As at 8 June 2026

Executive Summary

Key highlights

In this report, we review CAT’s reported 1Q26 results and evaluate the impact on our outlook:

Financial results at a glance:

• Sales increased by 22%, from $14.2 billion in 1Q25 to $17.4 billion in 1Q26, driven by higher volumes, favourable pricing and currency movements. MP&E sales improved by 23%, from $13.4 billion to $16.5 billion, accounting for approximately 95% of group sales. The $3.1 billion increase in MP&E sales was driven by $2.3 billion of higher sales volume, $426 million of favourable price realisation, and $351 million of currency benefit. However, the volume growth was not solely attributable to end-user demand: CAT noted that higher volume was mainly driven by dealer inventory changes and higher equipment sales to end users, with dealer inventory rising more in 1Q26 than in 1Q25. While dealer restocking supports near-term sales growth, it could reverse if retail demand softens.

• Operating costs rose by 23%, from $11.7 billion in 1Q25 to $14.3 billion in 1Q26, with the cost of goods sold increasing by 26%, from $9 billion to $11.3 billion, reflecting higher sales volumes and tariff-related manufacturing cost pressure. Selling, general and administrative (SG&A) grew by 14%, from $1.6 billion to $1.8 billion, while research and development (R&D) expenditure increased by 12%, from $480 million to $540 million. However, the key margin headwind was not the volume-driven increase in costs, but rather the $710 million in unfavourable manufacturing costs, which were largely tariff-related.

• Operating profit advanced by 20%, from $2.6 billion to $3.1 billion, but the operating margin declined from 18.1% to 17.7%, reflecting the impact of tariff-related costs and broader cost inflation pressure, which offset some of the benefits of strong sales growth.

• Diluted earnings per share (EPS) increased by 30%, from $4.20 in 1Q25 to $5.47 in 1Q26, while adjusted EPS also rose by 30%, from $4.25 to $5.54 over the same period.

• Sales improved across all three primary segments. The construction industry was the largest growth contributor, with sales rising by 38%, from $5.2 billion in 1Q25 to $7.2 billion in 1Q26, contributing $2 billion of the $3.2 billion consolidated sales increase. Power and energy sales grew by 22%, from $5.8 billion to $7 billion, adding $1.2 billion, supported by power-generation demand. Resource industries' sales rose by 4%, from $3.7 billion to $3.8 billion over the same period.

• Enterprise operating cash flow expanded by 45%, from $1.3 billion in 1Q25 to $1.9 billion in 1Q26. CAT returned $5.7 billion to shareholders during the quarter, comprising of $5 billion in buybacks and $700 million in dividends. The results support resilient demand and capital returns, but dealer inventory rebuilds and tariff-related manufacturing costs remain key watchpoints.

Analyst thesis

Our recommendation is based on:

• Caterpillar's (CAT) scale, dealer network and installed base provide a structural advantage versus the average industrial company. Its broad product portfolio, global dealer support, and more than 1.6 million connected assets strengthen customer retention, aftermarket capture, and pricing power, which should support more resilient earnings through the cycle.

• The business is well-positioned across several long-duration capex themes, including data centres, grid reinforcement, energy infrastructure, mining, and critical minerals. Power & Energy are becoming increasingly important parts of the investment case as growing demand for artificial intelligence (AI)/data-centre power increases the need for reciprocating engines, turbines and integrated power solutions.

• Services is a key earnings-quality lever, with FY25 Machinery, Power & Energy (MP&E) services revenue of $24 billion representing approximately 36% of group sales. This aftermarket, maintenance and lifecycle-support revenue is more recurring and annuity-like than original equipment sales, helping to reduce earnings volatility in an otherwise cyclical business.

• Order backlog increased by 79%, from $35 billion in 1Q25 to $63 billion in 1Q26, improving revenue visibility, particularly in Power & Energy.

• While the long-term fundamentals remain attractive, we believe the current share price already reflects a meaningful portion of the improved growth outlook. We therefore have a hold recommendation, balancing CAT’s stronger structural positioning against elevated valuation, tariff-related cost pressure, and normal cyclicality in its end markets.