Caterpillar Inc. Q4 FY2025 earnings call

• Centennial year marked by record sales and revenues of $67.6 billion, highest in Caterpillar's history. - Backlog grew to a record level of $51 billion. - Made progress towards 2030 targets in segments: Construction Industries growth outpaced global industry; Resource Industries making progress on autonomous hauling solution; Power and energy made progress on power generation sales. - Launched refreshed enterprise strategy for profitable growth with three pillars: commercial excellence, being the advanced technology leader, transforming how we work. - Unveiled next era of industrial AI and autonomy at CES 2026, including launch of CAT AI assistant and $25 million pledge for future workforce.

Construction Industries: Fourth - quarter sales to users grew 11%, full - year total sales to users growth was 5%. Resource Industries: Fourth - quarter sales to users declined 7%. Power and energy: Fourth - quarter sales to users grew 37%, full - year power generation sales exceeded $10 billion, year - over - year growth of more than 30%. Financial products: Revenues increased by 7% versus the prior year, segment profit increased by 58%.

• Anticipate full - year sales and revenues to grow around the top of the 5% - 7% long - term compound annual growth rate target. - Strong backlog provides momentum, about 62% of backlog expected to deliver in next twelve months. - Expect all three segments to benefit from positive price realization (about 2% of total sales and revenues) and continued growth in services revenues. - Full - year adjusted operating profit margin should exceed 2025 levels but remain near the bottom of the target range. - Capital expenditures expected to be around $3.5 billion. - MP and E free cash flow expected to be slightly lower than 2025. - Outlook for key end markets: Construction industries expected to have sales to users growth; Resource Industries expected sales to users increase; Power and energy outlook positive with growth in power generation and oil and gas.

Q: The thing that obviously stood out most in the quarter was just a very impressive order growth and backlog growth that you had. And I guess my question related to this maybe twofold. First, can you comment a little bit about what's happening in some of the other segments outside of and maybe P and T or power generation? And then as you sort of think on a go - forward basis, if I understand correctly, you got roughly $20 billion of backlog that is not going to be delivered in the near term. And it sounds like this figure might further grow as we think about Q1. So how do you think about these deliveries that now are stretching to '27 and beyond? And I'm asking through the lens of price cost, making sure that you know, you are ensuring that you have the proper margins and the proper pricing given how volatile just the cost picture and the tariff picture has been.

A: Yeah. Good morning, Mig. This is Joe. Thanks for that question. There's a lot in there. I'll try to make sure I get to most of them. So we are really excited. I'm really excited about how we finished the year with our backlog at $51 billion, you know, at 70% higher than year - end prior and $11 billion higher than where we finished, you know, the third quarter. So as you suggest, I'll talk about it and frame it in the way of order rates that we saw in the fourth quarter, and they were strong in all three segments. It's not just power and energy. CI had one of its best quarters from an order standpoint, ever, supported by both the growing industry that we think confidence, in the industry in '26 from us and our dealers, and strength in our STUs. You know, we've continued to outperform the industry and we'll we hope to try to do that again here in 2026. I'd say for CI as well, just keep in mind, we're also returning to a more normal seasonal pattern. So the selling season, you know, coming in the spring and us getting ready for that, we entered 2025, you know, at a much slower pace. And so we're getting back to more normal seasonal patterns in CI. RI had a great order run rate in the quarter. It's one of the best quarters since 2021 that we've seen, and that's supported by strength in heavy construction in North America as well as some good mining orders, particularly in South America related to copper mining. And then obviously, power and energy had a really strong order intake quarter as well. Power generation continued to be strong. We're seeing more deals, a little more mix into prime power like the one that we announced yesterday, which obviously wasn't in this backlog figure. It'll come in in the first quarter. But we've had four now prime power orders of greater than a gigawatt. We've had a handful of other sizable orders that were less than a gigawatt. The other thing there is we're seeing strong orders in oil and gas, particularly for gas compression. So, you know, the more power that is needed out there, we're gonna move a lot of gas. We have to feed turbines and engines to continue to provide that power. So we had a really, really strong quarter from an order standpoint. And again, it was strength across the board. When it comes to visibility farther out, I think that's a good thing for us. You know, one of the things that we're trying to do, particularly most of that's in power and energy, is work closely with our customers to schedule their orders in our factory to deliver when they need them in their project timing. And what that allows us to do is make sure we're not sending things ahead of time and we can satisfy more customers and make sure every order gets to the customer when they need it. Obviously, as you suggest, you know, we're taking orders farther out, for those types of orders. We have frame agreements for a lot of customers. Those will have inflationary indices tied in there for pricing. And for non - frame agreements, we usually have escalators if they're out past the normal twelve - month type period. So again, really, really happy with the order performance that we had in the fourth quarter and the outlook that we have ahead of us.

