Overview
Since the Report − 17.0%
Revenue grew 24.0% year over year, EPS beat the estimate by 32.0%; the stock rose 5.6% in its first reaction.
- RevenueQ2
- $20.54B
- ▲ 24% · First $20B+ Quarter
- EPSAdjusted
- $8.17
- ~32% Above Market Expectation
Verdict
BUYCaterpillar cleared $20 billion of sales in a single quarter for the first time in its history; the order backlog grew 92% year over year to $72 billion. The stock rose 5.6% on the day but handed back part of that gain over the next two sessions. The pullback was not about weak numbers; it was about how much good news was already in the price.
Close on Report DayAug 4
$856.96▲ 5.6%Report-Day Move
- Market Cap(Today)
- ≈ $327 B
- 1Y Return(At Report)
- + 97%
- P/E(At Today's Price · $23.82 · Trailing 12M)
- 29.9
- PEG(Next-year Consensus)
- 1.29
- Net Margin(Trailing 12M)
- 14.5%
Earnings Summary
In 30 Seconds- Sales and revenues rose 24% year over year to $20.54 billion; adjusted EPS of $8.17 beat expectations by roughly 32%.
- Construction Industries sales grew 35% year over year, and the company raised its 2026 sales growth outlook to 15-19%.
- The stock rose 5.6% on results day, but gave back part of the gain over the next two sessions as much of the good news was already priced in.
The Numbers
Adjusted Operating Margin
21.9%
17.6% a Year Ago
Order Backlog
$72B
▲ 92% · +$9B in the Quarter
Power Generation Sales
▲ 72%
Data Center Demand
Tariff Cost (2026)
$2.2B
Prior Range $2.2 – 2.4B
Quarterly Revenue ($ Billion)
16.57
Q2 2025 · $16.6 B
17.64
Q3 2025 · $17.6 B · QoQ + 6.5%
19.13
Q4 2025 · $19.1 B · QoQ + 8.5%
17.42
Q1 2026 · $17.4 B · QoQ − 9.0%
20.54
Q2 2026 · $20.5 B · QoQ + 18.0% · YoY + 24.0%
- Q2 2025
- Q3 2025
- Q4 2025
- Q1 2026
- Q2 2026
Q3 2026 Company Guidance
- 2026 Sales Growth (Full Year)15% – 19%15%19%
Prior Outlook Low Double-Digit GrowthRevised Up ▲ · ~6 Points
- 2026 Tariff Cost2.2 billion
Prior Range $2.2–2.4B · January Estimate $2.6BLow End of Range · 4.3% Lower ▼
- ME&T Free Cash Flow (Annual Range)6 – 15 billion6 billion15 billion
Annual Target Range Unchanged · Q2 $5.1BTop Half of Range ▲ · Above $10.5B
- 2026 Capital Expenditures3.5 billion
Unchanged From April OutlookCapacity Investment Continues
- 2026 Restructuring Costs300 – 350 million300 million350 million
Q2 Actual $202MPressure on Margin ▼
How to Read the Chart
The blue band is the company's low-high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±49% around the midpoint.
Segment and KPI Data
Revenue by Segment
- Construction Industries$8.35 BShare 37.3%▲ 35.0% YoY
- Power & Energy$8.24 BShare 36.8%▲ 17.0% YoY
Includes inter-segment sales.
- Resource Industries$4.65 BShare 20.8%▲ 20.0% YoY
- Financial Products$1.15 BShare 5.1%▲ 10.0% YoY
Segment revenue before inter-group eliminations.
Key Metrics
Machinery, Power & Energy Segment Profit
$4.21 B
▲ 51.0% YoYPress Release
Operating Cash Flow (Enterprise)
$4.40 B
Press Release
Share Repurchases
$1.50 B
Press Release
Dividends Paid
$700 M
Press Release
Cash at Quarter End
$6.70 B
Press Release
Shares are computed over the segment total: $22.4 B. The segment total differs from consolidated revenue ($20.5 B); the company's eliminations and other lines are not in this table. Source: Press Release.
