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CATERPILLAR INC (CAT)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 Sales & Revenues were $14.25B, down 10% YoY; diluted EPS was $4.20 and adjusted EPS $4.25; margins compressed with operating margin 18.1% (adj. 18.3%) due to lower volume and unfavorable price realization .
  • Record organic backlog growth: backlog increased by $5B to $35B, driven by strong orders across segments, led by Energy & Transportation; ME&T free cash flow was ~$200M and enterprise cash was $3.6B .
  • Management introduced tariff headwinds for Q2 2025 of ~$250–$350M (net), allocating ~50%/25%/25% across CI/RI/E&T; pre‑tariff FY25 scenario implies sales about flat vs FY24 and margins within the top half of the target range, slightly improved vs last quarter’s view .
  • Key catalysts: data center power demand supporting power generation (recip engines and Solar Turbines), record backlog, and clarity on tariff mitigation/path; watch pricing/merchandising impacts on CI/RI margins near term .

What Went Well and What Went Wrong

What Went Well

  • Backlog and orders: “Very strong order rates resulted in backlog growth of $5 billion…a record for organic backlog growth in a quarter,” with backlog reaching $35B, led by Energy & Transportation .
  • Power generation strength: E&T power generation sales rose 23% YoY in Q1 on data center demand; E&T profit increased slightly and margin expanded to 20.0% on favorable price realization .
  • Capital deployment and liquidity: $3.7B buybacks and $0.7B dividends in Q1; enterprise cash $3.6B; management reiterated dividend aristocrat commitment .

What Went Wrong

  • Price realization and CI margin: Unfavorable price realization (~$250M) and dealer inventory dynamics drove CI sales down 19% and segment margin down 770 bps to 19.8% YoY .
  • Volume/mix in RI: Sales fell 10% on lower sales to end users; segment profit down 18% YoY; currency headwinds (AUD) also weighed .
  • FX and other income: Other income was $107M vs $156M prior-year, primarily unfavorable FX impacts; effective tax rate increased to 22.3% (adj. 23.0%) .

Financial Results

Consolidated Performance vs Prior Periods and Estimates

MetricQ3 2024Q4 2024Q1 2025
Sales & Revenues ($USD Billions)$16.1 $16.215 $14.249
Diluted EPS ($) GAAP$5.06 $5.78 $4.20
Adjusted EPS ($)$5.17 $5.14 $4.25
Operating Margin % (GAAP)—18.0% 18.1%
Operating Margin % (Adjusted)20.0% 18.3% 18.3%

Consensus vs Actual (S&P Global)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Billions)Est: $16.61*Est: $14.595*Est: $16.141*
Revenue Actual ($USD Billions)$16.215$14.249$16.569
Primary EPS ($)Est: $5.03*Est: $4.345*Est: $4.903*
Primary EPS Actual ($)$5.14$4.25$4.72

Values retrieved from S&P Global.*

Segment Breakdown

SegmentQ3 2024 Sales ($B)Q3 2024 Margin %Q4 2024 Sales ($B)Q4 2024 Margin %Q1 2025 Sales ($B)Q1 2025 Margin %
Construction Industries (CI)$6.3 23.4% $6.003 19.6% $5.184 19.8%
Resource Industries (RI)$3.0 20.4% $2.962 15.7% $2.884 20.8%
Energy & Transportation (E&T)$7.2 19.9% $7.649 19.3% $6.568 20.0%

KPIs

KPIQ3 2024Q4 2024Q1 2025
Backlog ($B)$28.7 —$35.0
Dealer Inventory Δ ($B)+0.4 (machines +0.1) −1.3 +0.1 (total; machines ~flat)
Enterprise Operating Cash Flow ($B)——$1.289
ME&T Free Cash Flow ($B)——~$0.2
Enterprise Cash ($B)$5.6 $6.896 $3.6
Cat Financial Past Dues (%)1.74 1.56 1.58
Capital Deployment ($B)$1.5 returned in Q3 $10.3 FY24 total $4.3 returned in Q1