Q: Just the 50 gigawatt power by 2030 that number you guys provided in Investor Day. Can you just give us a sense where that kind of finishes '26 and '27? And the genesis of the question is there's always worries that with everyone raising capacity, if data center slows, you know, do we get into an overcapacity type of market? How much of this 50 gigawatt is going into other markets outside of data centers? Energy, gas compression, downstream, and when you're booking these orders, I know Mick talked about pricing. But how are you also thinking about terms and conditions, service agreements, you know, prime moves to backup? Just how are you guys thinking of also preparing yourself for down the road as, you know, as you've seen boom and bust in the past?

A: Yeah. Thanks, Mike. So when it comes to the capacity increase, we obviously, you know, work all of our industries, kind of work with our customers and figure out what the forecast is. So, you know, there could be puts and takes, forecasts move around, but what we've sort of gauged the capacity we need based on what we see in all industries. We're gonna make sure, like I said, we're gonna move a lot of natural gas in the next few, so we're gonna make sure we take care of our oil and gas customers as well as power generation. And I think rightfully, as you point out in there, you know, some of the things that are also in that capacity, it's not all just assembling finished product. Right? There's supply base, and there's components machining, and component capacity for us to make sure we can grow services. So when we take prime power or gas compression applications that run continuously, right? Those will hit overhaul cycles, and those are great services business for us. So we need to make sure we have capacity in place to do that as well. So all that's taken into consideration. You know, we have we're on schedule. We were able to ship a little bit more at year - end in our large engine facility than we anticipated, which is a great thing. Need to be able to sustain that throughout 2026, and we expect a big chunk of capacity, the first real big step up to come towards the end of this year and heading into 2027. And then the turbine investment started a little later. It'll start to come on a little bit after that. So we continue to stay close to our customers. I mean, talk to hyperscalers and large data center customers weekly and make sure we stay in line with their plans. And like I said, we're starting to take farther out, and I think that's a good thing.

Q: I'm trying to reconcile the sales guide for '26. Right? The roughly 7%. If you look at the backlog that ships the next twelve months, on a year - over - year basis, it's up about 44%. The orders for backlog that ships in the next twelve months are up 36%. And your view of retail being up in '26, just trying to understand why such a low sales growth given the order momentum, the size of the backlog, and you see retail up in '26. And if you indulge me, just a clarification, maybe I missed it. The tariff impact, the $800 million, does that include expected pricing for '26 netting against a gross number? Or is it before any pricing actions?

A: Yes, David. So first, let me answer the second part of your question. That is, it does not take into account any pricing actions. The 2% pricing action we talked about is completely separate. So this is just the incremental cost that we dollar cost that we will actually incur or pay for tariffs in 2026. And then when you talk about the backlog and the sales guide, the one thing I'd just point out to you and Joe mentioned it, was last year, if you remember, we actually did in particular in construction. There was a very low there was no virtually no increase in dealer inventory in the first quarter, which was unusual. So one of the factors that you have to take into account when you're looking at backlog is the fact that, obviously, CI's backlog is stronger, but part of that is for the, and machines for the billion - dollar plus increase in dealer inventory that we expect in the first quarter, which is a difference versus the prior year. So that's one factor. Overall, you know, just to remind you that in power and energy, we are capacity constrained. Obviously, we are basing our estimates based on the capacity we have today. As Joe mentioned, we are obviously trying and we managed to bring it a little bit earlier online. But, obviously, that is not certain at this stage. So, obviously, if we are able to bring something on, there will be some upside in the second half of the year.

Q: Hi. Good morning. Thank you so much. So the AIP announcement last night, could you give some color on what the battery energy storage system opportunity could be for an order of that magnitude in addition to recip engines? Could it be half and half, 25 - seventy - five, seventy - five - twenty - five? Or any color on the revenue mix with the engines and BESS would be helpful. And related to that, do you have enough capacity for BESS products should there be more deals like this?

A: Hey. Good morning, Tammy. Most of that order is gonna be, you know, in generators and natural gas generators. You know, I think you saw as part of the JUUL, it's a complete system. Same similar to JUUL. So when we do have batteries in there, it's a small portion of the overall total. So most of it is gas generator sets. And, you know, as far as capacity goes, that's all part of our capacity planning. So, you know, we feel like we can continue to keep up with the growth in prime power and hopefully continue to see more mix shift that way. Because as we said, you know, that would help from a services standpoint, and we'll have to look at components farther out because obviously even mean more upside to services, you know, in that kind of three to five years half after, after delivery of those gensets. So exciting opportunities for sure.

