CAT Sees Q4 Earnings Growth Amid Cost Pressures: Can Growth Sustain?

Caterpillar Inc. CAT delivered fourth-quarter 2025 adjusted earnings per share of $5.16, reflecting a 0.4% year-over-year increase. While the growth was modest, it marked a turnaround for the global construction and mining equipment behemoth after five consecutive quarters of earnings declines. This improvement is particularly noteworthy given the challenging cost environment, driven in part by tariffs. Volume growth across all segments supported the company’s return to earnings expansion during the quarter.

While Caterpillar had returned to positive sales growth in the third quarter of 2025, earnings growth had remained elusive due to higher costs. In the fourth quarter of 2025, total costs were up around 29% year over year. This was primarily driven by elevated manufacturing costs, including the impact of higher tariffs. Gross margin contracted to 30.3% from 36.3% in the year-ago quarter, highlighting the pressure on profitability despite improved demand conditions.

Operating expenses also trended higher during the quarter. Selling, general and administrative (SG&A) expenses moved up 6% year over year and research and development (R&D) expenses were up 8%.  Adjusted operating profit edged up 0.6% year over year to about 
$2.98 billion. The adjusted operating margin was 15.6% compared with 18.3% in the fourth quarter of 2024.

For 2026, the company expects year-over-year revenue growth near the upper end of its long-term 5-7% CAGR target.  However, near-term profitability is likely to remain under pressure. The company estimates a tariff-related impact of $800 million in the first quarter of 2026 and at $2.6 billion for the full year. For the first quarter, the adjusted operating margin is expected to be lower than the prior-year quarter, and for 2026, to be near the bottom of the annual target range.

Our projections suggest a gradual earnings acceleration through 2026, with expected growth of 3% in the first quarter, 8.4% in the second, 12.8% in the third and 21.9% in the fourth quarter. Full-year earnings imply an approximate 12.1% year-over-year growth reflecting positive volume trends and Caterpillar’s cost control efforts that will help negate the impact of tariffs.

Among peers, Terex Corporation TEX reported 45.5% year-over-year growth in earnings per share to $1.12 in the fourth quarter of 2025. This marked Terex’s second consecutive quarter of earnings growth following five quarters of declines. Adjusted earnings per share, however, declined 19% year over year to $4.93 in 2025, primarily due to lower volumes in both segments and unfavorable manufacturing variances from proactive production cuts and tariffs, partially offset by cost productivity actions and the contribution from the ESG acquisition.

Komatsu Ltd. KMTUY reported a 12% year-over-year decline in earnings per share to 68 cents in the quarter ended Dec. 31, 2025. Komatsu’s earnings have been declining over the past three quarters.  

CAT’s Price Performance, Valuation & Estimates

CAT shares have gained 117.8% in a year compared with the industry’s 112.2% growth. The Zacks Industrial Products sector has gained 26.5% and the S&P 500 has moved up 14.8% in the same time frame. Meanwhile, Komatsu and Terex have gained 58.6% and 51.3%, respectively. 

CAT is currently trading at a forward 12-month P/E of 32.59X, a premium compared with the industry’s 31.19X. Terex is trading lower at 13.80X and Komatsu at 18.18X. 

The Zacks Consensus Estimate for Caterpillar’s 2026 earnings points to year-over-year growth of 18.9%, while the 2027 estimate implies growth of 21.5%, reflecting improving confidence in the company’s earnings trajectory.

Earnings estimates for CAT have moved up for both 2026 and 2027 over the past 60 days, as shown in the chart below. 

Caterpillar stock 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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