    Approximately $3.5 billion
    medium materiality
    High
    Q3 FY26 Sales Growth
    Strong sales growth
    medium materiality
    High
    Q3 FY26 Adjusted Operating Profit Margin
    Higher than prior year
    medium materiality
    High
    Q3 FY26 Tariff Costs
    Around $600 million
    medium materiality
    High
    Q4 FY26 Construction Industries Dealer Inventory Reduction
    Over $1 billion
    medium materiality
    High
    10-megawatt medium-speed gas reciprocating engine platform shipments
    Begin in Q4
    medium materiality
    High
    10-megawatt medium-speed gas reciprocating engine platform capacity
    About 1.5 gigawatts
    medium materiality
    High
    Gas Prime Engine Lead Times
    Late 2028
    medium materiality
    High
    Turbine Lead Times
    Beyond 2029
    medium materiality
    High
    Diesel Genset Lead Times
    Into 2028
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    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 billion17%—$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 billion35%—$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 billion20%—$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 billion10%—$328 million

    Operational metrics

    20
    Adjusted Operating Profit
    $4.5 billionUp 54% YoY
    Q2 FY26

    Better than anticipated, mainly due to profit impact of higher sales volume.

    Operating Profit
    $4.3 billionUp 50% YoY
    Q2 FY26

    Reported operating profit.

    Adjusted Operating Profit Margin
    21.9%Up 430 bps YoY
    Q2 FY26

    Better than anticipated, primarily due to IEEPA tariff recoveries and lower-than-expected tariff costs. Margin benefit from sales volume mostly offset by higher SG&A and R&D.

    Profit per Share
    $7.77
    Q2 FY26

    GAAP profit per share.

    Adjusted Profit per Share
    $8.17Up 73% YoY
    Q2 FY26

    Higher than anticipated.

    Restructuring Costs
    $0.40vs $0.10 last year
    Q2 FY26

    Per share impact of restructuring costs.

    IEEPA Tariff Recoveries
    $392 million
    Q2 FY26

    Recognized in the quarter, with the majority reflected in corporate items.

    Tariff Costs (excluding IEEPA recoveries)
    $400 millionLower than $700 million estimate
    Q2 FY26

    Favorable compared to prior estimate due to adjustments to computation of previously incurred tariffs. Recognized within segments and corporate items.

    Tariff Impact on Power and Energy Segment Margin
    90 bps
    Q2 FY26

    Impact of tariff costs on segment margin.

    Tariff Impact on Construction Industries Segment Margin
    340 bps
    Q2 FY26

    Impact of tariff costs on segment margin.

    Tariff Impact on Resource Industries Segment Margin
    260 bps
    Q2 FY26

    Impact of tariff costs on segment margin.

    Provision for Income Tax Rate
    23%
    Q2 FY26

    Global estimated annual effective tax rate, excluding discrete items.

    Share Repurchases Impact on Adjusted EPS
    $0.15Favorable YoY
    Q2 FY26

    Favorable impact from reduction in average number of shares outstanding due to share repurchases.

    Capital Expenditures
    $600 million
    Q2 FY26

    Capital expenditures in the quarter.

    Capital Returned to Shareholders
    $2.2 billion
    Q2 FY26

    Deployed to shareholders through share repurchases and dividends.

    Share Repurchases
    $1.5 billion
    Q2 FY26

    Amount of share repurchases in the quarter.

    Dividend Increase
    8%
    June

    Sixth consecutive year with a high single-digit quarterly increase.

    Cash Balance
    $6.7 billion
    Q2 FY26

    Enterprise cash balance.

    Liquid Marketable Securities
    $1.5 billion
    Q2 FY26

    Slightly longer-dated liquid marketable securities to improve yields.

    Dealer Inventory Increase
    $400 millionvs decrease in Q2 2025
    Q2 FY26

    Higher than originally anticipated, supported by expectation of stronger sales to users for the rest of the year.

    Industry KPIs

    8
    MetricValueDetails
    Capacity expansion1.5 gigawattsGW
    Tariff cost impact$392 millionUSD
    Parts aftermarket business—
    Data center prime power demand72%%
    Dealer inventory months of supply$400 millionUSD
    Incremental margin operating leverage21.9%%
    Order backlog order intake by segment$72 billionUSD
    Industry production market size forecastsModerate conditions

    Orderbook & backlog

    2
    Total Backlog$72 billionQ2 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 BacklogNearly 2x biggerQ2 FY26

    YoY

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

    Product announcements

    1
    ProductTypeDetails
    10-megawatt medium-speed gas reciprocating engine platformlaunch

    Deals & partnerships

    2
    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.

    SkycatchAcquisition 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

    2
    Turbine Capacity Expansionunderway

    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 Repurposingcompleted

    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

    6
    Tariff CostsQ2 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 ExpensesQ2 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 ChallengesQ2 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 CostsQ2 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 VolumeH2 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

    5

    CI Dealer Inventory Drawdown

    Q4 FY26
    CurrentIncreased $400M in Q2 FY26
    TargetOver $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.

    Q&A highlights

    6

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.