Caterpillar is Set to Report Q2 Earnings: Buy, Sell or Hold the Stock?

Caterpillar Inc. CAT is anticipated to witness year-over-year declines in the top and bottom lines when it reports second-quarter 2025 results on Aug. 5, before the opening bell.

The Zacks Consensus Estimate for CAT’s second-quarter 2025 earnings has moved down 0.41% over the past 60 days to $4.88 per share. The consensus mark implies an 18.5% decline from the year-ago actual. The Zacks Consensus Estimate for Caterpillar’s revenues is pegged at $16.35 billion for the quarter, indicating a 2% year-over-year decline.

Caterpillar’s Earnings Surprise History

CAT’s earnings outpaced the Zacks Consensus Estimates in two of the trailing four quarters while missing twice, the average surprise being 1.90%. This is depicted in the following chart.

What the Zacks Model Unveils for CAT Stock

Our proven model does not conclusively predict an earnings beat for Caterpillar this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here.

Earnings ESP: CAT has an Earnings ESP of -1.33%. You can uncover the best stocks before they are reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Likely to Have Shaped Caterpillar’s Q2 Performance

The manufacturing sector remained in contraction through the second quarter of 2025, as reflected in the Institute for Supply Management’s manufacturing index with a 48.7% reading in April, 48.5% in May and 49% in June. The New Orders Index also remained below 50% throughout this period. Concerns over tariffs led customers to scale back orders, a trend likely to have reflected in Caterpillar’s second-quarter order volumes.

Also, CAT’s substantial backlog of $35 billion at the beginning of the second quarter of 2025 and higher aftermarket parts and service-related revenues are likely to have supported its top line. However, lower volumes in the Resource Industries segment are expected to have offset the improvement in volumes in the Construction Industries and Energy and Transportation segment.  We expect a slight volume growth of 0.5%, which will be offset by a 2.4% decline in pricing. 

Caterpillar has been witnessing moderate input cost inflation lately. However, considering the impact of tariffs, we expected the cost of sales to rise 3.58%. We anticipate a 5.1% increase in selling general and administrative expenses, and a 0.2% rise in research and development costs.

Our model projects a 21% year-over-year decrease in adjusted operating income to $2.95 billion. This factors in the expected decline in revenues and higher costs. We expect the operating margin to be 18% in the second quarter, implying a decrease from the 22.4% reported in the second quarter of 2024.

Our Projections for CAT's Segments in Q2

Our model projects the Resource Industries segment's external sales at $2.97 billion for the second quarter, indicating a 4.7% year-over-year decline. We expect a 1.5% dip in volume for the segment and an unfavorable 2.2% pricing. The projection for lower volumes primarily reflects the ongoing weakness in demand.

The segment is expected to report an operating profit of $575.8 million, suggesting a 19.8% year-over-year decline. The segment’s operating margin is projected to be 19.4%, lower than the 23% reported in second-quarter 2024.

The Construction Industries segment’s external sales are projected at $6.32 billion, indicating a decline of 5% from the year-ago quarter’s actual. We expect a slight 0.6% improvement in volumes. However, it will be offset by a 5.3% drop in pricing. 

The segment’s operating profit is projected to be $1.23 billion, indicating a year-over-year decline of 29%. We project the segment’s margins at 19.5%, implying a dip from the year-ago quarter’s 26.2%.

For the Energy and Transportation segment, we expect external sales to be $6.21 billion, suggesting a 2.1% rise from the year-ago quarter’s actual. Volume growth is projected to be 1.5% as improved demand in Power Generation and Oil and Gas is expected to have been offset by declines in Industrial and Transportation. Pricing is expected to contribute 0.9% to the segment’s sales growth.

Our estimate for the segment’s operating profit is $1.6 billion for the second quarter of 2025, suggesting a 5.8% increase year over year. The operating margin is projected to be 26%, higher than the 25.1% reported in the second quarter of 2024.

Caterpillar’s Price Performance & Valuation

CAT has gained 36.5% in the past year against its industry’s 34% decline. It has also outperformed the broader Zacks Industrial Products sector’s 16.6% growth and the S&P 500’s climb of 19%.

CAT’s Price Performance vs. Industry & Broader Market

Caterpillar’s Price Performance vs. Komatsu, Terex & Manitowoc

CAT stock has outpaced other players in the industry, like Terex TEX, The Manitowoc Company MTW and Komatsu KMTUY. 

In the past year, Komatsu and Manitowoc have gained 27.1% and 12.3%, respectively. Meanwhile, Terex shares have declined 6.5%.

Caterpillar is currently trading at a forward 12-month P/E of 21.57X, at a premium compared with the industry’s 20.44X. 

The stock is also not cheap when compared with Komatsu, Terex and Manitowoc, all of which are trading at 11.39, 10.07 and 16.1, respectively. Notably, Komatsu, Terex and Manitowoc are trading below the industry’s average.

Caterpillar’s Valuation vs. Industry, Komatsu, Terex & Manitowoc

Investment Thesis on CAT

Despite the current market weakness, Caterpillar’s long-term demand prospects are supported by increased infrastructure spending and the ongoing shift toward clean energy. Its strong market presence, diverse portfolio and innovation position it for improved performance going forward. Expanding its service revenues, which generate higher margins, is a strategic move. A strong balance sheet enables it to invest in growth while making share repurchases and paying dividends. While tariffs are expected to raise costs, CAT’s pricing and cost-cutting efforts can help counter the impacts. Conversely, tariffs on imported goods will boost demand for U.S.-manufactured products. Given Caterpillar’s significant manufacturing presence, it can capitalize on this surge.

How Should You Play Caterpillar Stock Pre-Q2 Earnings?

CAT's performance has always been closely watched by investors, as it serves as a key economic barometer for the sector. Caterpillar’s second-quarter revenues are expected to have been dampened by overall lower pricing and weaker volumes in the Resource Industries segment, somewhat offset by improved volumes in the Energy and Transportation segment. Earnings are anticipated to have declined due to lower revenues and higher costs. The company is likely to report its fourth quarter of  earnings decline after an enviable stint of growth for 14 straight quarters.
No matter how the upcoming quarterly results play out, investors who already own CAT should retain its shares in their portfolios to benefit from its solid long-term fundamentals. However, given its premium valuation and the expected decline in revenues and earnings, new investors can wait for a better entry point.

 

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This article originally published on Zacks Investment Research (zacks.com).

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