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Caterpillar's Operating Margins Remain Under Pressure: Rebound Ahead?
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Key Takeaways
CAT Q1 2026 adjusted operating margin falls to 18% as cost of sales jumps 26% on tariff pressures.
CAT expects $2.2-$2.4B tariff costs in 2026, keeping margins near the low end of its target range.
CAT 2026 revenue estimate of ~$76.5B implies margins near the low end of 18-22%, slightly above 2025.
Caterpillar Inc. (CAT - Free Report) reported a 30-basis-point year-over-year decline in its adjusted operating margin to 18% in the first quarter of 2026. This was mainly due to 26% year-over-year increase in the cost of sales, reflecting unfavorable manufacturing costs, including the impact of higher tariffs.
Tariffs introduced since early 2025 amounted to approximately $600 million in the first quarter of 2026. This was, however, below the company’s earlier estimate of $800 million. The lower figure was mainly due to a one-time adjustment in the calculation of 2025 tariff expenses.
Caterpillar had witnessed margin pressures in 2025 as well. Adjusted operating margin contracted 350 basis points year over year to 17.2% in 2025. The trend deteriorated progressively throughout the year, with margins declining from 18.3% in the first quarter to 17.6% in the second, 17.5% in the third, and 15.6% in the fourth quarter.
A key factor behind the margin compression was a significant increase in costs owing to tariffs. Cost of sales rose 11% year over year to $44.7 billion in 2025. While costs were down 7% in the first quarter, they climbed in each subsequent quarter, with the steepest jump of 29% occurring in the fourth quarter.
Total tariff impacts for 2025 reached about $1.8 billion and are expected to persist in 2026 as well. Management expects full-year 2026 tariff costs to be $2.2-$2.4 billion.
Even though Caterpillar expects low double-digit sales and revenue growth year over year in 2026, adjusted operating margin is expected near the bottom of its targeted range, factoring in the continued tariff pressures. The company, however, indicates margins would be higher than previous expectations.
Caterpillar maintains its adjusted operating margin outlook of 15–19% at revenue levels of around $60 billion. If revenues reach $72 billion, the operating margin range is 18–22%, while revenues of $100 billion could support margins in the range of 21–25%. This is shown in the chart below.
Image Source: Caterpillar Inc.
The Zacks Consensus Estimate for 2026 revenues is currently at around $76.5 billion. This suggests the adjusted operating margin will come in near the low end of 18-22%, a slight improvement from 17.2% reported in 2025.
Among peers, Terex Corporation (TEX - Free Report) reported a 30-basis-point year-over-year contraction in operating margin to 8.7% in the first quarter of 2026. Cost of goods sold surged 55.6% year over year. In 2025, Terex reported a 100-basis-point decline in operating margin to 10.4% in 2025. This was primarily due to lower volumes across both segments and unfavorable manufacturing variances stemming from proactive production cuts and tariff impacts. This was partially offset by cost-efficiency initiatives and contributions from its ESG acquisition.
Komatsu Ltd. (KMTUY - Free Report) reported a 230-basis point contraction in operating margin to 13.7% in fiscal 2025 (ended March 31, 2025) due to the impact of additional U.S tariffs. Komatsu expects to suffer annual negative impacts of 37.8 billion yen ($0.24 billion) from increased costs linked to U.S. tariffs in fiscal 2026. Komatsu’s projection for the operating margin for fiscal 2026 is 12.3%, a contraction of 140 basis points.
CAT’s Price Performance, Valuation & Estimates
CAT shares have gained 176.8% over the past year compared with the industry’s 138.2% growth.
Image Source: Zacks Investment Research
Caterpillar is currently trading at a forward 12-month price/earnings (P/E) ratio of 38.37X compared with the industry average of 33.92X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for CAT’s 2026 earnings indicates year-over-year growth of 29.3%. The earnings estimate for 2027 indicates 24.3% growth.
