We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Can Caterpillar Sustain Margins Amid Rising Tariff Pressures?
Read MoreHide Full Article
Key Takeaways
Caterpillar's Q1 adjusted operating margin fell to 18% as tariffs lifted manufacturing costs.
CAT expects a $2.2B-$2.4B tariff hit in 2026, with margins near the low end of targets.
Terex and Komatsu also reported weaker margins tied to tariffs and rising production costs.
Caterpillar Inc. (CAT - Free Report) has been facing mounting cost pressures, with tariffs being the major factor. In the first quarter, CAT’s cost of goods sold surged 26% year over year, reflecting elevated manufacturing costs and a $600 million tariff impact. At the same time, selling, general and administrative expenses rose 14%, while research and development spending increased 12%, intensifying the pressure on margins. As a result, Caterpillar’s adjusted operating margin slipped to 18% from 18.3% in the prior-year quarter.
The impact of tariffs was pronounced in the Resource Industries segment, with segment margin contracting 700 basis points to 10.0%, mainly due to tariff costs, which had an impact of about 500 basis points. Even though the Construction Industries segment’s margin improved 160 basis points to 21.4%, it was not immune to rising costs, with tariffs lowering margins by nearly 550 basis points. The Power and Energy segment's margin contracted 170 basis points to 20.6%. Tariffs had a 270-basis point impact.
In 2025, the company estimated an impact of $1.8 billion on its costs. Cost of sales rose 11% year over year to $44.7 billion and Caterpillar witnessed a 350-basis-point year-over-year contraction in its adjusted operating margin to 17.2%.
Caterpillar expects incremental tariff costs of around $700 million in the second quarter of 2026 compared with $400 million in the year-ago quarter. About 50% of the tariff costs are to be incurred in Construction Industries and 25% in both Power and Energy and Resource Industries. Full-year tariff impact is estimated at $2.2-$2.4 billion in 2026. Operating margin for the year is expected to be near the bottom of the company’s annual target range.
At approximately $60 billion in revenues, Caterpillar’s adjusted operating margins are projected to range between 15% and 19%. If revenues increase to $72 billion, margins could improve to 18–22%, while a stronger revenue scenario of $100 billion could support margins in the 21–25% range.
Among peers, Terex Corporation (TEX - Free Report) also faced cost pressures, with its adjusted cost of goods sold surging 44% to $1.4 billion in the first quarter of 2026. In 2025, Terex’s costs of goods sold had risen 7%. Terex reported a 100-basis point decline in operating margin to 10.4% in 2025 due to lower volumes, unfavorable manufacturing variances stemming from proactive production cuts and tariff impacts, partially offset by cost-efficiency initiatives and contributions from its ESG acquisition. In the first quarter of 2026, Terex’s operating margin was 8.7% compared with 9% in the year-ago quarter.
Komatsu Ltd. (KMTUY - Free Report) reported a 230-basis point contraction in operating margin to 13.7% in fiscal 2025 (ended March 31, 2026) due to additional U.S. tariffs. This was mainly due to the Construction, Mining and Utility Equipment segment, which saw a 18% drop in operating profit, offset by higher profit in Industrial Machinery and Retail Finance.
The Construction, Mining and Utility Equipment segment’s profit was impacted by lower volumes, product mix and higher costs due to tariffs in production costs offsetting higher selling prices. Komatsu estimates an incremental cost impact of 37.8 billion yen ($0.24 billion) from tariffs in fiscal 2026. Operating profit is expected to decline 10.5% in fiscal 2026.
CAT’s Price Performance, Valuation & Estimates
CAT shares have gained 163.1% in a year compared with the industry’s 135.3% growth. The Zacks Industrial Products sector has gained 24.8% and the S&P 500 has moved up 30.8% in the same time frame. Meanwhile, Terex and Komatsu have gained 36.3% and 41.3%, respectively.
Image Source: Zacks Investment Research
CAT is currently trading at a forward 12-month P/E of 35.11X, a premium compared with the industry’s 32.53X. Terex is trading lower at 12.25X and Komatsu at 18.12X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Caterpillar’s 2026 earnings points to year-over-year growth of 27%, while the 2027 estimate implies growth of 22.4%.
