Caterpillar Inc (CAT) Q4 2025 Earnings Call Transcript | AlphaStreet

Caterpillar Inc (NYSE: CAT) Q4 2025 Earnings Call dated Jan. 29, 2026

Company Contributors:

Alex Kapper — Vice President of Investor Relations

Joseph Creed — Director

Andrew R. Bonfield — Chief Monetary Officer

Analysts:

Mircea Dobre — Analyst

Michael Feniger — Analyst

David Raso — Analyst

Tami Zakaria — Analyst

Charles Albert Dillard — Analyst

Jamie Prepare dinner — Analyst

Jerry Revich — Analyst

Robert Wertheimer — Analyst

Kristen Owen — Analyst

Presentation:

operator

Welcome to the fourth quarter 2025 Caterpillar Earnings Convention name. Please be suggested that at the moment’s convention is being recorded. I’d now like handy the convention over to your speaker at the moment, Alex Capper. Thanks. Please go forward.

Alex Kapper — Vice President of Investor Relations

Thanks, Adra. Good morning everybody and welcome to Caterpillar’s fourth quarter 2025 earnings name. I’m Alex Capper, Vice President of Investor Relations. Becoming a member of me at the moment are Joe Creed, CEO Andrew Bonfield, Chief Monetary Officer, Kyle Epley, Senior Vice President of the International Finance Providers Division, and Rob Rengel, Senior Director of ir. Throughout our name, we’ll be discussing the fourth quarter earnings launch we issued earlier at the moment. You will discover our slides, the information launch and a webcast recap@traders.caterpillar.com below Occasions and Shows. The content material of this name is protected by US and worldwide copyright regulation. Any rebroadcast, retransmission, replica or distribution of all or a part of this content material with out Caterpillar’s prior written permission is prohibited.

Shifting to slip two. Throughout our name at the moment, we’ll make ahead trying statements that are topic to dangers and uncertainties. We’ll additionally make assumptions that might trigger our precise outcomes to be completely different than the knowledge we’re sharing with you on this name. Please check with our current SEC filings and the ahead trying statements reminder and the information launch for particulars on components that individually or in combination may trigger our precise outcomes to fluctuate materially from our forecasts. An in depth dialogue of the numerous components that we consider could have a cloth impact on our enterprise on an ongoing foundation is contained in our SEC filings.

On at the moment’s name, we’ll additionally check with non GAAP numbers for a reconciliation of any non GAAP numbers to the suitable US GAAP numbers. Please see the appendix of the earnings name slide for at the moment’s agenda. Joe will start by sharing his views about our outcomes and supply an replace on our efficiency towards reaching our Investor Day targets. Then he’ll share our full 12 months outlook and insights about our finish markets, adopted by an replace on our technique. Lastly, Andrew will present an in depth overview of outcomes and key assumptions. Wanting ahead, we’ll conclude the decision by taking your questions.

Now let’s advance to Slide 3 and switch the decision over to our CEO Joe Creed.

Joseph Creed — Director

All proper, nicely thanks Alex and good morning everybody. Thanks for becoming a member of us at the moment. Our centennial 12 months marked a big milestone and we achieved full 12 months gross sales and revenues of $67.6 billion, the very best in Caterpillar’s historical past. In a dynamic atmosphere with internet incremental tariff headwinds of $1.7 billion. We delivered full 12 months adjusted working revenue margin inside the goal vary at 17.2% and adjusted revenue per share of $19.06. We additionally generated strong MP free money circulation of $9.5 billion in 2025, permitting us to deploy $7.9 billion to shareholders by means of share repurchases and dividends. Through the 12 months, our backlog grew to a report stage of $51 billion, a rise of $21 billion or 71% in comparison with final 12 months.

All time excessive gross sales and revenues together with report backlog are proof of the energy in our finish markets and robust execution by our crew. Now let me take a minute to stroll you thru our fourth quarter outcomes. Gross sales and revenues had been $19.1 billion, an all time report for a single quarter. The rise of 18% versus the earlier 12 months was higher than we anticipated and displays greater volumes in all three of our major segments whereas worth realization was about impartial. Specifically, quantity progress was higher than anticipated in energy and power as we had been in a position to ship extra product than anticipated at 12 months finish.

Adjusted working Revenue margin was 15.6% and adjusted revenue per share was $5.16. Fourth quarter adjusted working revenue margin and adjusted revenue per share had been higher than we anticipated on account of stronger than anticipated quantity progress in energy and power within the quarter. The web incremental price from tariffs was close to the highest finish of our estimated vary. Sturdy ordering exercise throughout all three major segments contributed to the very sturdy backlog progress. Now I’ll evaluation fourth quarter retail statistics for every of our three major segments beginning with Development industries. Development Industries Whole gross sales to customers grew for the fourth consecutive quarter rising 11% which exceeded our expectations.

Will increase in North America had been higher than anticipated on account of sturdy progress in non residential and residential building. Rental fleet loading and our sellers rental income additionally grew within the quarter. Gross sales to customers declined barely in EAMI and Asia Pacific in keeping with our expectations and we noticed progress in Latin America which was higher than anticipated for useful resource industries. Fourth quarter gross sales to customers declined 7% in keeping with our expectations. Mining gross sales to customers had been decrease 12 months over 12 months as clients exercised capital self-discipline in response to weaker coal costs in energy and power, our largest and quickest rising phase.

Gross sales to customers grew a strong 37% with one other quarter of double digit progress throughout all functions. Energy technology grew 44% pushed by sturdy demand for big gensets and generators utilized in knowledge heart functions. Robust gross sales to customers in oil and gasoline had been pushed primarily by generators and turbine associated companies. Industrial grew from comparatively low ranges with the Enhance pushed by gross sales to customers in electrical energy functions and at last transportation elevated primarily on account of worldwide locomotive deliveries. Shifting to slip 4 our full 12 months 2025 outcomes confirmed significant progress in direction of reaching the 2030 targets we outlined at our current investor day.

