Caterpillar reported a 10% drop first quarter revenue to $14.2bn ($14.7bn expected). That was largely driven by lower volumes, but also weaker pricing and some currency impacts.
Operating profit fell 27% to $2.6bn ($2.7bn expected).
The core construction business generated free cash flow of $0.2bn, down from $1.3bn the prior year.
Looking ahead, second-quarter revenue is expected to be flat year-on-year with a $250-$300mn cost headwind from tariffs. Assuming tariffs stay as they are, full year guidance is unchanged – revenue is expected down slightly with free cash flow of $5-10bn.
The shares opened 2.5% higher.
Our view
Caterpillar’s first quarter reflects a weakening market, but the first quarter was a little better than feared and that’s given management confidence in the outlook. Tariff impacts are hard to accurately model, but the underlying business is tracking better than expected. When we add in low expectations, results were taken favourably on the day.
There’s also a change in leadership, with the current CEO stepping into the Chairman position and veteran Joseph Creed taking the CEO seat. Given that the moves are both internal, we don’t expect any material strategy changes.
For nearly a century, the company's built mission-critical heavy machinery, which has led to its position as one of the world's most valuable brands. Three key pillars underpin the business model; Construction Industries, Resource Industries and Energy & Transportation.
Despite some softening in the near-term outlook, we see longer-term positives in all three. Infrastructure spend has tailwinds from government-related investment in the US. For mining equipment, commodity prices have come down, but remain high enough for continued investment. Longer term, we see increased demand for materials that help support the global energy transition and Caterpillars products help make that a reality.
The AI wave is touching everyone and with huge investment in data centre buildouts, Caterpillar looks set to benefit. It’s increasing investment in some of its products that help support the buildout which we think is a smart move.
In Energy & Transportation, demand for oil & gas related products could well be peaking. It's in the more environmentally friendly offerings that we see longer-term potential, innovations like green hydrogen generators can help end customers meet their climate-related objectives.
Running across all three segments is the services offering, where Caterpillar offers repairs and upgrades throughout its products' life cycles. This helps support revenue streams and is an offering that's gone from strength to strength.
A positive outlook for 2025 free cash flow was welcome news and helps to ease the pressures that the heavy debt load brings. As a mature business, it can stomach a higher debt load, and levels relative to profits have been steady over time. That cash flow also supports shareholder returns, with $4.3bn returned in the first quarter – though no returns are guaranteed.
Caterpillar offers indirect exposure to a range of end markets. Looking further out, we remain confident in the longer-term industry growth drivers, and like Caterpillar as a business leader. We do see some uncertainty in the near term as tariff impacts play out over the rest of the year.
Environmental, social and governance (ESG) risk
General Industrial companies are medium risk in terms of ESG but can trend up to the higher end of the spectrum depending on subindustry. The primary risks can include labour relations, emissions (either product or production-based), business ethics and product governance. Other concerns are waste and health & safety.
According to Sustainalytics, Caterpillar’s management of material ESG issues is average.
Caterpillar prohibits bribery, requiring employees to complete yearly code of conduct training. While its audit committee oversees compliance, the company recently faced a U.S. investigation into tax and export practices, resulting in a settlement with the IRS in late 2022 without penalties. Caterpillar highlights its efforts in talent recruitment and development but lacks disclosures on employee turnover and the scope of its product quality certifications across manufacturing operations.
Caterpillar key facts
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