CAT May Face $1.8B Tariff Impacts This Year: Are Margins at Risk?

Caterpillar Inc. CAT in its latest filing has revealed that it anticipates a larger hit from tariffs in 2025 than previously expected, and in the third quarter. This takes into account the additional tariffs announced since CAT reported second-quarter earnings results on Aug. 5, 2025.  

The company estimates a tariff-related impact of $500-$600 million (versus $400-$500 million mentioned earlier) in the third quarter and $1.5-$1.8 billion (updated from $1.3-$1.5 billion) for the year.

Caterpillar emphasized that it will continue to take actions to mitigate the impacts on margins, and it anticipates the 2025 adjusted operating margin landing near the bottom of the target range. Earlier, the company had expected the 2025 adjusted operating profit margin to be in the bottom half of the annual target range. 

Caterpillar expects revenues in 2025 to be “slightly higher” than the $64.81 billion reported in 2024.

Caterpillar's Adjusted Operating Margin Target Range

As shown in the chart above, at revenues of $64.5 billion, the adjusted operating margin is expected to be 16-20%. Previously, CAT had projected the net impact of tariffs to place margins in the bottom half of this guidance. With the incremental duties factored in, margins are expected to hover around 16%, indicating a dip from the 20.7% operating margin reported in 2024. 

In the second quarter of 2025, CAT witnessed a contraction of 480 basis points in the operating margin, owing to unfavorable manufacturing costs due to higher tariffs.

Overall, the escalating tariff environment is weighing heavily on global heavy-equipment manufacturers, compressing margins.

Caterpillar’s peer Deere & Company DE, during its third-quarter fiscal 2025 earnings release on Aug. 14, stated that higher tariffs impacted the margin performances across its segments. Deere took a hit of $200 million from tariffs in the third quarter, bringing the total impact to $300 million so far in the fiscal year. 

Deere also raised its tariff cost estimates to $600 million for the year from the $500 million mentioned earlier. This suggests a major impact of $300 million in the fiscal fourth quarter.

Komatsu KMTUY expects to suffer annual negative impacts of 110 billion yen ($750 million) from increased costs linked to U.S. tariffs. The burden for fiscal 2025 for Komatsu was estimated at 75 billion yen ($510 million), considering existing inventory. These projections provided by  Komatsu were based on the tariff policy announced by the U.S. government as of July 24. The company is expected to provide revised estimates soon.

CAT’s Price Performance, Valuation & Estimates

CAT shares have gained 19.9% so far this year compared with the industry’s 19.2% growth. In comparison, the Zacks Industrial Products sector has gained 8.3%. The S&P 500 has moved up 10.5% in the same time frame.

Caterpillar is currently trading at a forward 12-month price/earnings (P/E) ratio of 21.45X compared with the industry average of 20.31X.

The Zacks Consensus Estimate for CAT’s 2025 earnings indicates a year-over-year decline of 16.7%, whereas the estimate for 2026 indicates 16.9% growth. 
Earnings estimates for Caterpillar for 2025 have moved down over the past 60 days, while the same for 2026 has been revised upward, as shown in the chart below.

Caterpillar currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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