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CAT Down 5% Since Q2 Earnings Miss: Buy, Sell or Hold the Stock?
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Key Takeaways
Caterpillar posted its sixth straight quarter of revenue decline and fourth of earnings decline.
Q2 volumes rebounded, led by gains in Energy & Transportation, offsetting other segment declines.
CAT now sees 2025 revenues slightly higher than 2024, with margins hit by tariff costs.
Caterpillar Inc. (CAT - Free Report) recently reported second-quarter 2025 results, with the mining and construction equipment behemoth witnessing year-over-year declines in its top and bottom lines. While revenues beat the Zacks Consensus Estimate, earnings fell short. The quarter marked CAT’s sixth consecutive quarter of revenue decline and the fourth straight quarter of earnings decline.
Following this performance, CAT shares have dipped 5%. Despite this, CAT stock has notched a 13.7% year-to-date gain compared with the industry’s 11.9% growth. In comparison, the Zacks Industrial Products sector has gained 5%. Meanwhile, the S&P 500 has risen 8.2%.
CAT’s Price Performance vs. Industry & Broader Market
Image Source: Zacks Investment Research
Meanwhile, peer Komatsu (KMTUY - Free Report) has fared better with a year-to-date 23.9% rise. Terex Corporation (TEX - Free Report) and The Manitowoc Company (MTW - Free Report) have lagged CAT stock, gaining 9.6% and 7.5%, respectively.
CAT’s YTD Price Performance vs. Komatsu, Terex & Manitowoc
Image Source: Zacks Investment Research
Before addressing the critical question of how investors should position themselves regarding the stock, let us dig deeper into the second-quarter results and evaluate CAT stock’s fundamentals.
Caterpillar’s Q2 Revenues, Profits & Cash Flow Fall
Caterpillar’s revenues declined 1% year over year to $16.6 billion as unfavorable price realization offset higher volumes.
Adjusted operating profit was around $2.92 billion, down 22% from the year-ago quarter. The adjusted operating margin was 17.6% compared with 22.4% in the second quarter of 2024.
Caterpillar generated an operating cash flow of $4.4 billion in the first half of 2025 compared with $5.07 billion in the prior-year comparable period.
Few Bright Spots Worth Noting in CAT’s Q2 Results
Caterpillar reported a turnaround in volume performance in the second quarter of 2025, with a net volume increase of $237 million. This marks a recovery after six straight quarters of volume declines. The rebound was largely driven by a $326 million boost in the Energy & Transportation (E&T) segment, which offset volume declines of $83 million in Construction Industries and $13 million in Resource Industries.
CAT has been impacted by the downturn in China's real estate sector, particularly for 10-ton and larger excavators, which were once a key market for the company. The company recently pointed out that China has shown positive momentum this year and it expects growth 10-ton and above excavator industry. Caterpillar ended the quarter with a solid backlog of $37.5 billion.
Caterpillar Updates Outlook for 2025
CAT now expects 2025 revenues to be slightly higher than 2024, an improvement from its prior projection of flat revenues.
The company outlined its expectations for 2025 operating margins, including and excluding net incremental tariffs of around $1.3-$1.5B. Excluding tariffs, adjusted operating margin is expected to be in the top half of its target range, corresponding to the anticipated level of revenues. Considering the impact of tariffs, Caterpillar expects the adjusted operating margin to be in the bottom half of its target range.
The company maintains its revenue projection at $42-$72 billion, and margins are anticipated between 10% and 22%, per the respective revenue levels. This is shown in the chart below.
CAT's Guidance Range
Image Source: Caterpillar
CAT Sees Mixed Estimate Revision Activity
Earnings estimates for CAT have moved down 1.66% for 2025 over the past 60 days. However, the estimate for 2026 has moved up 0.85%.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2025 indicates a year-over-year decline of 16%. The same for 2026 implies 15.7% growth.
Image Source: Zacks Investment Research
Caterpillar Continues to Battle Industry Pressures
The U.S. manufacturing sector underwent a 26-month contraction till December 2024. Even though the Institute for Supply Management’s manufacturing index showed expansion in January and February with readings above 50%, it was short-lived, with the index slipping to 49% in March. It has remained in contraction for five months now, with the last reading at 48% in July.
The New Orders Index has been in contraction for six months, with a July reading of 47.1%. Rising concerns over tariffs led customers to scale back orders.
