Caterpillar reported the strongest quarter in its history this morning: sales of $20.543 billion, up 24%.
It is the first time the company has crossed $20 billion in a single quarter.
What was reported
| Quarter | Year ago | Change | |
|---|---|---|---|
| Sales and revenues | 20.543 | 16.569 | +24% |
| Operating profit | 4.295 | 2.860 | +50% |
| Operating margin | 20.9% | 17.3% | +3.6pt |
| Adjusted operating margin | 21.9% | 17.6% | +4.3pt |
| EPS | $7.77 | $4.62 | +68% |
| Adjusted EPS | $8.17 | $4.72 | +73% |
In billions of dollars
The sources of growth are itemised in the report: higher sales volume contributed $3.1 billion, and favourable price realisation $595 million.
The answer to the question we set
In the brief we wrote before this report, we set one question: is data-center and power construction showing up in orders.
The company answers it in its own words, in the power generation section:
"Power Generation Sales increased in large reciprocating engines and in turbines and turbine-related services, primarily in data center applications."
And why that matters beyond Caterpillar
Caterpillar is an equipment supplier, not a data-center operator. When it reports that turbine and large-engine sales are rising because of data centers, that is a measurement of demand in the chain - not a forecast and not a narrative.
It connects directly to the electricity thesis we have covered since July: the AI build-out consumes power the grid does not supply, so data centers buy their own generation. Caterpillar sells exactly that.
The Power & Energy segment: sales of $8.238 billion, up 17%, and profit of $2.027 billion - up 30%. The segment margin widened to 24.6% from 22.1%.
The picks and shovels of the AI revolution - literally, this time
The phrase was born in the 1849 gold rush: the people who actually got rich were not the ones panning for gold, but the ones selling the pick and the shovel to everyone who was.
It has since become a market cliché, and in the AI era it is usually applied to chipmakers and semiconductor equipment. At Caterpillar it stops being a metaphor.
Caterpillar builds excavators. The machine that digs the foundation of the building the servers will stand in. And the generator and the turbine that will feed them power.
And why this layer is different
Every discussion of investing in AI returns to the same question: which model wins, and which company captures the market.
Caterpillar is indifferent to the answer.
Whether the winner is OpenAI, Anthropic, Google, Meta or someone nobody has heard of yet - all of them need a building and all of them need electricity. Whoever sells the concrete and the megawatt sits in front of the bet rather than inside it.
And there is a second difference, and it concerns lifespan. A chip bought today is replaced by the next generation within two or three years. A generator or turbine installed in 2026 is still producing power in 2040 - and throughout that period it consumes parts and service from the manufacturer.
And that is part of the explanation for the segment margin: 24.6% - the highest of the three industrial segments, against 23.3% in Construction Industries and 14.9% in Resource Industries.
And here a caveat is required, and I want it stated explicitly.
Caterpillar is not an AI stock, and it does not report data-center revenue as a separate line. Power & Energy is $8.238 billion out of $20.543 - and within it, power generation is one of four businesses, alongside oil and gas, industrial, and transportation.
What we have is a qualitative statement from the company about the direction of growth, not a number. Anyone trying to quantify how much of the quarter's growth comes from data centers - that figure simply was not published.
But the strongest segment is a different one
And here is the surprise: Construction Industries jumped 35% to $8.346 billion - and its profit leapt 57% to $1.947 billion.
| Segment | Sales | Change | Profit | Change |
|---|---|---|---|---|
| Construction Industries | 8,346 | +35% | 1,947 | +57% |
| Power & Energy | 8,238 | +17% | 2,027 | +30% |
| Resource Industries | 4,648 | +20% | 693 | +23% |
| Financial Products | 1,145 | +10% | 328 | +32% |
In millions of dollars
So the growth is not a data-center story alone - it is broad. In the words of CEO Joe Creed: "Strong order rates and a growing backlog reflect broadening momentum across all three of our primary segments."
A note: the company published no backlog figure and no numeric full-year outlook in the release - the backlog statement is qualitative only.
And the line worth stripping out
$392 million of tariff recoveries
Operating profit for the quarter includes $392 million of expected tariff recoveries under the International Emergency Economic Powers Act - IEEPA.
That is a refund of money paid, not profit from operations.
Excluding it, operating profit stands at roughly $3.90 billion rather than $4.295 billion, and the margin at roughly 19.0% rather than 20.9% - meaning the recovery contributed about 1.9 percentage points of margin.
Still a meaningful improvement against 17.3% a year ago. But anyone looking at the 3.6-point margin jump should know that more than half of it comes from a non-recurring line.
And the connection to another story from the same week
This is the most interesting detail in a wider context.
Earlier today we wrote about Toyota, which removed the tariff line from its disclosure entirely - after publishing a minus ¥450.0 billion quarterly impact a year earlier, and minus ¥1,380.0 billion for the full year. The only mention it left was qualitative: "the decrease in U.S. tariffs".
And today Caterpillar books $392 million of tariff recoveries.
Two global industrial companies, a day apart, both pointing the same way: the tariff regime that weighed on industry through 2025 is loosening. At Toyota you see it in the absence of a number; at Caterpillar you see it in an actual refund.
Cash
Operating cash flow of $4.4 billion in the quarter, and a cash balance of $6.7 billion at period end.
And the company returned $2.2 billion to shareholders: $1.5 billion in share repurchases and $0.7 billion in dividends.
My Angle
A personal opinion of Ilan Abramov - not advice, not a recommendation
This is a genuinely strong quarter, and I want to separate two layers of it.
The first layer is entirely real: sales up 24% on $3.1 billion of volume, Construction Industries up 35%, and the power segment margin widening to 24.6%. Volume is volume - it cannot be manufactured in accounting.
And the second layer requires a deduction: $392 million of tariff recoveries inside operating profit. That is real money, but it does not recur every quarter, and without it the margin is 19.0% rather than 20.9%.
And what I take from this above all is the sentence about data centers. For months we have written about the electricity thesis from the side of the power producers and the builders. Caterpillar is the side that sells the machine - and when it writes "primarily in data center applications" in an official release, that is the hardest evidence yet that the thesis is showing up in orders rather than only in presentations.
And that is exactly why the picks and shovels interest me here. I do not know which model wins, and I do not pretend to. But I do know every one of the contenders will need a building and electricity - and that is a layer sitting in front of the bet rather than inside it. With the caveat I wrote above: this is a statement about direction, not about a number, because the company does not publish one.
And what I note as a pattern: Caterpillar receives tariff refunds in the same week Toyota stops reporting a tariff cost. Two points are not a line, but they are a direction worth watching.
