Latest / Beta Finch - Caterpillar - CAT - EN / Caterpillar Q3 2026 Earnings Analysis

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Caterpillar Q3 2026 Earnings Analysis · Beta Finch - Caterpillar - CAT - EN

• 0:08
  Speaker 1: Welcome to Beta Finch, your AI-powered earnings breakdown, where we
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  Speaker 1: dig into the numbers so you don't have to. I'm Alex.
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  Speaker 2: And I'm Jordan. Today we're talking heavy machinery, massive engines,
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  Speaker 2: and a backlog number that honestly made me do a
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  Speaker 2: double take. We're covering Caterpillar's third quarter 2026 results.
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  Speaker 1: Before we dive in, quick disclaimer, this podcast is AI-generated
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  Speaker 1: content for educational and entertainment purposes only. Nothing we discuss
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  Speaker 1: should be considered investment advice. Always do your own research
• 0:41
  Speaker 1: and consult a qualified financial advisor before making any investment decisions.
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  Speaker 2: Okay, with that out of the way, Alex, this was
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  Speaker 2: a big quarter.
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  Speaker 1: Huge. Caterpillar posted record third-quarter sales of $ 20.
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  Speaker 2: 7 billion.
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  Speaker 1: Up 17% year over year. Adjusted earnings per share came
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  Speaker 1: in at $ 7. 20, up 45%. And then there's the headline number.
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  Speaker 1: Backlog hit an all-time high of $ 78 billion.
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  Speaker 2: $ 78 billion. For context, that's up roughly 96% from a
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  Speaker 2: year ago, basically doubled. And it grew sequentially for the
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  Speaker 2: fourth straight quarter across all three major segments. That's the
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  Speaker 2: kind of visibility most industrial companies dream about.
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  Speaker 1: Right. And the story behind that backlog is really the
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  Speaker 1: story of this whole earnings call. Demand for power generation
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  Speaker 1: equipment tied to data centers and AI is so strong
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  Speaker 1: that Caterpillar literally cannot build engines fast enough.
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  Speaker 2: That's the key tension here. CEO Joe Creed said it plainly. Capacity,
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  Speaker 2: not demand, is the limiting factor in the power and
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  Speaker 2: energy segment. They're now taking orders for large reciprocating engines
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  Speaker 2: out into 2029 and turbine orders into 2030.
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  Speaker 1: Which is wild when you think about it. Normally, Caterpillar's
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  Speaker 1: backlog visibility is maybe 12 months. Now customers are locking
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  Speaker 1: in engine slots three or four years out.
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  Speaker 2: And to address that, they announced plans to nearly triple
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  Speaker 2: large reciprocating engine production by 2030 compared to 2024 levels.
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  Speaker 2: Part of that involves repurposing a facility in Winston-Salem, North Carolina,
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  Speaker 2: currently making locomotive engines, into a second assembly line for
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  Speaker 2: their big 3600 series engines, aimed at natural gas compression
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  Speaker 2: for oil and gas customers.
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  Speaker 1: It's a smart move, using existing footprint and workforce rather
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  Speaker 1: than building new from scratch. Faster, cheaper way to add capacity.
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  Speaker 2: Let's talk segment performance, because all three told a slightly
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  Speaker 2: different story. Power and energy sales grew 18% to $ 8. 8 billion,
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  Speaker 2: with segment margin up 250 basis points to 24.4%. Power
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  Speaker 2: generation sales to users were up a stunning 75%, driven
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  Speaker 2: by data center demand for turbines and large engines.
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  Speaker 1: Construction industries also had a strong quarter, sales up 18%
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  Speaker 1: to $ 8 billion, and this marks the seventh consecutive quarter
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  Speaker 1: of year-over-year retail growth. North America sales to users grew 27%.
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  Speaker 1: They also launched this major project's rental joint venture with
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  Speaker 1: dealers to handle large-scale infrastructure and data center builds, basically
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  Speaker 1: supplementing dealer rental fleets when a project is too big
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  Speaker 1: for any single dealer to handle alone.
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  Speaker 2: Resource Industries was the laggard of the three, sales to
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  Speaker 2: users up only 4%, below expectations because of shipping and
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  Speaker 2: commissioning delays in mining equipment. Management was clear this is temporary,
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  Speaker 2: not demand-related. In fact, orders in that segment have been
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  Speaker 2: strong for three straight quarters now, driven by copper and
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  Speaker 2: gold mining activity.