Image Source: Zacks Investment Research
Earnings estimates for Caterpillar for both 2026 and 2027 have moved up over the past 60 days, as shown in the chart below.
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Image: Bigstock
Caterpillar's Operating Margins Remain Under Pressure: Rebound Ahead?
Key Takeaways
Caterpillar Inc. (CAT - Free Report) reported a 30-basis-point year-over-year decline in its adjusted operating margin to 18% in the first quarter of 2026. This was mainly due to 26% year-over-year increase in the cost of sales, reflecting unfavorable manufacturing costs, including the impact of higher tariffs.
Tariffs introduced since early 2025 amounted to approximately $600 million in the first quarter of 2026. This was, however, below the company’s earlier estimate of $800 million. The lower figure was mainly due to a one-time adjustment in the calculation of 2025 tariff expenses.
Caterpillar had witnessed margin pressures in 2025 as well. Adjusted operating margin contracted 350 basis points year over year to 17.2% in 2025. The trend deteriorated progressively throughout the year, with margins declining from 18.3% in the first quarter to 17.6% in the second, 17.5% in the third, and 15.6% in the fourth quarter.
A key factor behind the margin compression was a significant increase in costs owing to tariffs. Cost of sales rose 11% year over year to $44.7 billion in 2025. While costs were down 7% in the first quarter, they climbed in each subsequent quarter, with the steepest jump of 29% occurring in the fourth quarter.
Total tariff impacts for 2025 reached about $1.8 billion and are expected to persist in 2026 as well. Management expects full-year 2026 tariff costs to be $2.2-$2.4 billion.
Even though Caterpillar expects low double-digit sales and revenue growth year over year in 2026, adjusted operating margin is expected near the bottom of its targeted range, factoring in the continued tariff pressures. The company, however, indicates margins would be higher than previous expectations.
Caterpillar maintains its adjusted operating margin outlook of 15–19% at revenue levels of around $60 billion. If revenues reach $72 billion, the operating margin range is 18–22%, while revenues of $100 billion could support margins in the range of 21–25%. This is shown in the chart below.
The Zacks Consensus Estimate for 2026 revenues is currently at around $76.5 billion. This suggests the adjusted operating margin will come in near the low end of 18-22%, a slight improvement from 17.2% reported in 2025.
Among peers, Terex Corporation (TEX - Free Report) reported a 30-basis-point year-over-year contraction in operating margin to 8.7% in the first quarter of 2026. Cost of goods sold surged 55.6% year over year. In 2025, Terex reported a 100-basis-point decline in operating margin to 10.4% in 2025. This was primarily due to lower volumes across both segments and unfavorable manufacturing variances stemming from proactive production cuts and tariff impacts. This was partially offset by cost-efficiency initiatives and contributions from its ESG acquisition.
Komatsu Ltd. (KMTUY - Free Report) reported a 230-basis point contraction in operating margin to 13.7% in fiscal 2025 (ended March 31, 2025) due to the impact of additional U.S tariffs. Komatsu expects to suffer annual negative impacts of 37.8 billion yen ($0.24 billion) from increased costs linked to U.S. tariffs in fiscal 2026. Komatsu’s projection for the operating margin for fiscal 2026 is 12.3%, a contraction of 140 basis points.
CAT’s Price Performance, Valuation & Estimates
CAT shares have gained 176.8% over the past year compared with the industry’s 138.2% growth.
Image Source: Zacks Investment Research
Caterpillar is currently trading at a forward 12-month price/earnings (P/E) ratio of 38.37X compared with the industry average of 33.92X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for CAT’s 2026 earnings indicates year-over-year growth of 29.3%. The earnings estimate for 2027 indicates 24.3% growth.
Image Source: Zacks Investment Research
Earnings estimates for Caterpillar for both 2026 and 2027 have moved up over the past 60 days, as shown in the chart below.
Image Source: Zacks Investment Research
Caterpillar stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.