Financial Trends -- 6/10
CAT delivered record $67.6B revenue in FY2025 (+4.3% YoY) but profitability deteriorated
significantly: diluted EPS fell -14.7% to $18.81, adjusted operating margin compressed
-350 bps to 17.2%, and gross margin declined -420 bps to 33.8%. Tariff headwinds of $1.7B
drove much of the margin erosion. The bifurcation is stark -- E&T surged +12.7% (accelerating
to +24.7% in Q4) on data center power generation demand, while CI declined -2.1% and RI was
roughly flat. Record backlog of $51.2B (+70.7% YoY) provides exceptional forward visibility.
ME&T FCF remained robust at $9.5B despite earnings decline.
Weight: 25%
FY25 Revenue
$67.6B
+4.3% YoY | Record
FY25 Diluted EPS
$18.81
-14.7% YoY | First decline since 2020
Order Backlog
$51.2B
+70.7% YoY | Unprecedented
ME&T Free Cash Flow
$9.5B
+1.1% YoY | Resilient
Annual Financial Summary (FY ends December)
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Revenue ($B) | $51.0B | $59.4B | $67.1B | $64.8B | $67.6B |
| Rev YoY | +22.1% | +16.6% | +12.8% | -3.4% | +4.3% |
| Gross Margin | — | — | 36.2% | 38.0% | 33.8% |
| GAAP Op Margin | — | — | 19.3% | 20.2% | 16.5% |
| Adj. Op Margin | — | — | 20.5% | 20.7% | 17.2% |
| Diluted EPS | — | — | $20.12 | $22.05 | $18.81 |
| EPS YoY | — | — | +59.2% | +9.6% | -14.7% |
| ME&T FCF ($B) | — | — | $10.0B | $9.4B | $9.5B |
| FCF YoY | — | — | +73.1% | -6.0% | +1.1% |
| Diluted Shares (M) | — | — | 513.6 | 489.4 | 472.3 |
| Share YoY | — | — | -3.2% | -4.7% | -3.5% |
| Order Backlog ($B) | — | — | $27.5B | $30.0B | $51.2B |
| Backlog YoY | — | — | -9.5% | +9.1% | +70.7% |
Key trends -- annual
- Revenue peaked in FY2023 at $67.1B, declined -3.4% in FY2024 on dealer destocking and CI/RI weakness, then recovered to record $67.6B in FY2025 (+4.3%) driven by E&T
- Margin compression is the key concern: Adjusted OPM fell from 20.7% (FY2024) to 17.2% (FY2025), -350 bps. Gross margin declined -420 bps to 33.8%. Tariff headwinds of $1.7B and unfavorable mix drove the erosion
- EPS declining for the first time since 2020: $22.05 (FY2024) to $18.81 (FY2025), -14.7%. All four quarters showed YoY EPS declines
- Backlog at unprecedented $51.2B: +70.7% YoY, up $21.2B sequentially from Q3. Next-12-month shippable backlog up ~44% YoY per analyst commentary
- Consistent buyback program: Diluted shares declined from 513.6M to 472.3M over FY2023-FY2025 (-3-5% annually). Period-end shares at 465.3M
Quarterly Revenue Trajectory ($B, 8 Quarters)
Revenue inflected sharply positive in 2H25.
The acceleration from -9.8% in Q1 to +18.0% in Q4 represents a ~2,780 bps swing.
Q4 revenue of $19.1B was the highest single quarter in company history, driven
overwhelmingly by E&T segment strength.
Segment Revenue -- External Sales ($B)
- E&T is the growth engine: +12.7% FY2025, accelerating from +3.1% in FY2024. Data center power generation demand (reciprocating engines, Solar turbines) is the primary driver. Management targeting 50 GW power capacity by 2030
- CI still declining but inflecting: -2.1% FY2025 vs. -7.1% in FY2024. Quarterly trajectory troughed at -19.8% in Q1 25 and turned positive in Q3 (+5.9%) and Q4 (+14.9%)
- RI stabilizing: +1.4% FY2025 after -9.3% in FY2024, roughly flat
E&T Quarterly Revenue ($B) -- Accelerating Growth
E&T in a powerful, accelerating growth phase.
From -1.6% YoY in Q1 25 to +24.7% in Q4 25 -- a ~2,630 bps acceleration over the year.
Driven by data center power generation (both reciprocating engines and Solar turbines).
Solar had a record year in 2025 per management. Planning with largest data center
customers "years in advance."
