Earnings Call Insights: Caterpillar Inc. (CAT) Q4 2025
Management View
- CEO Joseph Creed highlighted that “our Centennial year marked a significant milestone, and we achieved full year sales and revenues of $67.6 billion, the highest in Caterpillar’s history.” Creed emphasized robust MP&E free cash flow of $9.5 billion, deployment of $7.9 billion to shareholders, and a record backlog of $51 billion, up 71% year-over-year. He stated that “sales and revenues were $19.1 billion, an all-time record for a single quarter,” with an 18% increase versus the previous year, driven by higher volumes across all segments. Volume growth was especially notable in Power and Energy, where sales to users rose 37% and power generation grew 44%.
- Creed reported that full-year adjusted operating profit margin was 17.2% and adjusted profit per share was $19.06. He noted that the company ended 2025 with 827 autonomous haul trucks, up from 690 in 2024, and that power generation sales exceeded $10 billion, growing over 30% year-over-year.
- He introduced the 2026 outlook: “we anticipate full year sales and revenues to grow around the top of the 5% to 7% long-term compound annual growth rate target,” backed by the record backlog. Approximately 62% of the backlog is expected to deliver in the next 12 months.
- The company showcased new technology at CES 2026, including the Cat AI Assistant, and pledged $25 million to workforce development.
- CFO Andrew R. Bonfield stated: “Sales and revenues of $19.1 billion reflected an 18% increase versus the prior year. As Joe noted, this was an all-time quarterly record. Adjusted operating profit was $3.0 billion, and our adjusted operating profit margin was 15.6%. We generated strong MP&E free cash flow of $3.7 billion in the quarter and $9.5 billion for the full year.”
Outlook
- Creed projected that full-year 2026 sales and revenues will grow “around the top of the 5% to 7% CAGR target on higher volume and favorable price realization.” All three segments are expected to benefit from approximately 2% positive price realization and continued growth in services revenues. Full-year adjusted operating profit margin should “exceed 2025 levels but remain near the bottom of the target range” due to ongoing tariffs and investment in growth strategy. MP&E free cash flow is expected to be slightly lower than 2025, reflecting increased capital expenditures. Capital expenditures are projected at $3.5 billion, driven by capacity expansion.
- Bonfield stated that incremental tariff costs are expected to be around $2.6 billion in 2026, $800 million higher than 2025, and that “if we did not take the actions we plan to take in 2026, this bill will be around 20% higher.”
Financial Results
- Sales and revenues for Q4 were $19.1 billion. Adjusted operating profit was $3.0 billion, with an adjusted operating profit margin of 15.6%.
- Adjusted profit per share in Q4 was $5.16. For the full year, adjusted profit per share reached $19.06. MP&E free cash flow for the year totaled $9.5 billion.
- Construction Industries sales increased 15% in Q4 to $6.9 billion, with profit of $1.0 billion and margin at 14.9%, affected by a 600 basis points tariff impact. Resource Industries sales rose 13% to $3.4 billion, with profit of $360 million and margin at 10.7%, pressured by tariffs. Power and Energy sales jumped 23% to $9.4 billion, with profit of $1.8 billion and margin expanding to 19.6%.
- The company returned $7.9 billion to shareholders in 2025 through share repurchases and dividends.
Q&A
- Mircea Dobre, Robert W. Baird: Asked about backlog visibility and margin management with cost and tariffs. Creed explained the record $51 billion backlog and said, “for those type of orders, we have frame agreements for a lot of customers. Those will have inflationary indices tied in there for pricing.”
- Michael Feniger, BofA Securities: Inquired about the 50 gigawatt power target and capacity risk. Creed responded that capacity planning considers all industries, not just data centers, and aims for service growth with prime power and gas compression.
- David Raso, Evercore ISI: Questioned why sales growth guidance did not match order momentum. Bonfield clarified that the sales guide is based on current capacity, and that a $1 billion-plus dealer inventory build in Q1 2026 is a key factor.
- Tami Zakaria, JPMorgan: Asked about the battery energy storage mix in the AIP order. Creed said, “most of that order is going to be in generators and natural gas generators,” with batteries a small portion.
- Charles Albert Dillard, Bernstein: Asked if Power & Energy revenue momentum could continue at 2025’s 30% growth rate. Creed emphasized, “it’s not a demand issue for us. It’s really going to be, can we bring on supply faster.”
- Jamie Cook, Truist Securities: Asked about backlog growth sustainability and market share gains. Creed said, “we outpaced the industry in CI. I think we are definitely a market leader in power and energy.”
- Jerry Revich, Wells Fargo: Inquired about turbine business and capacity ramp. Creed said, “solar had a record year in 2025. We expect something comparable in 2026.”
- Robert Wertheimer, Melius Research: Asked about the Monarch data center project and efficiency. Creed discussed configuring solutions to customer needs, using waste heat for cooling, and a robust quoting pipeline.
- Kristen Owen, Oppenheimer: Sought demand drivers in Construction Industries. Creed highlighted North American strength, data center build-out, and merchandising programs supporting market share gains.
Sentiment Analysis
- Analysts focused on backlog strength, capacity constraints, and margin sustainability, often pressing on risk of overcapacity, pricing, and competitive positioning, reflecting a slightly positive but cautious tone based on the extraordinary backlog and order flow.
- Management maintained a confident tone, frequently referencing record results, strong execution, and robust demand, but acknowledged supply constraints and tariff pressures. Creed repeatedly highlighted market leadership and strategic investments, showing confidence in future growth. During Q&A, management provided detailed explanations, with little defensiveness or hesitation.
- Compared to the previous quarter, management’s tone remained confident, while analysts’ questions shifted more toward sustainability of growth and backlog conversion.
Quarter-over-Quarter Comparison
- Guidance language in Q4 2025 emphasized growth near the top of the 5%-7% CAGR, supported by a $51 billion backlog, while the previous quarter called for modest growth and improved outlook.
- Strategic focus shifted to capacity expansion and technology investment, especially in response to rising Power & Energy demand and data center infrastructure.
- Analysts’ focus moved from understanding backlog drivers to scrutinizing backlog conversion, margin pressures from tariffs, and ability to meet demand.
- Key metrics rose sharply: backlog climbed from $39.8 billion in Q3 to $51 billion in Q4, quarterly revenues hit $19.1 billion from $17.6 billion previously, and Power & Energy sales surged.
- Management’s confidence increased, with a greater focus on technology and services expansion.
- Analysts’ sentiment remained cautiously optimistic but more focused on potential overcapacity and margin risks.
Risks and Concerns
- Management cited $2.6 billion in expected incremental tariff costs for 2026, up $800 million year-over-year, with mitigation actions underway but facing limits.
- Capacity constraints could cap sales in Power and Energy despite strong demand, and the ability to ramp supply and bring new capacity online is critical.
- Analysts raised concerns about overcapacity if data center demand slows, the risk of backlog conversion delays, and the impact of tariffs on margins, with management emphasizing inflation escalators and supply planning.
Final Takeaway
Caterpillar delivered record sales, revenues, and backlog in 2025, with strong volume growth in Power and Energy and continued strength in Construction Industries. Management projects 2026 sales and revenues growth around the top of the 5%-7% range, supported by a robust $51 billion backlog. Margin performance will be shaped by higher tariffs and capacity investments, but the company remains confident in its ability to deliver profitable growth and sustain market leadership across its core segments.