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CATERPILLAR INC (CAT)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 was operationally solid but margin-challenged: Sales/revenue of $16.57B (-1% YoY) and adjusted EPS of $4.72; operating margin compressed as tariffs and pricing programs outweighed volume gains .
  • Revenue beat, EPS miss vs Street: Revenue $16.57B vs S&P Global consensus $16.14B*, adjusted EPS $4.72 vs $4.90*; pricing headwinds and tariffs drove the shortfall on earnings .
  • Backlog/cycle strength: Record backlog rose $2.5B sequentially to $37.5B on strong orders across all three segments; E&T grew 7% with Power Generation +28% YoY (data center demand) .
  • Guidance tightened around tariffs: FY25 sales now expected to be slightly up vs 2024; adjusted OPM in top half of target ex-tariffs but bottom half including tariffs; full-year net tariff headwind estimated at $1.3–$1.5B with higher impact in Q4; Q3 sales to grow moderately YoY but margins lower including tariffs .

What Went Well and What Went Wrong

  • What Went Well

    • Record backlog and order momentum: “Backlog grew by $2,500,000,000… with increases across all three primary segments… [and is] at a record level of $37,500,000,000.” — CEO Joe Creed .
    • E&T outperformed on data center power: Sales +7% and Power Generation +28% on large reciprocating engine demand; segment profit +4% despite tariffs .
    • Cash generation and returns: Enterprise operating cash flow of $3.1B; $1.5B returned to shareholders (buybacks $0.8B, dividends $0.7B) .

  • What Went Wrong

    • Margin compression from tariffs and price realization: Operating margin fell to 17.3% (adjusted 17.6%) from 20.9% (22.4% adjusted) YoY; price realization -$414M; Q2 net tariff impact at high end of $250–$350M range .
    • Construction and Resource softness: CI sales -7% (profit -29%, margin -600 bps) and RI sales -4% (profit -25%, margin -500 bps); both cited unfavorable price realization and tariffs .
    • EPS miss vs consensus: Adjusted EPS $4.72 vs $4.90*; FX and merchandising programs weighed on profitability alongside tariffs .

Financial Results

MetricQ2 2024Q4 2024Q1 2025Q2 2025Q2 2025 Consensus
Revenue ($B)$16.69 $16.22 $14.25 $16.57 $16.14*
GAAP EPS ($)$5.48 $5.78 $4.20 $4.62 —
Adjusted EPS ($)$5.99 $5.14 $4.25 $4.72 $4.90*
Operating Profit Margin % (GAAP)20.9% 18.0% 18.1% 17.3% —
Adjusted Operating Profit Margin %22.4% 18.3% 18.3% 17.6% —
Values with * are from S&P Global; Values retrieved from S&P Global.

Segment performance (Q2 YoY):

SegmentSales Q2’24 ($B)Sales Q2’25 ($B)% ChgSegment Profit Q2’24 ($M)Segment Profit Q2’25 ($M)% ChgMargin Q2’24Margin Q2’25
Construction Industries$6.68 $6.19 (7%) 1,741 1,244 (29%) 26.1% 20.1%
Resource Industries$3.21 $3.09 (4%) 718 537 (25%) 22.4% 17.4%
Energy & Transportation$7.34 $7.84 7% 1,525 1,585 4% 20.8% 20.2%

Key KPIs and operating items:

KPIQ4 2024Q1 2025Q2 2025
Backlog ($B)——$37.5 (record); +$2.5 seq
Enterprise Operating Cash Flow ($B)—$1.29 $3.1
Enterprise Cash ($B)$6.89 $3.56 $5.4
Shareholder Returns ($B)—Buybacks $3.7; Div $0.7 Buybacks $0.8; Div $0.7
ME&T Free Cash Flow ($B)——~$2.4 in Q2
Cat Financial Past Dues (%)1.56% YE’24 1.58% 1.62%
Machine Dealer Inventory Change—Decreased slightly Down ≈$0.4B in quarter
E&T Power Generation Growth+22% (Q4 YoY) +23% (Q1 YoY) +28% (Q2 YoY)
Retail Sales (Machines & E&T combined)DOWN 2% (Q4 YoY) UP 3% (Q1 YoY) UP 3% (Q2 YoY)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales & RevenuesFY 2025Not quantified; management indicates improvement vs last quarter Slightly up vs 2024 Raised
Adjusted OPM (ex tariffs)FY 2025Target range (not quantified) Top half of range Maintained (clarified)
Adjusted OPM (incl. tariffs)FY 2025Not quantified Bottom half of range Lower due to tariffs
ME&T Free Cash FlowFY 2025Target $5–$10B Around middle (~$7.5B) Clarified
Services RevenueFY 2025Slightly higher previouslyAbout flat vs 2024; slightly lower than prior expectation Lower
Restructuring CostsFY 2025Lower prior view~$300–$350M Raised
Tax Rate (ex discrete)FY 2025~23% ~23%; recent US law not material Maintained
Dealer Inventory (Machines)FY 2025—About flat for the year; implies 2H net build New detail
Q3 SalesQ3 2025—Moderate YoY growth New
Q3 Adj. OPM ex tariffsQ3 2025—Similar YoY New
Q3 Adj. OPM incl. tariffsQ3 2025—Lower YoY; net cost headwind $400–$500M; ~55% CI / 20% RI / 25% E&T burden New
Dividend2025—7% increase announced in June Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
AI/Data Center PowerQ4: Power Gen +22% YoY (large reciprocating engines) ; Q1: Power Gen +23% YoY, data center-led Power Gen +28% YoY; taking multi-year orders; capacity/throughput improving; new data center project announced with Joule (4 GW campus) Accelerating
Tariffs/MacroMinimal in Q4/Q1Q2 net tariff impact at high end; FY25 net tariffs $1.3–$1.5B; fluid negotiation landscape Worsening headwind
Supply Chain/Capacity—E&T throughput increasing; large engine capacity investment ramps into 2026–2027 Improving throughput; capacity ramp ahead
Pricing/MerchandisingQ1: adverse price realization, dealer destock Price headwind (esp. CI); merchandising programs to support ST volume; headwind halves in Q3 and narrows in Q4 Headwind easing by 4Q
Dealer InventoryQ4: significant 4Q destock Q2 machines down ~$0.4B; FY flat implies 2H net build supporting sales Supportive for 2H
Regional Trends (CI)Q1: NA down YoY; EAME/APAC down Q2 sales to users +2% YoY in CI; NA +3%, EAME up, APAC slightly down Mixed-to-improving

