Caterpillar Inc
CAT · NYSEMachinery · Construction and Power Equipment
Since the Report − 4.7%
Close on Report DayAug 4
$856.96▲ 5.6%Report-Day Move
- Market Cap(Today)
- ≈ $376 B
- 1Y Return(At Report)
- + 97%
- P/E($23.82 · Trailing 12M)
- 34.3
- PEG(next-year consensus)
- 1.48
- Net Margin(Trailing 12M)
- 14.5%
Caterpillar cleared $20 billion of sales in a single quarter for the first time in its history and grew its order backlog 92% year over year to $72 billion; the stock rose 5.6% on the day but handed back part of that gain over the next two sessions.
Revenue (Q2)
$20.54B
▲ 24% · First $20B+ Quarter
Adjusted EPS
$8.17
~32% Above Market Expectation
Adjusted Operating Margin
21.9%
17.6% a Year Ago
Order Backlog
$72B
▲ 92% · +$9B in the Quarter
Power Generation Sales
▲ 72%
Data Center Demand
Tariff Cost (2026)
$2.2B
Prior Estimate $2.5B
Quarterly Revenue ($ Billion)
16.57
17.64
19.13
17.42
20.54
- Q2 2025
- Q3 2025
- Q4 2025
- Q1 2026
- Q2 2026
- Year-over-Year Growth
- ▲ 24%
- Fastest-Growing Segment
- Construction Industries ▲ 35%
- Weakest Margin
- Resource Industries 14.9%
Q3 2026 Company Guidance
- 2026 Sales Growth (full year, mid-to-high teens)15% – 19%
Revised Up ▲
- 2026 Tariff Cost (prior estimate $2.5B)2.2 billion
Revised Down ▼
- ME&T Free Cash Flow (annual range, top half expected)6 – 15 billion
Top Half of Range ▲
- 2026 Capital Expenditures3.5 billion
Capacity Investment Continues
- 2026 Restructuring Costs300 – 350 $M
Pressure on Margin ▼
The blue band is the company's low–high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. Axis is ±49% around the midpoint.
- ME&T Free Cash Flow (Q2)
- $5.1B · record
- Buybacks + Dividends (Q2)
- $2.2B
- Effective Tax Rate (2026)
- 23.0%
“Power generation grew 72% driven by very strong demand for large gensets and turbines used in data center applications.”
- Backlog and production capacity
- 10 MW gas engine restart
- Broad-based demand across segments
Summary
Caterpillar reported $20.54 billion in sales and revenues for the second quarter of 2026, up 24% from $16.57 billion a year earlier and the first quarter above $20 billion in the company's century-plus history. Adjusted profit per share came in at $8.17 against $4.72 a year ago, roughly 32% above a Market Expectation of about $6.20. On a GAAP basis, profit per share was $7.77. The adjusted operating margin widened 430 basis points, from 17.6% to 21.9%. Two items drove the profit: $3.1 billion of incremental volume and $595 million of favorable price realization. The most striking number, though, was not in the income statement but in the order book: total backlog reached $72 billion, up 92% year over year and $9 billion higher in this quarter alone.
The stock closed up 5.6% at $876.54 on August 4, the day of the report, after trading as much as 8.9% higher premarket. The move did not hold: shares slipped 0.6% on August 5 and another 1.6% on August 6 to $856.96, still above the $830.03 level at which they went into the print. The pullback was not about the numbers being weak; it was about how much of the good news was already in the price. The stock has nearly doubled over the past year, up 97%, and now trades near 37 times earnings, a historically rich multiple for a classic machinery manufacturer. Two details gave investors pause: the company said full-year adjusted operating margin should land near the bottom of its target range, and dealer inventory in Construction Industries rose $400 million in the quarter, with management guiding to a drawdown of more than $1 billion in the fourth quarter, a figure that comes straight out of reported sales.
The quarter itself was close to flawless, which is why the score is high. All three primary segments grew, margins expanded in each of them, cash flow hit a record, and the company raised its full-year outlook. The reservations are about margin and timing: the second-quarter margin was flattered by $392 million of tariff recoveries, capacity expansion is pushing depreciation and freight costs higher, and the dealer inventory adjustment will slow sales growth in the second half. The structural story, power demand driven by data centers, remains intact and is backed by orders stretching into 2030. This is a valuation debate, not a business performance debate.
Full Review
ClaudeThe record came from all three segments growing at once.
All three of Caterpillar's primary segments posted double-digit growth in the same quarter, which has not happened often in recent years. Construction Industries sales rose 35% to $8.3 billion and segment profit jumped 57% to $1.9 billion, a 23.3% margin. Power & Energy grew 17% to $8.2 billion in sales, lifted profit 30% to $2.0 billion, and at a 24.6% margin became the company's most profitable arm. Resource Industries grew 20% to $4.6 billion with profit up 23% to $693 million, but its 14.9% margin remains far behind the other two. Financial Products added $1.1 billion of revenue, up 10%, and $328 million of profit. Geographically, North America stands out, with regional retail statistics up 27%. Against that, the Middle East and Asia Pacific excluding China remain soft. Growth is broad-based, in other words, but not uniform.
Power demand is tied directly to AI capital spending.
