Rising Tariffs Undercut Caterpillar's Q2 Performance Even As Order Backlog Swells By $2.5 Billion

Caterpillar Inc. (NYSE:CAT) reported second-quarter 2025 revenue of $16.569 billion, down 1 percent from $16.689 billion a year earlier, beating the analyst consensus of $16.17 billion.

The adjusted earnings per share of $4.72 missed the $4.90 estimate. GAAP earnings per share were $4.62, compared with $5.48 in the prior-year period.

GAAP operating profit was $2.860 billion, representing a 17.3% margin, a decrease of $622 million, or 18% YoY, compared with $3.482 billion. This was primarily due to unfavorable manufacturing costs, which the company repeatedly said "largely reflected the impact of higher tariffs.". Adjusted operating profit was $2.916 billion, with a 17.6% margin, down from 22.4% a year ago.

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Enterprise operating cash flow was $3.1 billion for the quarter. Machinery, Energy & Transportation (ME&T) free cash flow was $1.5 billion. The company ended the quarter with $5.4 billion in enterprise cash. During the period, Caterpillar repurchased $800 million of common stock and paid $700 million in dividends.

Construction Industries posted sales of $6.190 billion, down 7% from $6.683 billion a year ago. Segment profit declined 29% to $1.244 billion, and the segment margin fell to 20.1% from 26.1%.

Management attributed the margin pressure to unfavorable price realization and "unfavorable manufacturing costs largely reflected the impact of higher tariffs."

Resource Industries reported sales of $3.087 billion, a 4% decrease year-over-year. Segment profit fell 25% to $537 million. The company again cited "unfavorable manufacturing costs largely reflected the impact of higher tariffs" as a key driver of the profit decline.

Energy & Transportation generated $7.836 billion in sales, up 7% from $7.337 billion in the prior-year quarter. Segment profit rose 4% to $1.585 billion, though the margin declined slightly to 20.2%. Higher manufacturing costs due to tariffs contributed to the margin compression.

Financial Products revenue rose 4% to $1.042 billion. Segment profit increased 9% to $248 million, driven by higher average earning assets and gains on equity securities, partially offset by increased provision for credit losses.

Geographically, North America sales declined about 2 percent to approximately $8.9 billion, while Latin America revenue fell 4 percent. In contrast, EAME (Europe, Africa, Middle East) posted a 6 percent increase in regional sales, and Asia Pacific posted flat or unchanged revenue versus the prior-year quarter.

Caterpillar said the order backlog increased by approximately $2.5 billion during the quarter across all primary segments.

Outlook

The company expects Q3 2025 incremental tariff costs to range between $400 million and $500 million. For the full year, it estimates net incremental tariff costs of $1.3 billion to $1.5 billion.

Caterpillar anticipates full-year sales to be slightly higher than 2024 and expects ME&T free cash flow to be around the middle of its $5 billion to $10 billion targeted range.

It reaffirmed that full-year adjusted operating profit margin is expected to be in the top half of the targeted range, excluding tariffs, and in the bottom half, including tariffs.

In the conference call, the company stated, "Including the net impact from incremental tariffs, we expect third quarter enterprise adjusted operating profit margin to be lower versus the prior year."

Price Action: At the last check on Tuesday, CAT shares were trading higher by 0.21% at $434.63.

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