As I discussed, we delivered report gross sales and revenues of $67.6 billion, leading to 4% 12 months over 12 months progress. This improve was led by report gross sales in energy and power. Notably, along with report gross sales in energy technology, we additionally achieved report gross sales in oil and gasoline on account of energy in demand for gasoline compression. Regardless of tariff headwinds, full 12 months adjusted working revenue margin of 17.2% was inside the goal vary for our stage of gross sales and revenues. Full 12 months companies revenues totaled $24 billion in 2025. We continued to attach extra property, rising the fleet to over 1.6 million and made nice progress in different initiatives like situation monitoring, prioritized service occasions, e commerce gross sales and tech enabled machines.

Our digital and know-how initiatives, together with a rising put in base, place us nicely to extend companies revenues in direction of our aim of $30 billion by 2030. Sturdy MP and E free money circulation allowed US to deploy $7.9 billion to shareholders by means of $5.2 billion of share repurchases and $2.7 billion of dividends paid. We’re pleased with our continued dividend aristocrat standing, paying greater dividends for 32 consecutive years, and stay dedicated to returning considerably all MP and E free money circulation over time. Andrew will share extra about our money deployment plans for 2026 in a second. Turning to Slide 5, I’ll spotlight the developments we made in direction of our 2030 targets in our 3 major segments.

In 2025, Development Industries Progress outpaced the worldwide trade supported by the success of our merchandising applications. Consequently, full 12 months whole gross sales to customers progress was 5%, advancing our progress in direction of the 2030 aim of rising 1.25 occasions the 2024 baseline. In useful resource industries. Buyer curiosity in our autonomous hauling resolution stays sturdy and we’re making regular progress in direction of our 2030 aim to triple the variety of CAT autonomous haul vans in operation in comparison with 2024. We ended the 12 months with 827 autonomous haul vans in operation, up from 690 on the finish of 2024. Adoption is anticipated to speed up given our confirmed resolution, our growth into quarries and our means to assist combined fleets.

For instance, final month Caterpillar and SO Monitor, our supplier in Brazil, introduced an settlement to supply Vale an autonomy resolution for a combined fleet of greater than 90 vans. Energy and power delivered significant progress in direction of our 2030 aim to greater than double energy technology gross sales in comparison with 2024. In 2025, energy technology gross sales exceeded $10 billion which is 12 months over 12 months progress of greater than 30%. We’re additionally on monitor in our multi 12 months effort to double our giant engine capability and greater than double our industrial gasoline turbine capability. As we’ve mentioned, the extra capability will serve a broad vary of functions and the phasing will happen between now and the tip of 2030.

Now on slide 6, I’ll present our 2026 outlook. General, we anticipate full 12 months gross sales and revenues to develop across the high of the 5% to 7% long run compound annual progress price goal. As I discussed earlier, our report backlog of $51 billion gives sturdy momentum to start out the 12 months. We’re additionally beginning to get multi 12 months visibility in energy and power as we work intently with our clients to schedule manufacturing facility orders in keeping with their mission timelines. Consequently, roughly 62% of our backlog is anticipated to ship ship within the subsequent 12 months, which is decrease than our historic common.

Robust backlog coupled with wholesome finish markets helps our expectation for quantity progress in all three major segments. We additionally anticipate all three segments to learn from constructive worth realization, about 2% of whole gross sales and revenues and continued progress in companies revenues. Full 12 months adjusted working revenue margin ought to exceed 2025 ranges however stay close to the underside of the goal vary for our anticipated gross sales and income. Our adjusted working revenue margin expectation displays the continuing impression of tariffs in addition to investments we’re making to execute our progress technique. I stay assured that we’ll handle the impression of tariffs over time as we purpose to function across the midpoint of our adjusted working revenue margin goal vary.

Capital expenditures are anticipated to be round $3.5 billion, pushed primarily by our capability growth plans and at last, MP&E free money circulation is anticipated to be barely decrease than 2025 reflecting the rise in capital expenditures. Now I’ll focus on our outlook for key finish markets beginning with building industries. One other 12 months of gross sales to customers progress is anticipated in 2026 supported by elevated order charges and a strong backlog. General, the outlook for North America stays constructive as gross sales to customers develop reasonably versus final 12 months, with building spending remaining wholesome on account of IIJA funding and different vital infrastructure applications.

We additionally anticipate accelerated funding in knowledge facilities which can additional bolster total building spending. Vendor rental fleet loading and rental income are each projected to extend in comparison with 2025 in EEMI. Financial circumstances in Europe are anticipated to strengthen and building exercise in Africa and The Center east is projected to stay sturdy in Asia Pacific. Outdoors of China, average financial circumstances are anticipated in 2026. We anticipate constructive momentum in China off of low ranges with full 12 months progress within the above 10 ton excavator trade. Progress in Latin America is anticipated to proceed at the same price to 2025.

Useful resource industries had constructive momentum within the fourth quarter with rising backlog supported by wholesome orders throughout a broad vary of merchandise. For 2026, gross sales to customers are anticipated to extend, primarily pushed by rising demand for copper and gold and constructive dynamics in heavy building in quarry and aggregates. Most key commodities stay above funding thresholds and buyer product utilization is excessive. Whereas the age of the fleet stays elevated with modest will increase in commodity costs projected in 2026. We anticipate rebuild exercise to extend barely in comparison with final 12 months. And eventually, for energy and Power, the 2026 outlook is constructive.

Sturdy backlog progress within the fourth quarter was pushed by continued momentum in each energy technology and oil and gasoline. We anticipate progress in energy technology for each CAT reciprocating engines and photo voltaic generators pushed by growing power demand to assist knowledge heart buildout associated to cloud computing and generative AI. Moreover, we’re beginning to see orders for prime energy development greater as knowledge heart clients search for different energy options to maintain tempo with their progress. For instance, yesterday we introduced an order for two GW of reciprocating generator units for a first-rate energy software from American Intelligence and Energy Company.

Turbines will probably be used to assist the preliminary growth section of the Monarch Compute Campus, which has a complete potential of about 8 gigawatts of energy technology. This represents one in every of our largest single orders for full energy options. The worth of the order will probably be mirrored in our first quarter 2026 backlog and we anticipate to ship the generator beginning in late 2026 by means of 2027. This thrilling announcement is one in every of 4 orders we’ve booked with not less than 1 gigawatt of Caterpillar gear for knowledge heart prime energy. After reaching report ranges in 2025, oil and gasoline is anticipated to see Reasonable progress in 2026.