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  Speaker 1: So demand isn't a problem anywhere. It's execution and logistics
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  Speaker 1: catching up with demand. That's a pretty good problem to have, frankly.
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  Speaker 2: It is though it's not free. Let's talk margins, because
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  Speaker 2: this is where I think investors should pay attention. Full-year
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  Speaker 2: adjusted operating profit margin. excluding some one-time tariff recoveries, is
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  Speaker 2: expected to land near the bottom of Caterpillar's target range.
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  Speaker 1: Why? Tariffs and freight costs. CFO Kyle Epley flagged around $ 2. 2
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  Speaker 1: billion in full-year tariff costs, plus elevated freight expenses tied
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  Speaker 1: to higher energy prices. They're also spending heavily on capacity expansion,
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  Speaker 1: new depreciation, SG & A, R & D for digital
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  Speaker 1: and technology investments.
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  Speaker 2: When analyst Jamie Cook pushed Joe Creed on this during
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  Speaker 2: Q & A, asking essentially, when do we get back
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  Speaker 2: toward the midpoint of our margin target range? Creed's answer
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  Speaker 2: was candid. He said they're skipping along the bottom because
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  Speaker 2: the target range itself is progressive. It rises as margins rise.
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  Speaker 2: He expects them to start clawing off the bottom over
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  Speaker 2: the next couple of years, but he was clear they
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  Speaker 2: won't sacrifice growth investments just to hit a margin number today.
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  Speaker 1: I thought that was one of the more revealing moments
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  Speaker 1: of the call. It tells you management is prioritizing capturing
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  Speaker 1: this once-in-a-generation demand wave over near-term margin optimization.
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  Speaker 2: There was also a great exchange with David Rosso about
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  Speaker 2: why fourth quarter revenue guidance looks sequentially soft despite all
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  Speaker 2: this backlog strength. The answer boils down to three things.
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  Speaker 2: A tough prior year comparison, a planned dealer inventory drawdown
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  Speaker 2: in construction industries of about $ 1. 6 billion and and power
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  Speaker 2: and energy still being capacity constrained. Creed actually mentioned a
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  Speaker 2: test cell going down temporarily in third quarter as an
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  Speaker 2: example of how little slack exists in the system right now.
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  Speaker 1: No slack in the system. That phrase stuck with me.
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  Speaker 1: It really captures where Caterpillar is operationally.
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  Speaker 2: One more housekeeping note. Leadership transition in resource industries. Denise
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  Speaker 2: Johnson is retiring after leading that segment back to profitability
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  Speaker 2: and and building out Caterpillar's autonomy in mining tech leadership.
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  Speaker 2: Derek here steps in as the new group president.
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  Speaker 1: And speaking of autonomy, they're expanding autonomous hauling with Luckstone
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  Speaker 1: in Virginia, building on a pilot that's already hauled 3.5
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  Speaker 1: million tons since late 2024. That's part of a goal
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  Speaker 1: to triple the number of autonomous cat trucks by 2030.
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  Speaker 2: So what's the takeaway for investors here? Caterpillar is riding
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  Speaker 2: a genuinely powerful structural trend. AI and data center buildouts
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  Speaker 2: driving massive demand for backup and prime power generation, alongside solid,
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  Speaker 2: broad-based construction and mining momentum. The backlog gives unusual multi-year visibility.
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  Speaker 2: But margins are being squeezed in the near term by tariffs, freight,
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  Speaker 2: and the capital spending required to meet all this demand.
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  Speaker 1: It's a classic good problem story. Can they execute their
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  Speaker 1: ramp fast enough to convert that backlog into profitable growth
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  Speaker 1: without major hiccups?
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  Speaker 2: Before we wrap, everything discussed is AI-generated analysis for educational purposes.
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  Speaker 2: Past performance doesn't guarantee future results. Please do your own
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  Speaker 2: due diligence.
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  Speaker 1: Caterpillar Management says they'll have more to share on 2027
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  Speaker 1: guidance in January, so we'll be watching closely for that
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  Speaker 1: capacity ramp update.
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  Speaker 2: Until then, thanks for tuning in to Beta Finch.
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  Speaker 1: Catch you next time.