Earnings Call Insights: Caterpillar Inc. (CAT) Q3 2025
Management View
-
CEO Joseph Creed highlighted “solid performance from our team generated strong results this quarter, driven by resilient demand and focused execution across our three primary segments, and as a result, sales growth and adjusted operating profit margin were both slightly above our expectations.” Creed reported sales and revenues increased 10% to $17.6 billion, marking an all-time quarterly record. He stated the backlog grew by about $2.4 billion, driven by strong orders in Energy & Transportation, bringing the total backlog to a record $39.8 billion. The company generated $3.2 billion of ME&T free cash flow and returned about $1.1 billion to shareholders during the quarter.
-
Creed noted, “Sales and revenues were up 10% versus last year. The increase was primarily due to higher sales volume, partially offset by unfavorable price realization for machines.” He emphasized the impact of tariffs, stating, “the net impact of incremental tariffs was near the top end of our estimated range of $500 million to $600 million. Despite the tariff headwind, adjusted operating profit margin was slightly above our expectation, primarily due to better-than-expected sales volume in Energy & Transportation.” Quarterly adjusted profit per share was $4.95.
-
CFO Andrew R. Bonfield stated, “Sales and revenues were $17.6 billion, a 10% increase versus the prior year. This was slightly better than we had expected on stronger volume. Adjusted operating profit was $3.1 billion, and our adjusted operating profit margin was 17.5%, both were slightly better than we had expected. Profit per share was $4.88 in the third quarter compared to $5.06 in the third quarter of last year. Adjusted profit per share was $4.95 in the quarter compared to $5.17 last year.”
Outlook
-
Creed stated, “With a record backlog, strong order rates and continued growth in sales to users, our outlook has improved since last quarter. For the fourth quarter, we anticipate strong sales growth versus the prior year. Sales growth is expected to be driven by higher volumes in all three segments.” He added, “we now expect full year 2025 sales and revenues to be higher than we previously anticipated, resulting in modest growth versus 2024.”
-
“Excluding the net impact of incremental tariffs, fourth quarter adjusted operating profit margin is expected to be higher versus the prior year. Including the net impact from incremental tariffs, we expect fourth quarter enterprise adjusted operating profit margin to be lower versus the prior year.”
-
Bonfield noted, “Based on the tariffs announced in 2025 and expected to be in place on November 1, we expect the full year net impact from tariffs to be between $1.6 billion and $1.75 billion.”
Financial Results
-
Sales and revenues were $17.6 billion, reflecting a 10% year-over-year increase. Adjusted operating profit was $3.1 billion with a 17.5% adjusted operating profit margin. Adjusted profit per share was $4.95, excluding restructuring costs of $0.07. Backlog increased by $2.4 billion to $39.8 billion.
-
Construction Industries sales increased by 7% to $6.8 billion; segment margin was 20.4%. Resource Industries sales rose 2% to $3.1 billion with a margin of 16%. Energy & Transportation sales increased 17% to $8.4 billion; margin was 20%. Financial Products revenues were $1.1 billion, up 4% year-over-year.
-
ME&T free cash flow was $3.2 billion. The company ended the quarter with an enterprise cash balance of $7.5 billion.
Q&A
-
Kyle Menges, Citigroup: Asked about data center prime power opportunity and Solar capacity. Creed responded, “Prime Power is a great opportunity for us because it creates services opportunity as we move forward as well. … We’re able to keep up with the orders that we’re seeing right now. Lead times are starting to get a little more extended at Solar.”
-
Angel Castillo Malpica, Morgan Stanley: Inquired about E&T price realization and margins. Creed explained, “We’re putting capacity in. Demand is really strong. And so we’ve been able to take pretty regular price increases, and we expect that trend to continue.”
-
David Raso, Evercore ISI: Questioned incremental margin puts and takes for 2026. Bonfield replied, “We’re still in that planning process. … demand across the business is strong with the backlog that positions us well. … Tariffs will still obviously be a headwind as we move into 2026.”
-
Tami Zakaria, JPMorgan: Asked about acceleration in sales. Creed said, “We’re definitely pleased with the momentum we have in all three of our segments and seeing positive SKUs and momentum continue. … So that’s creating some positive momentum there.”
-
Mircea Dobre, Baird: Asked about construction demand and tariffs. Creed noted, “We’ve been able to really put some mitigating actions in… We’ve made limited sourcing changes where we have the ability to move sources without investments in our supply chain, but that’s fairly limited.”
-
Kristen Owen, Oppenheimer: Asked about CI and RI contribution to backlog growth. Creed confirmed, “The consecutive sequential growth in the backlog primarily came from E&T, and that was largely power generation and oil and gas contributing to that.”
-
Michael Feniger, BofA Securities: Asked about Solar revenues and capacity. Bonfield said, “We are not going to disclose Solar revenues. … Solar is a very strong business. … With regards to capacity, both actually, oil and gas applications are doing pretty well as well.”
-
Jamie Cook, Truist Securities: Asked about backlog growth and tariff headwinds. Bonfield replied, “The $650 million to $800 million is based on most of the — all the tariffs that will be in effect on November 1.”
-
Stephen Volkmann, Jefferies: Inquired about Solar services model. Creed stated, “Solar is a direct business model for us. … So as you point out, as Solar sales pick up, even in the power gen space, it’s all prime power. That’s a great services growth opportunity for us.”
Sentiment Analysis
-
Analysts pressed for details on backlog sustainability, margin trajectory, tariff headwinds, and segment-specific growth, reflecting a generally positive but inquisitive tone with focus on risk factors and execution.
-
Management maintained confident and constructive sentiment, emphasizing strong demand, robust backlog, and active mitigation of tariff impacts, though acknowledging uncertainties: “I’m confident we’ll manage it over time.”
-
Compared to the previous quarter, both analyst and management tone remained positive, but management was more assertive about improved outlook while continuing to emphasize risk management around tariffs and capacity.
Quarter-over-Quarter Comparison
-
Guidance shifted from “slightly higher sales” to “modest growth” for full year 2025 sales and revenues.
-
Backlog increased sequentially by $2.4 billion to $39.8 billion, compared to a $2.5 billion increase in Q2, continuing the record-setting trend.
-
Management highlighted all-time record sales and backlog figures and moved from cautious optimism to stronger confidence in sustained growth.
-
Analyst focus remained consistent: margins, tariff headwinds, and backlog quality.
-
Tariff headwind estimate increased to a range of $1.6 billion to $1.75 billion for the full year, up from $1.3 billion to $1.5 billion in the previous quarter.
-
Management reiterated their mitigation strategy, emphasizing only limited sourcing changes and ongoing evaluation of longer-term supply chain shifts.
Risks and Concerns
-
Incremental tariffs remain a significant headwind, with management expecting $1.6 billion to $1.75 billion in net impact for 2025.
-
Regional weakness in Asia Pacific and Latin America, as well as ongoing softness in certain end markets, particularly in construction and coal-related resource industries.
-
Management is closely monitoring trade negotiations and supply chain implications, implementing short-term cost controls but deferring major supply chain investments pending greater policy certainty.
Final Takeaway
Caterpillar delivered a record quarter in both sales and backlog, driven by robust demand, particularly in Energy & Transportation and power generation for data center applications. Management raised the outlook for full year 2025 sales and revenues, citing strong order rates, a $39.8 billion backlog, and momentum across segments. While tariff headwinds have intensified, mitigation efforts and a measured approach to supply chain adjustments are underway, positioning the company for continued growth and resilience into year-end and beyond.