Reciprocating engine gross sales are anticipated to extend, pushed by sturdy demand in gasoline compression functions. Photo voltaic generators, oil and gasoline backlog stays wholesome with continued strong order and inquiry exercise, and in consequence we anticipate one other 12 months of sturdy turbine gross sales similar to our report 2025 efficiency. Demand for merchandise and industrial functions is anticipated to develop reasonably in 2026 as we see continued restoration from earlier lows. And in transportation, we anticipate full 12 months progress in rail companies and locomotive deliveries. I’ll shut on slide 7 with an replace on our technique. Since our Investor Day in November, the Government Workplace, Government Management Crew and I’ve engaged our staff and sellers across the globe to launch our refreshed Enterprise Technique for Worthwhile Progress.

Our mission assertion Fixing our clients hardest challenges is creating sturdy alignment round holding buyer wants on the heart of every little thing we do. The technique is centered on three pillars for worthwhile progress, industrial excellence, being the Superior Know-how chief and reworking how we work, all constructed upon a basis of continued operational excellence. I look ahead to advancing the technique with regional leaders and sellers all through 2026. And eventually, we had been excited to kick off the 12 months with a showcase and keynote at CES 2026 in Las Vegas the place we unveiled the following period of commercial AI in Autonomy.

This was an essential alternative to display our superior know-how management by highlighting Caterpillar’s vital function in creating the invisible layer of the tech stack, the vital minerals, dependable energy and bodily infrastructure that the digital world depends on to perform. We made thrilling bulletins together with the launch of our new CAT AI Assistant, which can permit clients to extra simply purchase, preserve, handle and function their gear. We additionally introduced a dedication to a very powerful a part of the invisible layer individuals. Caterpillar pledged $25 million to make sure the long run workforce has the instruments they should make superior know-how potential.

With that, I’ll flip it over to Andrew for an in depth overview of outcomes and key assumptions. Wanting ahead.

Andrew R. Bonfield — Chief Monetary Officer

Thanks Joe and thanks Joe and good morning everybody. As common, I’ll start with a abstract of the quarter after which present transient feedback on the efficiency of the segments. Subsequent, I’ll focus on the steadiness sheet and free money circulation and conclude with feedback on our excessive stage planning assumptions for 2026 in addition to our expectations for the primary quarter. Starting on Slide 8, gross sales and revenues of $19.1 billion mirrored an 18% improve versus the prior 12 months. As Joe famous, this was an all time quarterly report. Adjusted working revenue was $3.0 billion and our adjusted working revenue margin was 15.6%.

We generated sturdy MP and E free money circulation of $3.7 billion within the quarter and $9.5 billion for the total 12 months. This was our third consecutive 12 months with greater than $9 billion of MP and E free money circulation. Shifting to Slide 9, I’ll focus on our high line outcomes for the fourth quarter. Gross sales and revenues of $19.1 billion exceeded our expectations, pushed by stronger than anticipated quantity in energy and power versus the prior 12 months. Stronger gross sales volumes supported the gross sales improve. Value was about impartial and roughly in keeping with our expectations. Quantity progress mirrored a 15% 12 months over 12 months improve in whole gross sales to customers and a good impression from adjustments in supplier inventories.

Whole machine supplier stock decreased by about $500 million within the quarter in comparison with a $1.6 billion lower decline final 12 months. The lower within the fourth quarter was bigger than we had anticipated, primarily on account of stronger than anticipated gross sales to customers in building industries. Providers Revenues elevated within the quarter in comparison with 2024. Shifting to working revenue on slide 10, working revenue within the fourth quarter decreased by 9% whereas adjusted working revenue of $3.0 billion was about flat versus the prior 12 months. As I discussed, adjusted working revenue margin for the fourth quarter was 15.6%, barely stronger than we had anticipated, pushed by quantity being higher than anticipated, partially offset by greater incentive compensation expense versus the prior 12 months.

The 270 foundation factors lower was primarily on account of greater manufacturing prices pushed by tariffs. Excluding tariffs, our fourth quarter margin was greater than the prior 12 months. For the total 12 months excluding the impression of tariffs carried out in 2025, margin was within the high half of the goal vary. Shifting to Slide 11, revenue per share was $5.12 within the quarter. Adjusted revenue per share was higher than we had anticipated at $5.16 excluding restructuring prices of $0.52 and mark to market positive aspects of $0.48 for the remeasurement of pension and different put up employment profit plans. If you exclude the impression of mark to market positive aspects from different earnings and expense, we had a headwind of about $73 million which was primarily pushed by the absence of overseas alternate positive aspects associated to MP and E steadiness sheet translation that occurred within the prior 12 months.

Excluding discrete gadgets, the availability for earnings taxes within the fourth quarter of 2025 mirrored a world annual efficient tax price of 20.5 24.1% as in contrast with 22.2% in 2024. This was in keeping with our expectations. Lastly, the 12 months over 12 months impression from the discount within the common variety of shares excellent primarily on account of share repurchases resulted in a good impression on adjusted revenue per share of roughly $0.14 as in comparison with the fourth quarter 2024 and benefited the total 12 months by about $0.66. Shifting to Slide 12, I’ll now focus on phase outcomes. Development trade gross sales elevated by 15% within the fourth quarter to $6.9 billion.

That is roughly in keeping with our expectations because the stronger gross sales to customers had been about offset by a bigger than anticipated lower in supplier stock and barely unfavorable worth realization in comparison with the prior 12 months. Larger gross sales quantity mirrored stronger gross sales to finish customers and the constructive impression from adjustments in supplier inventories. Vendor stock decreased much less throughout the fourth quarter 2025 than throughout the fourth quarter of 2024. Fourth quarter revenue for Development Industries decreased by 12% versus the prior 12 months to $1.0 billion. The phase’s margin was 14.9%, a lower of 470 foundation factors versus the prior 12 months.

The margin lower was primarily on account of excessive manufacturing prices pushed by tariffs which had an impression of about 600 foundation factors on margins. The margin was decrease than we had anticipated due primarily to greater incentive compensation and the marginally unfavorable worth realisation which offset the impression of stronger quantity. Turning to slip 13 useful resource industries gross sales elevated by 13% within the fourth quarter to $3.4 billion which was in keeping with our expectations. Gross sales quantity was barely extra favorable than we had anticipated, whereas worth realization was a barely bigger headwind than we had anticipated in comparison with the prior 12 months.