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales & RevenuesFY 2025Slightly lower vs FY24 (last quarter) About flat vs FY24 (pre‑tariff scenario) Raised
Adjusted Operating MarginFY 2025Top half of target range (implied) Top half of target range (pre‑tariff); remain within range even with tariffs Maintained
ME&T Free Cash FlowFY 2025Within target range (implied) Top half of $5–$10B target range Raised
SalesQ2 2025—Similar to prior year; E&T up, CI/RI down on price New detail
Tariff Headwind (net)Q2 2025—~$250–$350M total New headwind
Tariff AllocationQ2 2025—~50% CI; ~25% RI; ~25% E&T New detail
Price RealizationQ2 2025—CI: similar headwind to Q1; RI: larger headwind; E&T: favorable New detail
Tax Rate (ex‑discrete)FY 202523% (unchanged) 23% Maintained
Restructuring CostsFY 2025—~$150–$200M New detail
CapExFY 2025~$2.0B in FY24 baseline ~$2.5B expected in 2025 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Data center & power generation demandPower gen +26% in Q3; strong Solar inquiry; capacity expansion announced (to 125% vs 2023) Power gen +23% YoY; E&T sales/users +13% (data centers); continued robust orders Strengthening
Tariffs & macro uncertaintyPricing moderation in machines; merchandising headwinds flagged for coming quarters Q2 tariff headwind $250–$350M; segment allocation; evaluating mitigation; possible trade deals could moderate New headwind
Dealer inventories & supply chainMachines dealer inventory high; planned Q4 reduction; used inventories low Total dealer inventory +$100M; machine inventory ~flat on better sell‑through; slowing inbound shipments as mitigation Stabilizing
Pricing & merchandisingCI pricing pressure noted; reserve lag effects to persist for “several quarters” CI/RI price headwinds continue in Q2; pricing actions under review vs volume; competitive context varies by region Ongoing headwind
Regional construction trendsNA rental loading down; Europe weak; Middle East supportive; LatAm healthy NA slightly higher sell‑through; EAME better in Africa/Middle East; APAC soft; LatAm growing users Mixed

Management Commentary

  • “Very strong order rates resulted in backlog growth of $5 billion, an all‑time record for organic backlog growth in a quarter…The backlog increased for all segments and was led by Energy & Transportation.” – Jim Umpleby .
  • “Demand remains strong in power generation for both Cat reciprocating engines and Solar Turbines…we are increasing our large engine output capabilities through the previously announced multiyear capacity investment.” – Joe Creed .
  • “First quarter adjusted operating profit margin was 18.3%, above our expectations, primarily due to favorable manufacturing costs.” – Jim Umpleby .
  • “We deployed $4.3 billion to shareholders through nearly $3.7 billion of share repurchases and about $700 million of dividends.” – Andrew Bonfield .

Q&A Highlights

  • Tariff mitigation: Near‑term “no‑regrets” actions (overhead cuts, slowing inbound shipments, dual‑sourcing) with longer‑term sourcing changes requiring testing/validation; pricing actions will be balanced against volume and competitive dynamics .
  • Pricing reserve mechanics: Merchandising programs create reserve lag that will be a headwind “for the next several quarters” even as programs normalize .
  • Backlog pricing: Flexibility exists; evidence of widespread pre‑buying is lacking; many backlog orders are true customer orders (esp. E&T/RI) .
  • Capacity and demand: Large engines are “pretty full” for data center demand in 2025; Solar Turbines’ Titan 350 opens larger prime power opportunities; inquiry activity robust .
  • Rental dynamics: Dealer rental revenue growing; rental fleet loading down slightly, in line with expectations .

Estimates Context

  • Q1 2025 consensus revenue was ~$14.60B vs actual $14.25B and EPS was $4.35 vs actual $4.25; modest misses on both headline metrics despite solid cost performance [GetEstimates].
  • EBITDA was essentially in line with consensus (~$3.15B est vs $3.17B actual), indicating core profitability held despite price/mix headwinds [GetEstimates].
  • Near‑term estimate risk skewed to CI/RI margins given price headwinds and Q2 tariff impact; E&T revenue/price realization likely supports consensus stability in that segment .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Near‑term: Expect Q2 headline margins below prior-year on price/tariffs; watch segment allocation (~50% CI) and E&T offset; stock likely sensitive to tariff clarity and price mitigation pace .
  • Medium‑term: Record backlog ($35B) and secular power demand (data centers, distributed generation) underpin E&T growth and margin resilience despite cyclical CI/RI pressure .
  • CI/RI: Pricing/merchandising programs remain a headwind for “several quarters”; monitor dealer inventory discipline and regional demand (Europe softness vs Middle East/LatAm support) .
  • Capital deployment: Continued heavy buybacks/dividends; ME&T FCF top half of target range signals sustained cash returns if pre‑tariff scenario holds .
  • FY25 trajectory: Pre‑tariff sales outlook raised to ~flat vs FY24; margins targeted in top half of range; execution on tariff mitigation and supply chain adjustments is key to upside .
  • Watchlist: FX impacts (notable in Q1 other income), pricing discipline vs market share, data center build schedules and Solar Turbines/Titan 350 adoption .