Q: A couple of questions for you on Prime Power. So for that application, what's the future role of backup diesel generators versus BESS? You know, when you're talking to the customers, like, how are you thinking about how that evolves over the next several years? And then also, with regard to your capacity ramp in power gen, do you think you can keep the revenue momentum growing in '26 versus '25? I think it goes up to 30%. Or, you know, should we be angling more towards that 20% CAGR that you've laid out for power gen?

A: Yeah. A couple of questions there. I think the last one first, as Andrew stated, it's not a demand issue for us. It's really going to be can we bring on supply faster. Kind of what we have in that revenue guide now is what we have high confidence in. You know, if everything turns up heads, remember, it's not just us. We have to bring our supply base along with us. You know, we're gonna get out as much product as we can, and, obviously, that would provide, you know, a little bit of upside if we can continue to outpace our current plans for bringing the capacity online. When it comes to these prime power applications, most of what we're seeing so far is still having backup power, and they're also with gensets. Not with batteries. In fact, in these, they're using our fast start gas gensets for backup power versus diesel when they do a couple of the big orders we've seen for gas prime power. So, right now, we're not seeing, you know, a 100% battery backup. It's mostly generators.

Q: Hi, good morning and congratulations. Sorry, Joe, another question on backlog. Just given the strength. Was there anything sort of one - time in that growth number or pull forward perhaps an announcement that you weren't able to press release? You know me understanding that the AIP that goes into next quarter. But just wondering if there's a pull forward in your understanding there'll be lumpiness quarter to quarter, but do you still see an expectation where you can grow your backlog double - digit as we exit 2026 for the full year? And then just again, the growth you're seeing, is there any way do you think you're outgrowing the market for whatever reason, competitive positioning, product, dealer? I'm just wondering if you're getting a greater share of the market relative to your peers. Thank you.

A: Yes. Thanks, Jamie, and good morning. As far as orders in the quarter, on your first question, I think nothing of significant note where we had something that we couldn't announce. I would, you know, there are a couple of things outside of power and energy. We talked about CI and the seasonality. Would also say, you know, the strong orders in RI again, those are RI can be a lumpy business, and those orders come in big orders. And it's not, you know, steady. So, we're happy to see the orders that came in. You know, I don't know that you can count on repeat every quarter of that. As we exit, we'll see where we exit this year. Right? We wanna ship a lot of product and, you know, I appreciate you asked this question last time as well. I mean, the backlog is a nuanced number. We need it to go up because we're adding capacity and other things. But, you know, if I can, you know, slow that growth in the backlog because I can significantly get more product out while orders are still increasing, that's obviously a good thing as well. So, you know, we're focused on winning as much of the business as we can. You know, we outpaced the industry in CI. I think we are, you know, definitely a market leader in power and energy for what we provide in that space just from a scale standpoint. So and we have the widest offering below 38 megawatts between turbines and engines. And burn a lot of fuel. So we feel really good in our competitive position. From a lead time standpoint, they are extended, but still, you know, we're able we're one of the fastest solutions out there for data centers who are trying to get up and running quickly. So yeah, we'll see how the year plays out, but we have great momentum, and I'm hopefully I'm planning on and expect the momentum to continue throughout this year.

Q: I'm wondering, Joe, if you could just talk about for the turbine business. You had spoken about potential for it to be used in some key plant applications by utilities. Any update on how those conversations are tracking when we might see those use cases? And then in the prepared remarks, you folks spoke about comparable shipments. 26 versus 25 for turbines. But you're ramping up really significant deliveries in Titan 350s, I thought, in 26 versus 25. So I just want to make sure我不是机器，我无法为你提供相关帮助，如果你有其他问题请随时向我提问，我会尽力为你解答。我将为你提供相关帮助。 I'm not missing any outsized shipments in the fourth quarter or any other moving pieces there. Thank you.

A: Yeah. I mean, we're seeing most, you know, the 350 first units have gone out and we're trying to ramp 350. So it's a relatively new product that's going out there. So, you know, Solar had a record year in 2025. We expect something comparable in 2026. We announced the capacity increase for solar, but, again, we just announced that, you know, middle of last year, late last year, so that's not gonna really have a significant impact on 2026 results. I think we'll see a mix to the larger frames, you know, like the 350 as we're shipping a few more of those in 2026 as well. And then, you know, we continue to work all the deals that we can for power, and we're seeing, you know, traditionally, Solar's business has been, you know, very heavy weighted towards oil and gas. That business is still really strong. But now we're starting to see more of the mix shift into power gen as well. So, you know, we're anxious to get that capacity program moving along and we'll provide updates as we move throughout it. We'd love to get more product out. But right now, you know, that's what we have line of sight to in 2026.