The gross sales improve was primarily on account of greater gross sales quantity pushed by the impression from adjustments in supplier inventories. Fourth quarter revenue for Useful resource Industries decreased by 24% versus the prior 12 months to $360 million. The phase’s margin of 10.7% was a lower of 510 foundation factors versus the prior 12 months primarily on account of greater manufacturing prices pushed by tariffs which had an impression of about 490 foundation factors. The margin was decrease than we had anticipated primarily on account of greater quick time period incentive compensation, greater tariffs and the marginally unfavorable worth Realization now on Slide 14 Energy and power gross sales elevated by 23% within the fourth quarter to $9.4 billion.

Gross sales exceeded our expectations pushed by a stronger than anticipated quantity, significantly in energy technology and oil and gasoline in comparison with the prior 12 months. Gross sales elevated primarily on account of greater gross sales quantity and favorable worth realization. Fourth quarter revenue for Energy and Power elevated by 25% versus prior 12 months to $1.8 billion. The phase’s margin of 19.6% elevated by 30 foundation factors versus the prior 12 months. On the upper quantity, the tariff impression was about 220 foundation factors. The margin was stronger than we had anticipated primarily on account of favorable quantity. Value was additionally barely extra favorable than we had anticipated.

Shifting to Slide 15 monetary merchandise revenues elevated by 7% versus the prior 12 months to about $1.1 billion primarily on account of a good impression from greater common incomes property, partially offset by the impression from decrease common financing charges. Section revenue elevated by 58% to $262 million. This was due partly to a good impression from greater margins at insurance coverage companies on account of decrease loss ratios, greater common earnings and a decrease provision for credit score losses additionally benefited profitability. Our clients monetary well being stays sturdy. Previous dues had been 1.37% within the quarter, down 19 foundation factors versus the prior 12 months and our lowest 12 months on 12 months finish.

On report, the allowance price was 0.86%, the bottom ever reported in any quarter. Enterprise exercise at CAAT Monetary stays wholesome. Retail credit score functions elevated by 6% and our retail new enterprise quantity grew by 10% versus the prior 12 months. As well as, demand for our used gear stays wholesome on comparatively secure pricing whereas inventories stay at traditionally low ranges. Conversion charges stay above historic averages as extra clients select to purchase gear on the finish of the lease time period Shifting to Slide 16 as I discussed, we proceed to generate sturdy MP and E free money circulation with $9.5 billion in 2025, which was barely greater than 2024.

Regardless of an $800 million improve in capital expenditures in 2025, we deployed about $7.9 billion, or 84% of our MP and E free money circulation to shareholders. We proceed to anticipate to return considerably all MP and E free money circulation to shareholders over time. This quarter we anticipate to enter into a bigger accelerated share repurchase in comparison with the $3 billion ASR we executed in early 2025. Our steadiness sheet stays sturdy with an enterprise money steadiness of $10.0 billion on the 12 months finish. As well as, we held $1.2 billion in barely longer dated liquid marketable securities to enhance yields on that money.

Now on slide 17 earlier than I start, I’ll remind you that my feedback at the moment assume the Rail Division is inside energy and power as was the case by means of 12 months finish 2025. In March of this 12 months we’ll file an 8K recasting our historic durations to mirror the motion of our Rail division to useful resource industries. It will set up an acceptable baseline for evaluating future phase stage efficiency and expectations. If needed, we may also replace any of our phase particular ahead trying assumptions impacted by this variation. Clearly, there will probably be no impression on the enterprise extensive assumptions. Now let me begin with our expectations for the total 12 months.

As Joe talked about, we anticipate enterprise gross sales and revenues to develop versus the prior 12 months doubtless across the high finish of our 5% to 7% CAGR goal on greater quantity and favorable worth realization. We anticipate gross sales progress throughout every of our major segments with energy and power delivering the strongest 12 months over 12 months price of progress supported by the strong backlog. Progress on this phase will probably be paced by the timing of bringing our capability will increase on-line over the following few years. Our planning assumption is that the $500 million decline in machine supplier stock in 2025 will probably be offset by a rise by the tip of 2026, a tailwind to 2026 gross sales.

As Joe talked about, we anticipate favorable worth realization to account for a roughly 2% improve in gross sales for the total 12 months. For perspective on the quarterly gross sales cadence, we anticipate the bottom gross sales of the 12 months to happen within the first quarter, which aligns with their regular seasonable sample on enterprise adjusted working revenue margin excluding the impression of tariff prices, we anticipate to be within the high half of the goal vary at our anticipated gross sales stage, supported by favorable worth realization and quantity. Particular to quantity progress, we anticipated the attributable revenue pull by means of or incremental margin to mirror our current operational efficiency which has been impacted by tariffs in distinction to prior years.

We’re dedicated to investing for long run worthwhile progress which incorporates capability investments which can impression depreciation expense and better know-how and digital spend. We consider these investments will assist future absolute OPEC greenback technology, which I’ll remind you, is our definition of profitable. Together with the impression of tariffs, we anticipate margin to be close to the underside of the goal vary. I’ll present some perspective, however let me clarify how we intend to report back to you about tariffs as we transfer ahead. Absolutely the greenback worth new tariffs imposed in 2025 was $1.8 billion. Mitigating actions can are available two types.

First of those who scale back the direct tariff publicity invoice which can embody actions like sourcing adjustments. These scale back the precise greenback worth of tariffs paid and second, there are price management actions and pricing which assist scale back the impression on our profitability. A lot of the actions taken in 2025 associated to price controls which could possibly be particularly attributed to tariff mitigation and these amounted to round $100 million, leading to a internet incremental tariff impression of $1.7 billion. Wanting ahead, it would develop into more and more difficult to cross out and monitor whether or not price management or worth motion is instantly tied to tariff mitigation versus being taken within the regular course of enterprise.