CI Quarterly Revenue ($B) -- Inflecting Positive
- CI troughed in Q1 2025 (-19.8%) and inflected positive in Q3, aided by data center construction demand and the lapping of dealer destocking
- Management noted on Q4 25 call: North America expected to remain strong as data center build-out drives significant construction activity
Segment Operating Margins (%)
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| CI | 25.4% | 24.2% | 18.7% |
| RI | 20.9% | 20.4% | 15.9% |
| E&T | 17.6% | 19.9% | 19.9% |
- E&T held margins flat at 19.9% despite tariff headwinds -- impressive given massive revenue growth. Would have expanded substantially without tariff impact
- CI margins collapsed -550 bps (24.2% to 18.7%), reflecting volume deleverage and tariff costs
- RI margins fell -450 bps (20.4% to 15.9%), similar dynamics to CI
Consolidated Operating Margin Trends
Q4 margin collapse to 13.9% is concerning -- worst since 2020.
Adj. OPM declined -350 bps YoY to 17.2% for FY2025, driven by $1.7B in net tariff
headwinds and CI/RI volume deleverage. The mix shift toward E&T (lower absolute margins
than peak CI) and accelerating tariff costs drove Q4 deterioration. Gross margin declined
-420 bps to 33.8% as tariff costs flowed through COGS.
Diluted EPS
- EPS declined 14.7% in FY2025 -- the first annual decline since 2020
- All four quarters showed YoY EPS declines: Q1 -27.0%, Q2 -15.7%, Q3 -3.6%, Q4 -11.4%
- Q3 narrowing to -3.6% suggested improvement, but Q4 re-widened to -11.4% on margin compression
- Adjusted EPS was $19.06 per management commentary
ME&T Free Cash Flow ($B)
FCF resilience despite earnings decline.
ME&T FCF remained robust at $9.5B, essentially flat YoY (+1.1%). Strong cash conversion
and working capital management offset the profitability erosion. This supports continued
capital return (buybacks, dividends) even in a margin compression environment.
Order Backlog ($B)
Backlog surged to unprecedented $51.2B at year-end 2025.
Up 70.7% YoY and up $21.2B sequentially from Q3. The quarterly trajectory shows
accelerating growth: +25.4%, +31.1%, +38.7%, +70.7% through 2025. CEO Creed on Q4 25
call: "Really excited about how we finished the year with our backlog at $51 billion."
Next-12-month shippable backlog up ~44% YoY, suggesting strong revenue visibility
into 2026.
Diluted Shares Outstanding
- Consistent buyback program reducing share count ~3-5% annually
- Over 5 years, diluted shares declined from 548.6M to 472.3M (-13.9%)
- Period-end shares at 465.3M at FY2025
YoY Growth Rate Trajectory (8 Quarters)
| Metric | Q1 24 | Q2 24 | Q3 24 | Q4 24 | Q1 25 | Q2 25 | Q3 25 | Q4 25 |
|---|---|---|---|---|---|---|---|---|
| Revenue YoY | -0.4% | -3.6% | -4.2% | -5.0% | -9.8% | -0.7% | +9.5% | +18.0% |
| E&T YoY | +8.5% | +2.1% | +4.3% | -1.1% | -1.6% | +7.9% | +17.6% | +24.7% |
| Trend | Stable | Decel. | Decel. | Decel. | Trough | Inflecting | Accel. | Accel. |
- Consolidated revenue: Sharp V-shaped recovery. Trough at -9.8% in Q1 25, inflected to +18.0% in Q4 25 -- a ~2,780 bps swing in a single year
- E&T driving the inflection: From -1.6% (Q1 25) to +24.7% (Q4 25), with each quarter accelerating sequentially in 2H25
- Key tension: Revenue re-accelerating but margins still compressing. The mix shift toward E&T and $1.7B tariff headwinds are offsetting top-line improvement at the profitability level
Score rationale
Score of 6/10 reflects the genuine bifurcation between extraordinary forward indicators and current earnings deterioration.
Positives (net +3.5): Record backlog of $51.2B, +70.7% YoY, with next-12-month shippable up ~44% (+1.5). E&T accelerating growth, +12.7% FY and +24.7% in Q4, driven by data center power generation secular tailwind (+1.0). FCF resilience at $9.5B despite earnings decline (+0.5). Revenue re-acceleration, Q4 at +18.0% YoY (+0.5).
Negatives (net -2.5): EPS declining -14.7% FY, first annual decline since 2020, all 4 quarters negative YoY (-1.0). Margin compression of -350 bps adjusted OPM, tariff headwinds of $1.7B, Q4 GAAP OPM collapsed to 13.9% (-1.0). CI revenue still declining -2.1% FY, though inflecting (-0.5).
Base: 5.0 + 3.5 - 2.5 = 6.0
Forward outlook: The $51.2B backlog is unprecedented and provides exceptional revenue visibility. E&T is in a structural growth phase driven by data center power demand. However, tariff mitigation remains incomplete -- management indicated all options are on the table including further pricing actions in 2026. The 2026 revenue guide implies ~7% top-line growth plus 2% incremental pricing. The key question is whether margin recovery can accompany the revenue growth.
Data sourced from Daloopa and CAT earnings releases. All financials in USD. Fiscal year ends December.