CAT Q4 Deep Dive: Order Momentum Drives Record Backlog Amid Tariff Pressures

Construction equipment company Caterpillar (NYSE:CAT) reported Q4 CY2025 results exceeding the market’s revenue expectations, with sales up 18% year on year to $19.13 billion. Its non-GAAP profit of $5.16 per share was 9.5% above analysts’ consensus estimates.

Is now the time to buy CAT? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Caterpillar’s fourth quarter results drew a positive response from the market, as the company reported better-than-expected revenue and adjusted earnings per share. Management credited robust volume growth across its main business segments, particularly in power and energy, for the strong performance. CEO Joe Creed highlighted record sales in power generation and oil and gas, with demand for large generators and turbines tied to data center expansion as a key factor. Management also noted that backlog reached an all-time high, driven by strong ordering activity across construction, resource, and energy markets.

Looking ahead, Caterpillar’s outlook is shaped by expectations for continued sales growth across all segments, underpinned by a record backlog and healthy end-market demand. Management believes that ongoing investment in capacity expansion, digital technologies, and service offerings will be critical for maintaining momentum. However, CFO Andrew Bonfield cautioned that tariff-related manufacturing costs are set to increase further in the coming year, putting pressure on operating margins. The company is prioritizing operational efficiency and targeted price realization to offset these headwinds while executing on its refreshed growth strategy.

Key Insights from Management’s Remarks

Management attributed the quarter’s results to unexpected strength in power and energy volumes, while ongoing tariff headwinds and higher compensation expenses weighed on operating margins.

• Power and Energy Outperformance: Unanticipated growth in power generation and oil and gas drove Caterpillar’s quarterly results, with notable demand for large generator sets and turbines especially for data center applications.
• Construction Industries Resilience: Sales to users in construction industries exceeded expectations, boosted by strong U.S. nonresidential and residential activity, increased dealer rental activity, and successful merchandising programs.
• Resource Industries Mixed Trends: While mining activity remained subdued due to lower coal prices, there was strong order momentum in heavy construction and Latin American mining, particularly in copper.
• Tariff Headwinds Impact Margins: Manufacturing cost increases from tariffs significantly reduced segment margins, especially in Construction and Resource Industries, despite management’s mitigation efforts and selective pricing actions.
• Services and Digital Progress: The company expanded its connected asset base and digital offerings, including condition monitoring and e-commerce, aiming to grow services revenue and position itself for long-term growth.

Drivers of Future Performance

Caterpillar expects growth to continue, supported by strong backlog and capacity expansion, but faces margin pressure from rising tariff costs and higher investment needs.

• Tariff and Cost Management: Management expects a further increase in tariff-related manufacturing costs, projecting an $800 million rise, which will require ongoing cost controls and selective price increases to maintain operating profit margins.
• Capacity Expansion and Supply Constraints: The ability to bring new production capacity online—especially for large engines and turbines—will determine if Caterpillar can meet robust demand, particularly from data center and energy infrastructure customers.
• Services and Digital Revenue Growth: Expansion of digital asset monitoring, service offerings, and the connected equipment base is expected to drive higher recurring revenue, helping to offset cyclicality in equipment sales and support long-term profitability.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will focus on (1) the pace at which Caterpillar can expand production capacity to meet growing demand, especially in power and energy; (2) the company’s ability to mitigate rising tariff and cost pressures through operational efficiencies and pricing; and (3) progress in scaling digital and service revenue streams. Execution on strategic investments and backlog conversion will be important indicators for sustained outperformance.

Caterpillar currently trades at $664.62, up from $643.28 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

Now Could Be The Perfect Time To Invest In These Stocks

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.