Subsequently, going ahead we report an absolute incremental tariff price which can solely take note of these mitigating actions that scale back absolutely the worth of the tariff publicity. As a reminder, the incremental tariffs we report are measured in opposition to the 2024 baselet 12 months. For the total 12 months, incremental tariff prices are anticipated to be round $2.6 billion, which is $800 million greater than incurred in 2025. If we didn’t take the actions we plan to absorb 2026, this invoice will probably be round 20% greater. We anticipate incremental tariff prices of round $800 million within the first quarter, a stage just like the fourth quarter of 2025.

The run price ought to enhance in direction of the second half of the 12 months as we take actions to scale back our tariff publicity. Lastly, please keep in mind that tariffs are quantity delicate. We’ll proceed to take actions to handle our prices within the regular course of enterprise and stay dedicated to function inside our adjusted working revenue margin goal vary with the aim of being across the midpoint of the vary over time. Now concluding our expectations for the 12 months, we anticipate restructuring prices of roughly 300 to $350 million. Our world annual efficient tax price is anticipated to be 23% excluding discrete gadgets MP and E.

Free money circulation needs to be barely decrease than 2025, reflecting the upper CapEx of round $3.5 billion in 2026. Now turning to Slide 18 to help you together with your modeling, I’ll present shade on the primary quarter. Beginning with the highest line, we’d anticipate stronger gross sales and revenues versus the prior 12 months. We anticipate stronger quantity together with gross sales to customers progress and a tailwind for machine supplier inventories. We anticipate a extra typical machine supplier stock construct this quarter aligning with a seasonable sample which is a primary quarter construct in extra of $1 billion. This compares to flash ranges within the first quarter of 2025.

We additionally anticipate a good impression from worth realization in building industries. Within the first quarter we anticipate sturdy gross sales progress with the rise versus the prior 12 months pushed by quantity and favorable worth realization. We anticipate continued gross sales to customers progress with our confidence supported by the sturdy order charges and backlog. As well as, we anticipate a large profit from adjustments in supplier supplier inventories given a extra typical seasonable construct within the first quarter. In useful resource industries, we anticipate sturdy gross sales progress versus the prior 12 months pushed by quantity together with wholesome gross sales to customers progress and a good impression from adjustments in supplier stock.

Value realization needs to be comparatively flattish although. We anticipate favorability as we transfer by means of the 12 months. In energy and power, we anticipate gross sales progress versus the prior 12 months pushed by energy in energy technology and oil and gasoline together with favorable worth realization. As is typical, we anticipate first quarter gross sales in energy and power would be the phase’s lowest of the 12 months and sequentially decrease than the fourth quarter 2025. This expectation aligns the seasonable sample. Now present some shade on our first quarter margin expectations excluding incremental tariff prices. We anticipate a better adjusted working revenue margin share 12 months over 12 months supported by sturdy quantity and worth realization.

Partially offset by greater manufacturing prices and SGA and RD bills tied to our strategic investments. As a reference, we’d anticipate some seasonable margin uplift within the first quarter in comparison with the fourth quarter of 2025, together with incremental tariff prices at a stage just like the fourth quarter or round $800 million margin is anticipated to be decrease than versus the prior 12 months. Now on to first quarter margin expectations by phase. In building industries, excluding incremental tariff prices, we anticipate a better margin share in comparison with the prior 12 months on favorable worth realization and quantity, partially offset by greater manufacturing prices.

In useful resource industries, excluding incremental tariff prices, we anticipate barely decrease margin share in comparison with the prior 12 months as favorable quantity is greater than offset by unfavorable manufacturing prices and better SGA and R and D bills, together with spend on strategic investments. In autonomy, we do anticipate some unfavorable combine impression as we anticipate proportionally greater gross sales of authentic gear in comparison with the prior 12 months. In energy and power, excluding incremental tariff prices, we anticipate a better margin share in comparison with the prior 12 months pushed by favorable quantity and worth realization partially offset by greater manufacturing prices, significantly spend, together with greater depreciation associated to our capability growth initiatives.

Through the first quarter, we anticipate round 50% of the incremental tariff prices will probably be in building industries, 20% in useful resource industries and 30% in energy and power. All phase margins are anticipated to be decrease than they had been within the first quarter 2025 after considering incremental tariffs. So turning to slip 19, let me summarise. In a 12 months marked by uncertainty, our crew delivered report gross sales and revenues, maintained adjusted working revenue margin inside our goal vary, and achieved a wholesome adjusted revenue per share of $19.06. We generated $9.5 billion of MP E free money circulation our third consecutive 12 months of producing over $9 billion.

For 2026, we anticipate gross sales progress throughout all three major segments pushed by stronger quantity and worth. We additionally anticipate companies income progress excluding the impression of incremental tariffs. We anticipate adjusted working revenue margin to be on the high half of our goal vary however close to the underside together with tariffs and we anticipate MP&E free money circulation to be barely decrease than 2025, reflecting barely the upper capital expenditures. We proceed to execute our technique for long run worthwhile progress and with that we’ll take your questions.

Questions and Solutions:

operator

Thanks. We’ll now start the query and reply session. When you have dialed in and want to ask a query, please press Star one in your phone keypad to boost your hand and be a part of the queue. If you need to withdraw your query, merely press Star. Please be aware we’re solely permitting one query per analyst. Your first query comes from the road of Nick Dobright with Baird. Your line is now open.

Mircea Dobre

Thanks for taking the query and good morning everybody. The factor that clearly stood out most within the quarter was simply the very spectacular order progress and backlog progress that you’ve got had. And I assume my query associated to this possibly twofold. First, are you able to remark slightly bit about what’s occurring in a number of the different segments exterior of possibly ENT or energy technology? After which as you kind of assume on a go ahead foundation, if I perceive accurately, you’ve acquired roughly $20 billion of backlog that’s not going to be delivered within the close to time period.

And it feels like this determine may additional develop as we take into consideration Q1. So how do you consider these deliveries that now are stretching into 27 and past? And I’m asking by means of the lens of worth prices, ensuring that, , you’re guaranteeing that you’ve got the right margins and the right pricing, given how risky simply the price image and the tariff image has been. Thanks.

Joseph Creed

Yeah, good morning, Meg, that is Joe. Thanks for that query. There’s so much in there. I’ll attempt to get make certain I get to most of them. So we’re actually excited. I’m actually enthusiastic about how we completed the 12 months with our backlog at 51 billion. , that’s 70% greater than 12 months finish prior and 11 billion greater than the place we completed, , the third quarter. In order you recommend, I’ll speak about it and body it in the best way of order charges that we noticed within the fourth quarter they usually had been sturdy in all three segments.