The real story of the quarter sits in Power & Energy. Retail sales of power generation equipment to end users rose 72% year over year, and the company identified data center applications as the driver in plain terms. The link is no longer indirect: hyperscale data centers need more electricity than the grid can hand them and are closing the gap with generator sets and gas turbines. In response, Caterpillar is restarting the 10-megawatt medium-speed gas reciprocating engine platform it discontinued in 2022. First orders are already in hand, shipments begin in the fourth quarter, and the company expects an 18-month ramp to roughly 1.5 gigawatts of capacity. The clearest evidence on demand duration is the delivery calendar: gas prime orders extend into late 2028 and 2029, and turbine lead times reach into 2030. Analysts pressed repeatedly on the call about how long this can last; management's answer was that they have not yet seen order flow slow.
The backlog is both a strength and a fragility.
The $72 billion backlog is nearly double the level of a year ago and grew $9 billion in a single quarter. About 59% of it is scheduled for delivery within the next 12 months, with the remainder tied to longer-dated energy projects. That is a solid foundation for revenue visibility. But a backlog swelling this fast has a second reading: it is a measure of demand outrunning production capacity. Management concedes as much, saying it would rather build more and keep up with demand. Capacity expansion is under way and throughput is expected to rise in the second half, but that expansion is not free, with higher depreciation and freight pushing manufacturing costs up. A backlog is a delivery promise, not a revenue guarantee, and orders that cannot be filled carry cancellation risk.
Tariffs hurt less than feared.
Tariffs were the single largest uncertainty heading into this year, and the picture came in better than expected. Tariff costs in the quarter ran about $400 million against the roughly $700 million the company had previously flagged. On top of that, $392 million of IEEPA recoveries were recognized, largely offsetting the quarter's tariff bill in practice. Caterpillar cut its full-year 2026 tariff cost estimate to about $2.2 billion from $2.5 billion. The point to watch is this: part of that 21.9% adjusted operating margin came from a recovery item that may not repeat. Without it, the margin would still have been strong, but perhaps not this close to a record. Investors should track that line separately in coming quarters.
Cash generation is the quarter's quietest strength.
The company generated $4.4 billion of enterprise operating cash flow in the quarter, bringing the first-half total to $6.24 billion. Machinery, Energy & Transportation free cash flow, as presented on the call and in the slides, set a record at $5.1 billion, up $2.8 billion year over year. Cash stood at $6.7 billion at quarter-end. Of that cash, $1.5 billion went to buybacks and $0.7 billion to dividends, for $2.2 billion returned to shareholders. For the full year, the company expects free cash flow in the top half of its $6 billion to $15 billion target range, with capital expenditure of roughly $3.5 billion. Credit quality at the finance arm is also notable: past dues stand at 1.31%, the lowest since 1998, and the allowance rate is a record-low 0.84%. That suggests no stress signal from customers yet. For how to read a cash flow statement, see our cash flow guide.
Full-year outlook rose, margin talk stayed cautious.
Caterpillar raised its 2026 sales and revenues growth guidance above the view it gave in April, to the mid- to high-teens range, and said it now expects a stronger year in all three primary segments. That upgrade is the clearest positive signal in the quarter. Against it, adjusted operating margin is expected to land near the bottom of the target range, meaning the company is talking cautiously about margin right after a record quarter. The reasons are largely the cost of capacity expansion and the dealer inventory adjustment in Construction Industries. Dealer inventory rose $400 million in the second quarter; management expects a more typical drawdown of over $1 billion in the fourth. That drawdown is not goods sold but goods not shipped to dealers, and it comes directly out of quarterly sales. A restructuring charge of $300 million to $350 million is also budgeted.
Strengths
6- First quarter above $20 billion in company history: $20.54 billion in sales, up 24% year over year.
- Order backlog reached $72 billion, nearly double a year ago and up $9 billion in a single quarter.
- Power generation retail sales rose 72%, driven directly by data center investment, with orders extending into 2030.
- Adjusted operating margin widened from 17.6% to 21.9%, a 430 basis point gain from both volume and $595 million of price realization.
- Full-year tariff cost estimate cut from $2.5 billion to $2.2 billion, and the annual outlook was raised.
- Record free cash flow and $2.2 billion returned to shareholders, with finance-arm past dues at their lowest since 1998.
Risks
6- The center of gravity of demand has shifted to AI data center investment; any slowdown in that cycle hits Power & Energy directly.
- Construction Industries dealer inventory rose $400 million in the quarter, and management expects a drawdown of more than $1 billion in the fourth quarter that comes straight out of sales.
- Despite a record quarter, the company guides full-year adjusted operating margin to land near the bottom of its target range.
- The quarter's margin was helped by $392 million of IEEPA tariff recoveries, an item with no guarantee of repeating.
- Even after being cut, the 2026 tariff bill is roughly $2.2 billion, and trade policy remains unpredictable.
- The stock is up 97% over the past year and trades near 37 times earnings; much of the good news appears to be priced in.
What to Watch
5- ~Late October 2026 — Third-quarter results. The real test will be whether the $400 million of Construction Industries dealer inventory added in the second quarter has begun to unwind.
- Q4 2026 — First shipments begin on the 10-megawatt gas reciprocating engine platform discontinued in 2022, with an 18-month ramp toward roughly 1.5 gigawatts of capacity.
- Q4 2026 — If the dealer inventory drawdown of more than $1 billion that management expects materializes, it will visibly pressure quarterly sales.
- Through year-end — Watch whether the $2.2 billion tariff estimate holds and whether IEEPA recoveries continue.
- Early 2027 — The guidance issued alongside full-year 2026 results will show whether data center power demand is a one-year jump or a durable platform.
Upcoming Earnings
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