Caterpillar anticipates record $37.5B backlog and targets higher 2025 sales despite $1.5B tariff headwind

Earnings Call Insights: Caterpillar Inc. (CAT) Q2 2025

Management View

• CEO Joseph E. Creed highlighted “solid operational performance in a fluid environment,” noting that “sales were in line with our expectations, and we delivered adjusted operating profit, and adjusted operating profit margin above our expectations.” Creed emphasized continued strong orders across all segments, supported by infrastructure spending and growing energy needs, with backlog growing by $2.5 billion and increases across all three primary segments. “Our strong ME&T free cash flow allowed us to deploy about $1.5 billion to shareholders through share repurchases and dividends during the quarter.”
• Creed addressed the impact of tariffs, stating “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 the second half of 2025.”
• Creed shared that “backlog increased sequentially by $2.5 billion, driven by strong order rates in all three of our primary segments. Our backlog is at a record level of $37.5 billion.”
• CFO Andrew R. J. Bonfield reported, “Sales and revenues were $16.6 billion, a 1% decrease versus the prior year. This was in line with our expectations. Adjusted operating profit was $2.9 billion, and our adjusted operating profit margin was 17.6%. Both were better than we expected.”

Outlook

• Creed expressed optimism for the second half of 2025, stating, “Looking ahead to the second half of 2025, I’m increasingly optimistic about the top line expectations.” He added, “Given the strength of our record backlog, we expect full year 2025 sales and revenues to increase slightly versus 2024. This represents an improvement since our outlook last quarter, and our full year outlook from the beginning of the year.”
• Creed noted a more cautious outlook for profitability: “the incremental tariffs announced in 2025 and expected to be in place by August 7 will be a headwind to profitability during the remainder of the year.”
• Bonfield stated, “Based on the incremental tariffs announced in 2025 and expected to be placed on August 7, we expect the net impact from incremental tariffs for 2025 will be around $1.3 billion to $1.5 billion, net of some mitigating actions and cost controls.”
• Third quarter sales are anticipated to grow moderately year-over-year, with higher volumes across all segments.
• Excluding the impact of incremental tariffs, full year adjusted operating profit margin is expected to be in the top half of the target margin range; including tariffs, in the bottom half.

Financial Results

• Sales and revenues were $16.6 billion, a 1% decrease versus the prior year.
• Adjusted operating profit was $2.9 billion, with an adjusted operating profit margin of 17.6%.
• Adjusted profit per share was $4.72, compared to $5.99 last year.
• ME&T free cash flow was about $2.4 billion in the second quarter.
• Segment highlights:
  • Construction Industries sales decreased by 7% to $6.2 billion, with North America down 15% but EAME up 13% and Asia Pacific up 6%.
  • Resource Industries sales decreased by 4% to $3.1 billion.
  • Energy & Transportation sales increased by 7% to $7.8 billion, led by a 28% increase in power generation sales.
  • Financial Products revenues were approximately $1.0 billion, up 4% year-over-year.
• Dealer inventory increased by approximately $100 million versus Q1 2025.

Q&A

• Tami Zakaria, JPMorgan: Asked about long-term mitigation of tariff headwinds. Creed: The company will “keep everything on the table, and we’re going to manage this over the medium term,” referencing cost controls and potential supply chain changes, but awaiting more certainty before major moves.
• David Michael Raso, Evercore ISI: Inquired about repricing backlog to offset tariff impacts in 2026. Creed said, “We have flexibility on pricing in the backlog depending on which segment and the products that we have,” and emphasized focusing on dollar profitability and cash flow.
• Jamie Lyn Cook, Truist Securities: Asked about Energy & Transportation capacity impacts. Creed explained, “We’re happy that we’re able to get more throughput and continue to increase our output from the factory… the biggest sort of capacity coming online, I would think of it in terms of end of next year, heading into ’27.”
• Kristen Owen, Oppenheimer: Questioned tariff-related uncertainties for the outlook. Bonfield responded, “There are also some 232 and 302 investigations, which could have an impact… that’s why we say the situation still remains very fluid and is subject to change.”
• Mircea Dobre, Baird: Asked about structural margin impacts from tariffs. Creed said, “I think it’s way too uncertain… we’re not thinking in those terms right now.”

Sentiment Analysis

• Analysts expressed concern about the magnitude and duration of tariff impacts, with a neutral to slightly negative tone. Questions focused on mitigation strategies, margin sustainability, and competitive positioning.
• Management maintained a confident tone in prepared remarks, frequently referencing strong operational performance, record backlog, and demand resilience. In Q&A, management was measured, emphasizing flexibility and ongoing evaluation of mitigation levers, but avoided making firm commitments due to uncertainty: “We’re just waiting for a little bit of more certainty as we said.”
• Compared to the previous quarter, management’s tone is more optimistic about the top line but increasingly cautious on profitability due to tariff headwinds. Analyst skepticism over tariffs and competitive dynamics is more pronounced this quarter.

Quarter-over-Quarter Comparison

• Management’s sales and revenue outlook for 2025 has improved from “about flat” to “increase slightly versus 2024.”
• Tariff headwinds have become more significant, with a quantified full-year impact of $1.3 billion to $1.5 billion, whereas the previous quarter emphasized uncertainty without a specific annualized figure.
• The backlog has grown from $35 billion to a record $37.5 billion, with continued strength in all segments.
• Previous quarter’s focus on operational resilience and order growth remains, but the current quarter adds increased caution around profitability and explicit discussion of mitigation strategies.
• Analysts’ questions have shifted from general margin resilience to the specifics of tariff mitigation, backlog repricing, and future margin structure.

Risks and Concerns

• Tariffs represent a major headwind to profitability for the remainder of 2025, potentially pushing adjusted operating profit margin to the bottom half of the target range.
• Management highlighted the fluid nature of tariff and trade negotiations, as well as uncertainties about potential future investigations or changes in trade policy.
• Customer demand and order rates remain strong, but the company is cautious about longer-term impacts to margins if tariffs persist or escalate.
• Dealer inventory and backlog management are complex and subject to changes in dealer order patterns.

Final Takeaway

Caterpillar’s management emphasized record backlog levels and improved full-year sales outlook, supported by strong demand across all segments and operational execution. However, significant tariff headwinds are expected to pressure margins and profitability through the remainder of the year, with management pursuing a mix of short-term cost controls and longer-term mitigation strategies while maintaining flexibility amid ongoing trade policy uncertainty.

Read the full Earnings Call Transcript