It’s not simply energy and power. CI had one in every of its finest quarters from an order standpoint ever, supported by each a rising trade that we expect confidence within the trade in 26 from US and our sellers, and energy in our stews. We’ve continued to outperform the trade and we hope to attempt to try this once more right here in 2026, I’d say for CI as nicely. Simply remember we’re additionally returning to a extra regular seasonal sample. So the promoting season coming within the spring and us preparing for that. We entered 2025 at a a lot slower tempo and so we’re getting again to extra regular seasonal patterns in CI.

RI had a fantastic order run price within the quarter. It’s probably the greatest quarters since 2021 that we’ve seen and that’s supported by Energy in heavy building in North America in addition to some good mining orders, significantly in South America associated to copper mining. After which clearly energy and power had a extremely sturdy order consumption quarter as nicely. Energy technology continued to be sturdy. We’re seeing extra offers, slightly extra combine into prime energy just like the one which we introduced yesterday, which clearly wasn’t on this backlog. Determine it’ll are available. Within the first quarter we’ve had, , 4 now prime energy orders of better than a gigawatt and we’ve had a handful of different sizable orders that had been lower than a gigawatt.

The opposite factor there’s we’re seeing sturdy orders in oil and gasoline, significantly for gasoline compression. So, , the extra energy that’s wanted on the market, we’re going to maneuver plenty of gasoline. We’ve got to feed generators and engines to proceed to supply that energy. So we had a extremely, actually sturdy quarter from an order standpoint. And once more, it was energy throughout the board. In terms of visibility farther out, I believe that’s an excellent factor for us. One of many issues that we’re attempting to do, significantly most of that’s in energy and power, is figure intently with our clients to schedule their orders in our manufacturing facility to ship once they want them of their mission timing.

And what that permits us to do is make certain we’re not sending issues forward of time and we will fulfill extra clients and ensure each order will get to the shopper once they want it. Clearly, as you recommend, , we’re taking orders farther out for these sort of orders. We’ve got body agreements for lots of consumers. These could have inflationary indices tied in there for pricing. And for non body agreements, we often have escalators in the event that they’re out previous the conventional 12 month sort interval. So once more, actually, actually proud of the order efficiency that we had within the fourth quarter and the outlook that now we have forward of us.

operator

We’ll go subsequent to Michael Feniger at Financial institution of America.

Michael Feniger

Sure, thanks for taking my query. Simply, , the 50 gigawatt of energy by 2030, that quantity you guys supplied Investor day. Are you able to simply give us a way. The place that form of finishes finish at 26 and 27? And the genesis of the query is there’s at all times worries that with everybody elevating capability, if knowledge heart slows, will we get into an overcapacity sort of market? How a lot of this 50 gigawatt goes into different markets exterior of knowledge facilities? Power, gasoline, compression, downstream while you’re reserving these orders? I do know Mick talked about pricing, however how are you additionally fascinated with phrases and circumstances, service agreements, prime strikes to backup. Simply how are you guys pondering of additionally making ready your self for. For down the highway? As , as you’ve seen growth and bust up to now.

Joseph Creed

Thanks everybody. Yeah, thanks Mike. So in the case of the capability improve, we clearly work all of our industries form of work with our clients and work out what the forecast is. So there could be places and takes, forecasts transfer round. However we’ve kind of gauged the capability we want based mostly on what we see in all industries. We’re going to verify, like I mentioned, we’re going to maneuver plenty of pure gasoline within the subsequent few years. So we’re going to verify we deal with our oil and gasoline clients in addition to energy technology.

And I believe rightfully, as you level out in there, , a number of the issues which are additionally in that capability, it’s not all simply assembling completed product. Proper? There’s provide base and there’s elements machining and element capability for us to verify we will develop companies. So once we take prime energy or gasoline compression functions that run constantly, these will hit overhaul cycles and people are nice companies enterprise for us. And we want to verify now we have capability in place to try this as nicely. So all that’s considered, , now we have, we’re on schedule.

We had been in a position to ship slightly bit extra at 12 months finish in our giant engine facility than we anticipated, which is a good factor. We’d like to have the ability to maintain that all through 2026. And we anticipate an enormous chunk of capability. The primary actual large step as much as come in direction of the tip of this 12 months, heading into 2027. After which the turbine funding began slightly later. It’ll begin to come on slightly bit after that. So we proceed to remain near our clients. I imply we speak to hyperscalers and huge knowledge heart clients weekly and ensure we keep in keeping with their plans.

And like I mentioned, we’re beginning to take orders farther out and I believe that’s an excellent factor.

operator

We’ll go to our subsequent query from David rasso@evercore isi hello, thanks for the time.

David Raso

I’m attempting to reconcile the gross sales information for 26. Proper. The roughly 7%. In case you have a look at the backlog that ships the following 12 months on a 12 months over 12 months foundation, it’s up about 44%. The orders for backlog that ships within the subsequent 12 months are up 36%. And your view of retail being up in 26. Simply attempting to grasp why such A low gross sales progress given the order momentum, the scale of the backlog and also you see retail up in 26. And in the event you indulge me, only a clarification, possibly I missed it. The tariff impression, the 800 million, does that embody anticipated pricing for 26 netting in opposition to a gross quantity or is it earlier than any pricing actions? Thanks.

Joseph Creed

Yeah, David, so first let me reply the second a part of your query. That’s it doesn’t take note of any pricing actions. The two% pricing motion we talked about is totally separate. So that is simply the incremental price that we greenback price that we’ll really incur or pay for tariffs in 2026. After which while you speak concerning the backlog and the gross sales information, the one factor I’d simply level out to you and Joe talked about it was final 12 months, in the event you keep in mind, we really did specifically in building, there was a really low, there was no, nearly no improve in supplier stock within the first quarter, which was uncommon.

