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    CAT
    Earnings call· Dec 2025(Q4 FY25)

    CATERPILLAR INC CAT

    Jan 29, 2026 Source

    Executive summary

    Caterpillar Q4 FY25 — Record Sales and Backlog Drive Strong Outlook

    Caterpillar concluded its Centennial year with record sales and an unprecedented backlog, signaling strong momentum into 2026. The company's strategic focus on capacity expansion, particularly in Power and Energy for data center demand, and continued investment in technology and services, underpins its growth outlook. Despite ongoing tariff headwinds impacting margins, management expects to deliver sales growth across all primary segments, supported by robust order activity and favorable price realization.

    Highlights

    5

    • Full year sales and revenues reached a record $67.6 billion, the highest in Caterpillar's history.

    • Backlog grew to a record $51 billion, an increase of $21 billion or 71% year-over-year.

    • Q4 sales and revenues were an all-time record for a single quarter at $19.1 billion, up 18% YoY.

    • MP&E free cash flow was robust at $9.5 billion for the full year 2025, marking the third consecutive year above $9 billion.

    • Power and Energy sales to users grew a robust 37% in Q4, with power generation up 44% driven by data center demand.

    Concerns

    5

    • Net incremental tariff headwinds amounted to $1.7 billion for the full year 2025.

    • Q4 adjusted operating profit margin decreased by 270 basis points YoY to 15.6%, primarily due to higher manufacturing costs driven by tariffs.

    • Resource Industries' Q4 profit decreased by 24% YoY to $360 million, with margin down 510 bps due to tariffs and higher incentive compensation.

    • Construction Industries' Q4 profit decreased by 12% YoY to $1.0 billion, with margin down 470 bps due to tariffs and higher incentive compensation.

    • MP&E free cash flow is expected to be slightly lower in 2026 than 2025, reflecting higher capital expenditures of around $3.5 billion.

    Guidance & targets

    21
    CategoryTargetConfidence
    Full-year sales and revenues growth
    Around the top of the 5% to 7% long-term compound annual growth rate target
    high materiality
    High
    Full-year adjusted operating profit margin (including tariffs)
    Near the bottom of the target range for expected sales and revenues
    high materiality
    High
    Full-year adjusted operating profit margin (excluding tariffs)
    In the top half of the target range at anticipated sales level
    high materiality
    High
    Capital expenditures
    Around $3.5 billion
    medium materiality
    High
    MP&E free cash flow
    Slightly lower than 2025
    high materiality
    High
    Full-year price realization contribution to sales
    Roughly 2% increase in sales
    medium materiality
    High
    Dealer inventory change
    Increase offsetting the $500 million decline in 2025
    medium materiality
    High
    Incremental tariff costs
    Around $2.6 billion
    high materiality
    High
    Restructuring costs
    Roughly $300 million to $350 million
    medium materiality
    High
    Global annual effective tax rate (excluding discrete items)
    23%
    low materiality
    High
    Q1 sales and revenues
    Stronger versus prior year
    medium materiality
    High
    Q1 machine dealer inventory build
    In excess of $1 billion
    medium materiality
    High
    Q1 incremental tariff costs
    Around $800 million
    high materiality
    High
    Q1 adjusted operating profit margin (excluding tariffs)
    Higher year-over-year
    medium materiality
    High
    Q1 adjusted operating profit margin (including tariffs)
    Lower versus prior year
    medium materiality
    High
    Power Generation sales
    More than double 2024 sales
    high materiality
    High
    Large engine capacity
    Double
    medium materiality
    High
    Industrial gas turbine capacity
    More than double
    medium materiality
    High
    Services revenues
    $30 billion
    high materiality
    High
    CAT autonomous haul trucks in operation
    Triple the number compared to 2024
    medium materiality
    High
    Construction Industries total sales to users growth
    1.25x the 2024 baseline
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Construction Industries
    Sales increased by 15% in Q4, driven by stronger sales to end users and a positive impact from changes in dealer inventories. Profit decreased by 12% YoY, and margin declined by 470 bps, primarily due to higher manufacturing costs from tariffs (600 bps impact), higher incentive compensation, and slightly unfavorable price realization. North America sales to users exceeded expectations due to strong nonresidential and residential construction.
    Sales to users growth: 11% (Q4 YoY)Sales to users growth: 5% (FY25)Margin: 14.9% (Q4)
    		$6.9 billion15%—$1.0 billion
    Resource Industries
    Sales increased by 13% in Q4, primarily due to higher sales volume driven by changes in dealer inventories. Profit decreased by 24% YoY, and margin declined by 510 bps, primarily due to higher manufacturing costs from tariffs (490 bps impact), higher short-term incentive compensation, and slightly unfavorable price realization. Mining sales to users were lower due to capital discipline in response to weaker coal prices.
    Sales to users decline: 7% (Q4 YoY)Margin: 10.7% (Q4)
    		$3.4 billion13%—$360 million
    Power and Energy
    Sales increased by 23% in Q4, exceeding expectations due to stronger-than-anticipated volume in power generation and oil and gas, along with favorable price realization. Profit increased by 25% YoY, and margin increased by 30 bps, despite a tariff impact of 220 bps. Power generation was driven by strong demand for large gen sets and turbines in data center applications. Oil and gas sales were strong due to turbines and related services.
    Sales to users growth: 37% (Q4 YoY)Power generation sales growth: 44% (Q4 YoY)Margin: 19.6% (Q4)
    		$9.4 billion23%—$1.8 billion
    Financial Products
    Revenues increased 7% YoY, primarily due to higher average earning assets, partially offset by lower average financing rates. Segment profit increased 58% due to higher margins at Insurance Services (lower loss ratios), higher average earnings, and a lower provision for credit losses. Customer financial health remains strong, with past dues and allowance rate at record lows.
    Past dues: 1.37% (Q4, down 19 bps YoY)Allowance rate: 0.86% (Q4)Retail credit applications growth: 6% (Q4 YoY)Retail new business volume growth: 10% (Q4 YoY)
    		$1.1 billion7%—$262 million