Caterpillar’s Premium Valuation
CAT is currently trading at a forward 12-month P/E of 20.51X, at a premium compared with the industry’s 19.46X. It’s Value Score of D suggests a stretched valuation at this moment.
Image Source: Zacks Investment Research
Meanwhile, Komatsu, Terex and Manitowoc are cheaper options, trading at a forward 12-month P/E of 12.06X, 9.6X and 12.08X, respectively.
CAT’s Long-Term Growth Drivers Remain Intact
Despite short-term challenges, Caterpillar’s long-term outlook is supported by expected increases in U.S. infrastructure spending and growing demand for mining equipment due to the energy transition. As miners are increasingly relying on autonomy to increase productivity and efficiency and improve safety, CAT has been focusing on enhancing its autonomous fleet.
In Energy and Transportation, the increased focus on sustainability and the establishment of data centers will drive the demand for Caterpillar’s equipment. CAT has been seeing growth in aftermarket parts and service-related revenues, which generate high margins. The company is on track to double its service revenues from $14 billion in 2016 to $28 billion in 2026.
CAT’s 1.80% dividend yield is higher than the sector’s yield of 1.39% and the S&P 500’s 1.15%. The company has a five-year dividend growth rate of 7.9% and a payout ratio of around 30.3%. Caterpillar has a solid track of paying out higher dividends to shareholders for 30 straight years.
In comparison, Komatsu has a higher dividend yield of 3.85%. Terex has a dividend yield of 1.34% and Manitowoc currently does not pay any dividends.
How Should Investors Approach CAT Stock Now?
Caterpillar’s premium valuation, coupled with ongoing declines in revenues and earnings, industry pressures and downward estimate revision activity for the current year, suggests caution for new investors.
Existing shareholders should stay invested in Caterpillar’s stock to benefit from its solid long-term demand prospects, backed by infrastructure spending and energy-transition trends, as well as its focus on growing service revenues. CAT’s strong financial position enables it to invest in its businesses and return cash to shareholders through share buybacks and consistent dividend payments. The company currently has a Zacks Rank #3 (Hold), which supports our thesis.
Image: Bigstock
CAT Down 5% Since Q2 Earnings Miss: Buy, Sell or Hold the Stock?
Key Takeaways
Caterpillar Inc. (CAT - Free Report) recently reported second-quarter 2025 results, with the mining and construction equipment behemoth witnessing year-over-year declines in its top and bottom lines. While revenues beat the Zacks Consensus Estimate, earnings fell short. The quarter marked CAT’s sixth consecutive quarter of revenue decline and the fourth straight quarter of earnings decline.
Following this performance, CAT shares have dipped 5%. Despite this, CAT stock has notched a 13.7% year-to-date gain compared with the industry’s 11.9% growth. In comparison, the Zacks Industrial Products sector has gained 5%. Meanwhile, the S&P 500 has risen 8.2%.
CAT’s Price Performance vs. Industry & Broader Market
Image Source: Zacks Investment Research
Meanwhile, peer Komatsu (KMTUY - Free Report) has fared better with a year-to-date 23.9% rise. Terex Corporation (TEX - Free Report) and The Manitowoc Company (MTW - Free Report) have lagged CAT stock, gaining 9.6% and 7.5%, respectively.
CAT’s YTD Price Performance vs. Komatsu, Terex & Manitowoc
Image Source: Zacks Investment Research
Before addressing the critical question of how investors should position themselves regarding the stock, let us dig deeper into the second-quarter results and evaluate CAT stock’s fundamentals.
Caterpillar’s Q2 Revenues, Profits & Cash Flow Fall
Caterpillar’s revenues declined 1% year over year to $16.6 billion as unfavorable price realization offset higher volumes.
Adjusted operating profit was around $2.92 billion, down 22% from the year-ago quarter. The adjusted operating margin was 17.6% compared with 22.4% in the second quarter of 2024.
Earnings per share were $4.72, which came in 21% lower than the year-ago quarter owing to lower revenues and the impact of tariffs. For more details, read: CAT Q2 Earnings Miss Estimates, Down Y/Y on Tariff-Driven Cost Surge.
Caterpillar generated an operating cash flow of $4.4 billion in the first half of 2025 compared with $5.07 billion in the prior-year comparable period.