So one of many components that you need to take note of while you’re taking a look at backlog is the truth that clearly SEI’s backlog is stronger. However a part of that’s for the and machines for the billion greenback plus improve in supplier stock that we anticipate within the first quarter, which is a distinction versus the prior 12 months. In order that’s one issue total. Simply remind you that in energy and power we’re capability constrained. Clearly we’re basing our estimates based mostly on the capability now we have at the moment. As Joe talked about, we’re clearly attempting and we’ve managed to construct deliver slightly bit earlier on-line however clearly that’s not sure at this stage.

So clearly if we’re in a position to deliver one thing on there will probably be some upside within the second half of the 12 months.

operator

We’ll go subsequent to Tammy Zakaria at JP Morgan.

Tami Zakaria

Hello, good morning. Thanks a lot. So the AIP announcement final night time, may you give some shade on what the battery power storage system alternative could possibly be for an order of that magnitude along with recip engines, may it’s half and half, 25, 75, 75, 25 or any shade on the income combine with engines and DES could be useful. And associated to that, do you may have sufficient capability for finest merchandise? Ought to there be extra offers like this?

Joseph Creed

Good morning Tammy. Most of that order goes to be , in turbines and pure gasoline turbines, such as you noticed as a part of the joule. It’s a whole system, similar just like Juul. So once we do have batteries in there it’s a, it’s a small portion of the general whole. So most of it’s Gasoline generator units. And so far as capability goes, that’s all a part of our capability planning. So we really feel like we will proceed to maintain up with the expansion in prime energy and hopefully proceed to see extra combine shift that method as a result of as we mentioned that will assist from a companies standpoint and we’ll have to take a look at elements farther out as a result of would clearly even imply extra upside to companies, , within the form of three to 5 years after supply of these gensets.

So thrilling alternatives for certain.

operator

Our subsequent query comes from Chad Dillard at Bernstein.

Charles Albert Dillard

Hey, good morning guys. A pair questions for you on Prime Energy. So for that software, what’s the long run function of backup diesel turbines versus Bess? , while you’re speaking to the purchasers like how are they fascinated with how that evolves over the following a number of years? After which additionally with regard to your capability ramp and energy gen, do you assume you possibly can maintain the income momentum rising in 26 versus 25? I believe it goes up in 30%. Or ought to we be anchoring extra in direction of that 20% gig that you simply’ve laid out for energy Gen?

Joseph Creed

Sure, a few questions there.

I believe the final one first. As Andrew acknowledged, it’s not a requirement challenge for us. It’s actually going to be can we deliver on provide quicker? Type of what now we have in that income information now could be what now we have excessive confidence in. If every little thing turns up heads, keep in mind it’s not simply us. We’ve got to deliver our provide base together with us. We’re going to get out as a lot product as we will and clearly that would offer slightly little bit of upside if we will proceed to outpace our present plans for bringing the capability on-line. In terms of these Prime Energy functions, most of what we’re seeing to this point remains to be having backup energy they usually’re additionally with gensets, not with batteries.

In actual fact, in these they’re utilizing our quick begin gasoline gensets for backup energy versus diesel once they do a few the massive orders we’ve seen for gasoline prime energy. So proper now we’re not seeing, , 100% battery backup. It’s largely turbines.

operator

We’ll transfer subsequent to Jamie Prepare dinner at Belief Securities.

Jamie Prepare dinner

Hello, good morning and congratulations. Sorry Joe, one other query on backlog. Simply given the energy, was there something kind of one time in that backlog progress quantity or pull ahead maybe, , an announcement that you simply weren’t in a position to press launch. , me understanding the AIP that goes into subsequent quarter, however simply questioning if there’s a pull ahead in your understanding there’ll be Lumpiness, quarter to quarter. However do you continue to see an expectation the place you possibly can develop your backlog double digit as we exit 2026 for the total 12 months after which simply once more the expansion you’re seeing, is there any method, do you assume you’re outgrowing the marketplace for no matter motive? Aggressive positioning, product supplier? I’m simply questioning in the event you’re getting a better share of the market relative to your friends.

Thanks.

Joseph Creed

Yeah, thanks, Jamie. And good morning. , so far as orders within the quarter, in your first query, I believe nothing of serious be aware the place we had one thing that we couldn’t announce. I’d, , there are a pair issues exterior of energy and power. We talked about CI and the seasonality. I’d additionally say, , the sturdy orders in Rihanna, once more, these are ri. Generally is a lumpy enterprise and people orders are available, in large orders and it’s not, , regular. So we’re pleased to see the orders that got here in. , I don’t know that you would be able to rely on repeat each quarter of that as we exit.

We’ll see the place we exit this 12 months. Proper. We wish to ship plenty of product and, , I respect you requested this query final time as nicely. The backlog is a nuanced quantity. We’d like it to go up as a result of we’re including capability and different issues. But when I can sluggish that progress within the backlog as a result of I can considerably get extra product out whereas orders are nonetheless growing, that’s clearly an excellent factor as nicely. So we’re targeted on profitable as a lot of the enterprise as we will. We outpace the trade in CI. I believe we’re undoubtedly a market chief in energy and power for what we offer in that house, simply from a scale standpoint.

So. And now we have the widest providing under 38 megawatts between generators and engines and burn plenty of gas. So we really feel actually good in our aggressive place. From a lead time standpoint, they’re prolonged, however nonetheless, , we’re ready. We’re one of many quickest options on the market for knowledge facilities who’re attempting to rise up and working rapidly. So we’ll see how the 12 months performs out. However now we have nice momentum and hopefully I’m planning on and anticipate the momentum to proceed all through this 12 months.

operator

Our subsequent query comes from Jerry Rivich at Wells Fargo.

Jerry Revich

Sure, Hello. Good morning, everybody. I’m questioning, Joe, in the event you may simply speak about, for the turbine enterprise, you had spoken about potential for it for use in some peaker vegetation, plant functions by utilities. Any replace on how these conversations are monitoring once we may See these use circumstances. After which, , within the ready remarks, you people spoke about comparable shipments in 26 versus 25 for generators. However you’re ramping up actually vital deliveries in Titan 350s, I assumed in 26 versus 25. So I simply wish to make certain I’m not lacking any exterior shipments within the fourth quarter or some other shifting items there.

Thanks.