Image Source: Zacks Investment Research
Earnings estimates for CAT have moved up for both 2026 and 2027 over the past 60 days, as shown in the chart below.
View the Zacks #1 Rank List
Image: Bigstock
Can Caterpillar Sustain Margins Amid Rising Tariff Pressures?
Key Takeaways
Caterpillar Inc. (CAT - Free Report) has been facing mounting cost pressures, with tariffs being the major factor. In the first quarter, CAT’s cost of goods sold surged 26% year over year, reflecting elevated manufacturing costs and a $600 million tariff impact. At the same time, selling, general and administrative expenses rose 14%, while research and development spending increased 12%, intensifying the pressure on margins. As a result, Caterpillar’s adjusted operating margin slipped to 18% from 18.3% in the prior-year quarter.
The impact of tariffs was pronounced in the Resource Industries segment, with segment margin contracting 700 basis points to 10.0%, mainly due to tariff costs, which had an impact of about 500 basis points. Even though the Construction Industries segment’s margin improved 160 basis points to 21.4%, it was not immune to rising costs, with tariffs lowering margins by nearly 550 basis points. The Power and Energy segment's margin contracted 170 basis points to 20.6%. Tariffs had a 270-basis point impact.
In 2025, the company estimated an impact of $1.8 billion on its costs. Cost of sales rose 11% year over year to $44.7 billion and Caterpillar witnessed a 350-basis-point year-over-year contraction in its adjusted operating margin to 17.2%.
Caterpillar expects incremental tariff costs of around $700 million in the second quarter of 2026 compared with $400 million in the year-ago quarter. About 50% of the tariff costs are to be incurred in Construction Industries and 25% in both Power and Energy and Resource Industries. Full-year tariff impact is estimated at $2.2-$2.4 billion in 2026. Operating margin for the year is expected to be near the bottom of the company’s annual target range.
At approximately $60 billion in revenues, Caterpillar’s adjusted operating margins are projected to range between 15% and 19%. If revenues increase to $72 billion, margins could improve to 18–22%, while a stronger revenue scenario of $100 billion could support margins in the 21–25% range.
Among peers, Terex Corporation (TEX - Free Report) also faced cost pressures, with its adjusted cost of goods sold surging 44% to $1.4 billion in the first quarter of 2026. In 2025, Terex’s costs of goods sold had risen 7%. Terex reported a 100-basis point decline in operating margin to 10.4% in 2025 due to lower volumes, unfavorable manufacturing variances stemming from proactive production cuts and tariff impacts, partially offset by cost-efficiency initiatives and contributions from its ESG acquisition. In the first quarter of 2026, Terex’s operating margin was 8.7% compared with 9% in the year-ago quarter.
Komatsu Ltd. (KMTUY - Free Report) reported a 230-basis point contraction in operating margin to 13.7% in fiscal 2025 (ended March 31, 2026) due to additional U.S. tariffs. This was mainly due to the Construction, Mining and Utility Equipment segment, which saw a 18% drop in operating profit, offset by higher profit in Industrial Machinery and Retail Finance.
The Construction, Mining and Utility Equipment segment’s profit was impacted by lower volumes, product mix and higher costs due to tariffs in production costs offsetting higher selling prices. Komatsu estimates an incremental cost impact of 37.8 billion yen ($0.24 billion) from tariffs in fiscal 2026. Operating profit is expected to decline 10.5% in fiscal 2026.
CAT’s Price Performance, Valuation & Estimates
CAT shares have gained 163.1% in a year compared with the industry’s 135.3% growth. The Zacks Industrial Products sector has gained 24.8% and the S&P 500 has moved up 30.8% in the same time frame. Meanwhile, Terex and Komatsu have gained 36.3% and 41.3%, respectively.
Image Source: Zacks Investment Research
CAT is currently trading at a forward 12-month P/E of 35.11X, a premium compared with the industry’s 32.53X. Terex is trading lower at 12.25X and Komatsu at 18.12X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Caterpillar’s 2026 earnings points to year-over-year growth of 27%, while the 2027 estimate implies growth of 22.4%.
Image Source: Zacks Investment Research
Earnings estimates for CAT have moved up for both 2026 and 2027 over the past 60 days, as shown in the chart below.
Image Source: Zacks Investment Research
Caterpillar stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here