    Operational metrics

    30
    Adjusted operating profit
    $3.0 billionFlat YoY
    Q4 FY25

    About flat versus the prior year.

    Adjusted operating profit margin
    15.6%Down 270 bps YoY
    Q4 FY25

    Slightly stronger than anticipated due to better-than-expected volume, partially offset by higher incentive compensation expense.

    Profit per share
    $5.12
    Q4 FY25

    Reported profit per share.

    Adjusted profit per share
    $5.16
    Q4 FY25

    Better than anticipated.

    Headwind from mark-to-market gains
    $73 million
    Q4 FY25

    Mainly driven by the absence of foreign exchange gains related to MP&E balance sheet translation that occurred in the prior year.

    Global annual effective tax rate
    24.1%vs 22.2% in 2024
    Q4 FY25

    Excluding discrete items, in line with expectations.

    Favorable impact on adjusted profit per share from share reduction
    $0.14YoY
    Q4 FY25

    Primarily due to share repurchases.

    Favorable impact on adjusted profit per share from share reduction
    $0.66
    FY25

    Benefited the full year.

    Construction Industries Q4 profit
    $1.0 billionDown 12% YoY
    Q4 FY25

    Profit decreased versus the prior year.

    Construction Industries Q4 margin
    14.9%Down 470 bps YoY
    Q4 FY25

    Lower than expected.

    Resource Industries Q4 profit
    $360 millionDown 24% YoY
    Q4 FY25

    Profit decreased versus the prior year.

    Resource Industries Q4 margin
    10.7%Down 510 bps YoY
    Q4 FY25

    Lower than anticipated.

    Power and Energy Q4 profit
    $1.8 billionUp 25% YoY
    Q4 FY25

    Profit increased versus the prior year.

    Power and Energy Q4 margin
    19.6%Up 30 bps YoY
    Q4 FY25

    Stronger than anticipated, primarily due to favorable volume.

    Financial Products Q4 profit
    $262 millionUp 58% YoY
    Q4 FY25

    Due to favorable impact from higher margins at Insurance Services, higher average earnings, and lower provision for credit losses.

    Enterprise cash balance
    $10.0 billion
    Year-end FY25

    Balance sheet remains strong.

    Liquid marketable securities
    $1.2 billion
    Year-end FY25

    Held to improve yields on cash.