Metrics come only from the company's own filings; each one names the document it was taken from.
“Power generation grew 72% driven by very strong demand for large gensets and turbines used in data center applications.”
- Backlog and Production Capacity
- 10 MW Gas Engine Restart
- Broad-based Demand Across Segments
Summary and Review
Summary
Caterpillar reported $20.54 billion of second-quarter sales and revenues, up 24% from $16.57 billion a year earlier. That is the first $20 billion quarter in its century-plus history. Adjusted EPS was $8.17, against $4.72 a year ago and a Market Expectation near $6.20. The beat was roughly 32%. GAAP EPS was $7.77. Adjusted operating margin rose from 17.6% to 21.9%, a 430 basis point gain. Backlog reached $72 billion, up 92% year over year and $9 billion in this quarter alone.
The stock closed up 5.6% at $876.54 on August 4, after an 8.9% premarket spike. The move did not hold: shares slipped 0.6% on August 5 and 1.6% on August 6 to $856.96. That is still above the $830.03 pre-report level. The pullback reflected how much good news was already priced in, not weak numbers. Shares are up 97% in a year and trade near 37 times earnings, rich for a machinery maker. Two details gave pause: full-year margin guided near the bottom of its range, and Construction Industries dealer inventory up $400 million.
The quarter was close to flawless; that is why the score is high. All three segments grew, margins expanded in each, cash flow hit a record, and the full-year outlook was raised. Reservations concern margin and timing. The second-quarter margin was flattered by $392 million of tariff recoveries. Capacity expansion lifts depreciation and freight costs. The dealer inventory adjustment will slow second-half sales growth; management guides to a fourth-quarter drawdown above $1 billion. Data center power demand remains intact, backed by orders stretching into 2030. This is a valuation debate, not a performance debate.
Full Review
The record came from all three segments growing at once.
All three of Caterpillar's primary segments posted double-digit growth in the same quarter. That has not happened often in recent years. Construction Industries sales rose 35% to $8.3 billion. Segment profit jumped 57% to $1.9 billion, a 23.3% margin. Power & Energy grew 17% to $8.2 billion in sales. It lifted profit 30% to $2.0 billion and, at a 24.6% margin, became the company's most profitable arm. Resource Industries grew 20% to $4.6 billion, with profit up 23% to $693 million. Its 14.9% margin, however, remains far behind the other two. Financial Products added $1.1 billion of revenue, up 10%, and $328 million of profit. Geographically, North America stands out, with regional retail statistics up 27%. Against that, the Middle East and Asia Pacific excluding China remain soft. Growth is broad-based but not uniform. Two items drove the profit: $3.1 billion of incremental volume and $595 million of favorable price realization.
Power demand is tied directly to AI capital spending.
The real story of the quarter sits in Power & Energy. Retail sales of power generation equipment to end users rose 72% year over year. The company identified data center applications as the driver. The link is no longer indirect: hyperscale data centers need more electricity than the grid can hand them. They close the gap with generator sets and gas turbines. In response, Caterpillar is restarting the 10-megawatt medium-speed gas reciprocating engine platform it discontinued in 2022. First orders are in hand, and shipments begin in the fourth quarter. It expects an 18-month ramp to roughly 1.5 gigawatts of capacity. The clearest evidence on demand duration is the delivery calendar. Gas prime orders extend into late 2028 and 2029, and turbine lead times reach into 2030. Analysts pressed on the call about how long this can last. Management's answer was that they have not yet seen order flow slow.
Tariffs hurt less than feared.
Tariffs were the single largest uncertainty heading into this year, and the picture came in better than expected. Tariff costs in the quarter ran about $400 million. The company had previously flagged roughly $700 million. On top of that, $392 million of IEEPA recoveries were recognized. In practice those recoveries largely offset the quarter's tariff bill. Caterpillar cut its full-year 2026 tariff cost estimate to about $2.2 billion from $2.5 billion. The point to watch is this: part of that 21.9% adjusted operating margin came from a recovery item that may not repeat. Without it, the margin would still have been strong. It might not, however, have come this close to a record. Investors should track that line separately in coming quarters.