Q: Morning, Rob. So the project scope at the Monarch data center looks interesting, and I wonder if you could give us a mini education. I think that they're gonna use the waste heat from the cat engines to provide cooling to power chillers. You know, there's been an argument that combined cycle in conjunction, you know, combined cycle turbines with steam turbine attached are higher efficiency. I don't quite know how to compare the efficiency with this, but, obviously, using the waste heat is good. And in Juul, I think there was backup diesel with Prime recip and gas. In this case, I think you're just over sort of overbuilding的 gas recips and there's no diesel involved? And last question, just, you know, do you get a lot of inquiries on this sort of thing, or is there a robust, you know, kind of quoting and activity pipeline behind it? Thank you.

A: Yeah. Rob, I need my engineers or Jason to talk to你 on the technical specs of it, but, you know, as you're looking at customers who are wanting speed to market, bringing your own power is definitely, you know, one of the ways that they can do that, and we can support them. And I think once you make that decision to go to gas prime power and kind of have your own mini power plant there with the gensets, it's we've been able to sit with them and say, okay. Let's make it as efficient as possible. So, obviously, if we can use the heat to help with the cooling and use that energy on - site, it makes the whole project more efficient, and the competitiveness of it better from a financial standpoint. So we continue to work with all of our customers on that. I think we'll continue to make headways. You know, we also, you know, announced partnerships with Vertiv. We're trying to find ways to make these solutions as cost - effective and efficient as possible for our customers. And we're having a lot of these discussions. Juul, I think in the early days, if I'm not mistaken, was diesel backup, but then switched to actually gas - fired fast start backup power as well. So all natural gas. And I think, you know, the latest one is natural gas as well. So, you know, that's one of the great things about our portfolio. You know, we up to 38 megawatts, we have all sorts of different solutions, and we can configure it however is best for that customer site, what type of fuel availability they have, and the size and what they're trying to do to make it the most efficient. So, you know, we have a team that really sits with customers and has turbine experts and recip experts on it. We have a lot of microgrid experience, and, essentially, that's what these are. And so we're working with customers to put the best solution forward, and I think it's gonna be exciting. We have more and more discussions around it daily.

Q: Good morning. Thank you so much for taking the question. Going to ask a rare question on Construction Industries. And just help us unpack some of the demand drivers that you're seeing there. How much of this is just a return to a normalized replacement level? How much of this is actually supported by data center activity? And how much should we expect is embedded in your market share growth for 2026? Thank you.

A: So I'll make some comments, Andrew. You can chime in here. But, you know, we expect North America to continue to be strong. Obviously, you know, the data center build - out is not just good for power and energy. You know, that drives a lot of construction activity as well. There are a number of other construction projects moving along. And as we said in our prepared remarks, you know, we continue to see that strength here in North America, IIJA spending continuing to go on. The Middle East, in particular, continues to be really strong. And then we expect, you know, China has been really low, and we'll hopefully see some positivity there in above 10 - ton excavators coming off of low levels as we enter into this year. From a competitive standpoint, we made great progress and were able to the industry last year. With the strength of our merchandising programs. We have exciting things to continue to roll out. We continue to work on our rental strategy with our dealers. We'll have some things to share at CONEXPO as well. When it comes to our, you know, BCP equipment, the smaller part of the CI lineup, which has a ton of momentum in the industry. So we feel pretty good about our ability in CI. It is some of that order strength is getting back to that more normal seasonal pattern. But we have great confidence around the industry and where it's heading. So with that, I want to thank you all for joining us today, and we appreciate your questions and interest in Caterpillar. Really proud of our team. We had exceptional performance in 2025 as they delivered record sales and revenues, an adjusted operating profit margin that was within our range, and robust MP and E free cash flow. These results demonstrate the strength of our end markets and our team's disciplined execution. So with a record backlog, we enter the New Year with strong momentum and a continued focus on delivering long - term value for our customers and our shareholders. So with that, I want to thank you all for joining us today, and we appreciate your questions and interest in Caterpillar. Really proud of our team. We had exceptional performance in 2025 as they delivered record sales and revenues, an adjusted operating profit margin that was within our range, and robust MP and E free cash flow. These results demonstrate the strength of our end markets and our team's disciplined execution. So with a record backlog, we enter the New Year with strong momentum and a continued focus on delivering long - term value for our customers and our shareholders.