    Incremental tariff costs (net)
    $1.7 billion
    FY25

    Net incremental cost from tariffs for the full year.

    Q1 incremental tariff costs allocation
    50%
    Q1 FY26

    Expected allocation of incremental tariff costs.

    Q1 incremental tariff costs allocation
    20%
    Q1 FY26

    Expected allocation of incremental tariff costs.

    Q1 incremental tariff costs allocation
    30%
    Q1 FY26

    Expected allocation of incremental tariff costs.

    Total sales to users growth
    15%YoY
    Q4 FY25

    Reflected in volume growth.

    Machine dealer inventory decrease
    $500 millionvs $1.6 billion decrease last year
    Q4 FY25

    Larger than anticipated, primarily due to stronger-than-expected sales to users in Construction Industries.

    Fleet connected assets
    Over 1.6 million
    FY25

    Continued to connect more assets.

    Autonomous haul trucks in operation
    827Up from 690 at end of 2024
    End of FY25

    Making steady progress towards 2030 goal to triple the number.

    Power generation sales
    Exceeded $10 billionYoY growth of more than 30%
    FY25

    Meaningful progress towards 2030 goal to more than double power generation sales compared to 2024.

    Backlog expected to deliver in next 12 months
    62%Lower than historical average
    FY26

    Reflects multiyear visibility in Power and Energy.

    Prime power orders for data centers
    4
    Current

    In addition to the American Intelligence and Power Corporation order.

    Solar Turbines sales
    Comparable to record 2025 performance
    FY26

    Demand for products and industrial applications expected to grow moderately.

    Battery backup in prime power applications
    —
    Current

    Management stated they are not seeing 100% battery backup; mostly generators are used.

    Industry KPIs

    8
    MetricValueDetails
    Capacity expansionDoublecapacity
    Tariff cost impact$1.7 billionUSD
    Parts aftermarket business$24 billionUSD
    Data center prime power demand44%%
    Dealer inventory months of supply$500 millionUSD
    Incremental margin operating leverage—
    Order backlog order intake by segment$51 billionUSD
    Industry production market size forecastsAbove 10-ton excavator industry

    Orderbook & backlog

    2
    Total backlog$51 billionQ4 FY25

    Up $21 billion or 71% YoY

    Approximately 62% expected to deliver in the next 12 months.

    Backlog (Q3 FY25)$40 billionQ3 FY25

    Product announcements

    1
    ProductTypeDetails
    Cat AI Assistantlaunch

    Deals & partnerships

    3
    American Intelligence and Power CorporationOrder for reciprocating generator sets for a prime power application.Deliveries starting late 2026 through 2027

    This order supports the initial development phase of the Monarch Compute Campus, which has a total potential of about 8 gigawatts of power generation. It represents one of Caterpillar's largest single orders for complete power solutions. The value will be reflected in Q1 2026 backlog.

    ValeAgreement to provide an autonomy solution for a mixed fleet of more than 90 trucks.

    Partnership with SUTRAC, Caterpillar's dealer in Brazil, to expand autonomous hauling solutions.

    VertivPartnership to make solutions as cost effective and efficient as possible for customers.

    Aimed at improving cost-effectiveness and efficiency of power solutions, particularly for data centers.

    Risks & headwinds

    5
    Net incremental tariff costsFY25, FY26

    $1.7 billion (FY25); expected $2.6 billion (FY26)

    Mitigation: Sourcing changes to reduce direct exposure; cost control actions and pricing to reduce impact on profitability; aiming to operate around the midpoint of adjusted operating profit margin target range over time.

    Higher manufacturing costsQ4 FY25

    270 bps impact on Q4 adjusted operating profit margin YoY

    Mitigation: Ongoing cost control actions and pricing strategies.

    Higher incentive compensation expenseQ4 FY25

    Partially offset stronger-than-expected volume in Q4

    Mitigation: Normal course of business, tied to performance.

    Weaker coal prices impacting mining salesQ4 FY25

    Resource Industries Q4 sales to users declined 7%

    Mitigation: Customers exercising capital discipline; company expects rebuild activity to increase slightly in 2026 with modest increases in commodity prices.