Cash generation is the quarter's quietest strength.
The company generated $4.4 billion of enterprise operating cash flow in the quarter. That brings the first-half total to $6.24 billion. Machinery, Energy & Transportation free cash flow, as presented on the call, set a record at $5.1 billion. That is up $2.8 billion year over year. Cash stood at $6.7 billion at quarter-end. Of that cash, $1.5 billion went to buybacks and $0.7 billion to dividends, for $2.2 billion returned to shareholders. For the full year, the company expects free cash flow in the top half of its $6 billion to $15 billion target range. Capital expenditure should be roughly $3.5 billion. Credit quality at the finance arm is also notable. Past dues stand at 1.31%, the lowest since 1998, and the allowance rate is a record-low 0.84%. That suggests no stress signal from customers yet. For how to read a cash flow statement, see our cash flow guide.
Backlog is strong, outlook is up, margin talk is cautious.
The $72 billion backlog is nearly double the level a year ago. About 59% of it is scheduled for delivery within 12 months; the rest is tied to longer-dated energy projects. Second reading: a backlog swelling this fast measures demand outrunning production capacity. Capacity expansion is not free: higher depreciation and freight push manufacturing costs up. Orders that cannot be filled also carry cancellation risk. Caterpillar raised its 2026 sales growth guidance above the April view, to the mid- to high-teens range, and expects a stronger year in all three primary segments. Against that, adjusted operating margin should land near the bottom of the target range. Next quarter, watch one line: Construction Industries dealer inventory. It rose $400 million in the second quarter; management expects a drawdown of over $1 billion in the fourth. That is goods not shipped to dealers, taken directly out of quarterly sales.
Looking Ahead
Strengths and Risks
6 Strengths · 6 RisksStrengths
6- First quarter above $20 billion in company history$20.54 billion in sales, up 24% year over year.
- Order backlog reached $72 billion, nearly double a year ago and up $9 billion in a single quarter.
- Power generation retail sales rose 72%, driven directly by data center investment, with orders extending into 2030.
- Adjusted operating margin widened from 17.6% to 21.9%, a 430 basis point gain from both volume and $595 million of price realization.
- Full-year tariff cost estimate cut from $2.5 billion to $2.2 billion, and the annual outlook was raised.
- Record free cash flow and $2.2 billion returned to shareholders, with finance-arm past dues at their lowest since 1998.
Risks
6- The center of gravity of demand has shifted to AI data center investmentAny slowdown in that cycle hits Power & Energy directly.
- Construction Industries dealer inventory rose $400 million in the quarterManagement expects a fourth-quarter drawdown above $1 billion that comes straight out of sales.
- Despite a record quarter, the company guides full-year adjusted operating margin to land near the bottom of its target range.
- The quarter's margin was helped by $392 million of IEEPA tariff recoveries, an item with no guarantee of repeating.
- Even after being cut, the 2026 tariff bill is roughly $2.2 billion, and trade policy remains unpredictable.
- The stock is up 97% over the past year and trades near 37 times earningsMuch of the good news appears to be priced in.
What to Watch
5- ~Late October 2026Third-quarter results; the real test is whether the $400 million of Construction Industries dealer inventory added in Q2 has begun to unwind.
- Q4 2026First shipments begin on the 10-megawatt gas reciprocating engine platform discontinued in 2022, with an 18-month ramp toward roughly 1.5 gigawatts.
- Q4 2026If the dealer inventory drawdown of more than $1 billion that management expects materializes, it will visibly pressure quarterly sales.
- Through year-end — Watch whether the $2.2 billion tariff estimate holds and whether IEEPA recoveries continue.
- Early 2027The guidance issued alongside full-year 2026 results will show whether data center power demand is a one-year jump or a durable platform.
Upcoming Earnings
To Understand This