Joseph Creed

Yeah, I imply we’re, we’re seeing most, , the 351st items have gone out and we’re attempting to ramp 350. So it’s comparatively new product that’s going on the market. So, , photo voltaic had a report 12 months in 2025. We anticipate one thing comparable in 2026. We introduced the capability improve for photo voltaic, however once more we simply introduced that center of final 12 months, late final 12 months. In order that’s not going to essentially have a big impression into 2026 outcomes. I believe we’ll see a mixture to the bigger frames just like the 350 as we’re transport a couple of extra of these in 2026 as nicely.

After which we proceed to work all of the offers that we will for energy. And we’re seeing historically photo voltaic’s enterprise been very heavy, weighted in direction of oil and gasoline. That enterprise remains to be actually sturdy, however now we’re beginning to see extra of the combo shift into energy gen as nicely. So we’re anxious to get that capability program shifting alongside and we’ll present updates as we transfer all through it. We’d like to get extra product out, however proper now that’s what now we have line of sight to in 2020.

operator

Our subsequent query comes from Rob Wertheimer at Melius Analysis.

Robert Wertheimer

Thanks.

Joseph Creed

Good morning. Rob.

Robert Wertheimer

So the mission scope on the Monarch Knowledge heart appears fascinating and I’m wondering in the event you may give us a mini schooling. I believe that they’re going to make use of the waste warmth from the CAT engines to supply cooling to energy chillers. , there’s been an argument that mixed cycle and conjunction, , mixed cycle generators with steam turbine connected or greater effectivity. I don’t fairly know find out how to evaluate the effectivity with this, however clearly utilizing the waste warmth is sweet. And at Juul, I believe there was backup diesel with prime recips and gasoline. On this case, I believe you’re.

Are you simply over kind of overbuilding the gasoline recipes and there’s no diesel concerned. And final query, simply, , do you get plenty of inquiries on this kind of factor or is there’s a strong, , form of quoting in and exercise pipeline behind it? Thanks.

Joseph Creed

Rob. I want My engineers or Jason to speak to you on the technical specs of it. However , as you’re taking a look at clients who’re wanting velocity to market, bringing your individual energy is certainly one of many ways in which they will do this and we will assist them. And I believe when you make that call to go to gasoline prime energy and form of have your individual mini energy plant there with the gensets, we’ve been in a position to sit with them and say okay, let’s make it as environment friendly as potential. So clearly if we will use the warmth to assist with the cooling and use that power on web site, it makes the entire mission extra environment friendly and the competitiveness of it a lot better from a monetary standpoint.

So we proceed to work with all of our clients on that and I believe we’ll proceed to make headways. , we additionally, , announce partnerships with Vertiv. We’re looking for methods to make these options as price efficient and environment friendly as potential for our clients and we’re having plenty of these discussions. Juul I believe within the early days if I’m not mistaken was diesel backup however then switched to really gasoline fired quick begin backup energy as nicely. So all pure gasoline and I believe , the newest one is pure gasoline as nicely.

So that’s one of many nice issues about our portfolio. we as much as 38 megawatts, now we have all types of various options and we will configure it nonetheless is finest for that buyer web site, what sort of gas availability they’ve and the scale and what they’re attempting to do to make it essentially the most environment friendly. So now we have a crew that basically sits with clients and has turbine consultants and recip consultants on it. now we have plenty of micro grid expertise and basically that’s what these are. So we’re working with clients to place the perfect resolution ahead and I believe it’s going to be thrilling.

We’ve got increasingly discussions round it each day.

Alex Kapper

Audra, now we have time for yet another query.

operator

Thanks. At the moment’s last query comes from the road of Kristin Owen with Oppenheimer.

Kristen Owen

Good morning. Thanks a lot for taking the query. I’m going to ask a uncommon query on building industries and simply assist us unpack a number of the demand drivers that you simply’re seeing there. How a lot of that is simply only a return to a normalized substitute stage? How a lot of that is really supported by knowledge heart exercise and the way a lot ought to we anticipate is embedded in your market share progress for 2026? Thanks.

Joseph Creed

So I’ll make some feedback. Andrew, you possibly can chime in right here however we anticipate North America to proceed to be sturdy. Clearly, the info heart construct out is not only good for for energy and power. That drives plenty of building exercise as nicely. There are a selection of different building initiatives shifting alongside and as we mentioned in our ready remarks, we proceed to see that energy right here in North America. IIJA spending nonetheless persevering with to go on. The Center east specifically continues to be actually sturdy after which we anticipate China has been actually low and we’ll hopefully see some positivity there in above 10 ton excavators coming off low ranges as we enter into this 12 months from a aggressive standpoint, we made nice progress and had been in a position to outperform the trade final 12 months with the energy of our merchandising applications.

We’ve got thrilling issues to proceed to roll out. We proceed to work on our rental technique with our sellers. We’ll have some issues to share at Conexpo as nicely in the case of our, , BCP gear within the smaller a part of the CI lineup which has a ton of momentum within the trade. So we really feel fairly good about our means in CI. It’s a few of that order energy is getting again to that extra regular seasonal sample. However now we have nice confidence across the trade and the place it’s heading. So with that I wish to thanks all for becoming a member of us at the moment and we respect your questions.

An curiosity in Caterpillar. I’m actually pleased with our crew. We had distinctive efficiency in 2025 as they delivered report gross sales and revenues, adjusted working revenue margin that was inside our vary and strong MP and E free money circulation. These outcomes display the energy of our finish markets and our crew’s disciplined execution. So with a report backlog, we enter the brand new 12 months with sturdy momentum and a continued give attention to delivering long run worth for our clients and our shareholders. Now I’ll flip it again to Alex.

Alex Kapper

Thanks Joe, Andrew and everybody who joined us at the moment. A replay of our name will probably be accessible on-line later this morning. We’ll additionally put up a transcript on our investor relations web site as quickly because it’s accessible. You’ll additionally discover a fourth quarter outcomes video with our CFO and an SEC submitting with our gross sales to customers knowledge. Click on on traders.caterpillar.com after which click on on Financials to view these supplies. When you have any questions, please attain out to me or Rob Rengel. The Investor Relations Journal. Cellphone quantity is 309-675-4549. Now let’s flip it again to Audra.

operator

To conclude our name that concludes our name. Thanks for becoming a member of. You might all disconnect. Sa.

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