    Capacity constraints in Power and EnergyNext few years

    Limits ability to meet demand, pacing sales growth

    Mitigation: Multiyear effort to double large engine capacity and more than double industrial gas turbine capacity by 2030; working closely with customers to schedule factory orders.

    What to watch in Q1 FY26

    5

    Q1 FY26 Sales and Revenues Growth

    Q1 FY26
    CurrentQ4 FY25 sales up 18% YoY
    TargetStronger versus prior year

    Why it matters

    Verifies the company's ability to convert its record backlog and strong order rates into revenue growth, especially with expected dealer inventory build.

    Starting with the top line, we would expect stronger sales and revenues versus the prior year.

    Q&A highlights

    7

    Can you elaborate on the impressive order and backlog growth, especially outside Power and Energy? How are you managing pricing and profitability for deliveries stretching into 2027 and beyond, given cost volatility and tariffs?

    The record $51 billion backlog is driven by strong order rates across all segments, not just Power and Energy. CI had one of its best quarters ever, RI saw strong mining and heavy construction orders, and P&E continued robust growth in power generation and gas compression. For long-term orders, especially in P&E, the company works closely with customers to schedule deliveries, and pricing includes inflationary indices or escalators for non-frame agreements to manage cost volatility.

    “For those type of orders, we have frame agreements for a lot of customers. Those will have inflationary indices tied in there for pricing. And for non-frame agreements, we usually have escalators if they're out past the normal 12-month type period.”

    asked by Mircea Dobre · answered by Joseph Creed

    2 min read6 chapters

    Detailed Narrative

    01

    Record Performance and Strategic Progress

    Caterpillar achieved record full-year sales and revenues of $67.6 billion in 2025, marking its highest in history. Despite $1.7 billion in net incremental tariff headwinds🌐, the company delivered an adjusted operating profit margin of 17.2% and adjusted EPS of $19.06. Robust MP&E free cash flow of $9.5 billion enabled $7.9 billion in shareholder returns. The company is making meaningful progress towards its 2030 targets, including growing services revenue to $30 billion and doubling large engine capacity.

    02

    Strong Backlog and Order Activity

    The company's backlog surged to a record $51 billion, a 71% increase year-over-year and $11 billion higher than Q3 FY25. This record backlog provides strong momentum for 2026, with approximately 62% expected to deliver in the next 12 months. Strong ordering activity was observed across all three primary segments, including CI's best quarter ever, RI's best since 2021, and continued strength in Power and Energy, particularly for data center applications and gas compression.

    03

    Power and Energy Segment Outperformance

    Power and Energy was the fastest-growing segment, with Q4 sales to users up 37%. Power generation grew 44%, driven by strong demand for large gen sets and turbines in data center applications. Oil and gas sales also saw strong growth, primarily from turbines and related services. The segment's 2025 power generation sales exceeded $10 billion, growing over 30% YoY, and the company is on track to double large engine capacity and more than double industrial gas turbine capacity by 2030.

    04

    Data Center Demand and Prime Power Solutions

    Accelerated investment in data centers is bolstering construction spending and driving significant demand for power generation. Caterpillar announced a major order for 2 gigawatts of reciprocating generator sets for a prime power application from American Intelligence and Power Corporation, one of four such orders over 1 gigawatt. These solutions often utilize waste heat for cooling, enhancing efficiency, and are primarily gas-fired, with a focus on speed to market for hyperscalers.

    05

    Tariff Impact and Mitigation Strategy

    Tariffs continue to be a significant headwind, with a net incremental impact of $1.7 billion in 2025. For 2026, incremental tariff costs are projected to be around $2.6 billion, $800 million higher than 2025, before planned mitigation actions. Management is focusing on sourcing changes to reduce direct tariff exposure and implementing cost control and pricing actions to manage profitability, aiming to operate around the midpoint of its adjusted operating profit margin target range over time⏳.

    06

    Financial Products Strength

    Financial Products revenues increased 7% YoY, with segment profit up 58% to $262 million. This was driven by higher margins at Insurance Services due to lower loss ratios, higher average earnings, and a lower provision for credit losses. Customer financial health remains strong, with past dues at a record low of 1.37% and the allowance rate at an all-time low of 0.86%. Retail credit applications and new business volume also saw healthy growth.

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