Few Bright Spots Worth Noting in CAT’s Q2 Results
Caterpillar reported a turnaround in volume performance in the second quarter of 2025, with a net volume increase of $237 million. This marks a recovery after six straight quarters of volume declines. The rebound was largely driven by a $326 million boost in the Energy & Transportation (E&T) segment, which offset volume declines of $83 million in Construction Industries and $13 million in Resource Industries.
CAT has been impacted by the downturn in China's real estate sector, particularly for 10-ton and larger excavators, which were once a key market for the company. The company recently pointed out that China has shown positive momentum this year and it expects growth 10-ton and above excavator industry.
Caterpillar ended the quarter with a solid backlog of $37.5 billion.
Caterpillar Updates Outlook for 2025
CAT now expects 2025 revenues to be slightly higher than 2024, an improvement from its prior projection of flat revenues.
The company outlined its expectations for 2025 operating margins, including and excluding net incremental tariffs of around $1.3-$1.5B. Excluding tariffs, adjusted operating margin is expected to be in the top half of its target range, corresponding to the anticipated level of revenues. Considering the impact of tariffs, Caterpillar expects the adjusted operating margin to be in the bottom half of its target range.
The company maintains its revenue projection at $42-$72 billion, and margins are anticipated between 10% and 22%, per the respective revenue levels. This is shown in the chart below.
CAT's Guidance Range
Image Source: Caterpillar
CAT Sees Mixed Estimate Revision Activity
Earnings estimates for CAT have moved down 1.66% for 2025 over the past 60 days. However, the estimate for 2026 has moved up 0.85%.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2025 indicates a year-over-year decline of 16%. The same for 2026 implies 15.7% growth.
Image Source: Zacks Investment Research
Caterpillar Continues to Battle Industry Pressures
The U.S. manufacturing sector underwent a 26-month contraction till December 2024. Even though the Institute for Supply Management’s manufacturing index showed expansion in January and February with readings above 50%, it was short-lived, with the index slipping to 49% in March. It has remained in contraction for five months now, with the last reading at 48% in July.
The New Orders Index has been in contraction for six months, with a July reading of 47.1%. Rising concerns over tariffs led customers to scale back orders.
Caterpillar’s Premium Valuation
CAT is currently trading at a forward 12-month P/E of 20.51X, at a premium compared with the industry’s 19.46X. It’s Value Score of D suggests a stretched valuation at this moment.
Image Source: Zacks Investment Research
Meanwhile, Komatsu, Terex and Manitowoc are cheaper options, trading at a forward 12-month P/E of 12.06X, 9.6X and 12.08X, respectively.
CAT’s Long-Term Growth Drivers Remain Intact
Despite short-term challenges, Caterpillar’s long-term outlook is supported by expected increases in U.S. infrastructure spending and growing demand for mining equipment due to the energy transition. As miners are increasingly relying on autonomy to increase productivity and efficiency and improve safety, CAT has been focusing on enhancing its autonomous fleet.
In Energy and Transportation, the increased focus on sustainability and the establishment of data centers will drive the demand for Caterpillar’s equipment. CAT has been seeing growth in aftermarket parts and service-related revenues, which generate high margins. The company is on track to double its service revenues from $14 billion in 2016 to $28 billion in 2026.
Caterpillar Offers Attractive Dividend Yield & Payout
CAT’s 1.80% dividend yield is higher than the sector’s yield of 1.39% and the S&P 500’s 1.15%. The company has a five-year dividend growth rate of 7.9% and a payout ratio of around 30.3%. Caterpillar has a solid track of paying out higher dividends to shareholders for 30 straight years.
In comparison, Komatsu has a higher dividend yield of 3.85%. Terex has a dividend yield of 1.34% and Manitowoc currently does not pay any dividends.
How Should Investors Approach CAT Stock Now?
Caterpillar’s premium valuation, coupled with ongoing declines in revenues and earnings, industry pressures and downward estimate revision activity for the current year, suggests caution for new investors.
Existing shareholders should stay invested in Caterpillar’s stock to benefit from its solid long-term demand prospects, backed by infrastructure spending and energy-transition trends, as well as its focus on growing service revenues. CAT’s strong financial position enables it to invest in its businesses and return cash to shareholders through share buybacks and consistent dividend payments. The company currently has a Zacks Rank #3 (Hold), which supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.