Management Commentary

  • “The net impact of tariffs was around the top end of our estimated range for the quarter and is likely to be a more significant headwind to profitability in 2025.” — CEO Joe Creed .
  • “Backlog grew by $2,500,000,000… Our backlog is at a record level of $37,500,000,000.” — CEO Joe Creed .
  • “Power generation grew by 19%, primarily due to demand for reciprocating engines for data center applications.” — CEO Joe Creed .
  • “Excluding the impact of incremental tariffs, full year adjusted operating profit margin is expected to be in the top half of our target margin range… including [tariffs], in the bottom half.” — CEO Joe Creed .

Q&A Highlights

  • Tariff mitigation levers and timing: Management is considering sourcing changes, pricing, USMCA certification and cost controls but awaits more certainty before longer-term moves; near-term “no regrets” cost actions underway .
  • Backlog pricing flexibility: Some flexibility exists by product/segment; priority remains profitable growth and operating leverage; merchandising impacts should ease on laps by Q4 .
  • E&T capacity/throughput: Throughput improving now; larger capacity additions step up late 2026 into 2027; demand visibility strong, with multi-year data center orders .
  • Q3 framework: Moderate sales growth YoY; adjusted OPM similar ex tariffs but lower including tariffs; $400–$500M net tariff headwind with ~55% CI/20% RI/25% E&T split .
  • CI 2H setup: Strong Q4 expected versus a large prior-year destock; merchandising headwind halves in Q3 and narrows in Q4; dealer rental fleet reloading to normalize .

Estimates Context

  • Revenue: $16.57B actual vs $16.14B consensus* (beat) .
  • Adjusted EPS: $4.72 actual vs $4.90 consensus* (miss) .
  • Estimate counts: EPS (21); Revenue (12).
    Values with * are from S&P Global; Values retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term: Expect Q3 revenue growth but lower margins including tariffs; watch for clarity on tariff negotiations and management’s mitigation actions; merchandising drag should diminish into Q4, aiding CI .
  • Cycle health: Record backlog and robust E&T momentum (data center power) provide strong revenue visibility into 2H25 and 2026; Joule partnership underscores AI-driven power demand .
  • Margin trajectory: Ex-tariff margin power remains intact (top half of target), but FY25 reported margins guided to bottom half due to tariffs; monitor potential repricing and sourcing initiatives .
  • Capital deployment: Balance sheet/liquidity solid; dividend increased 7% and buybacks continue; ME&T FCF guided around the middle of $5–$10B target (~$7.5B) .
  • Segment stance: Overweight E&T exposure (Power Gen) relative to CI/RI given demand and pricing; CI/RI profitability sensitive to pricing and tariffs near term .
  • Watch items: Q3 tariff burden ($400–$500M), CI rental fleet loading, RI orders (large/articulated trucks), FX impacts, and services revenue tracking (now “about flat”) .

Supporting Detail (Other Relevant Q2 Items)

  • Cat Financial: Revenues +4% YoY to $899M; profit $137M vs $65M loss in Q2’24; retail new business volume +5%; past dues 1.62% .
  • Regional/geographic: Consolidated external sales declined in NA (-2%) and Asia/Pacific (-2%), rose in EAME (+6%); CI NA down 15% YoY, EAME +13% .
  • Non-GAAP reconciliation: Adjusted EPS excludes other restructuring costs ($0.10/sh); adjusted OPM 17.6% vs reported 17.3% .

Notes: All quantitative figures are as reported unless otherwise indicated. Where consensus estimates are used, they are from S&P Global as noted.