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Date

Thursday, January 29, 2026 at 8:30 a.m. ET

Call participants

  • Chief Executive Officer — Joe Creed
  • Chief Financial Officer — Andrew Bonfield
  • Vice President, Investor Relations — Alex Kapper

Takeaways

  • Sales and Revenues -- $67.6 billion for the full year, representing a 4% year-over-year increase and marking a record high for Caterpillar (CAT +3.14%).
  • Fourth-Quarter Sales -- $19.1 billion, an 18% year-over-year increase and an all-time record for a single quarter.
  • Adjusted Operating Profit Margin -- 17.2% for the year and 15.6% in the fourth quarter; both within or exceeding company expectations despite tariff headwinds.
  • Adjusted Profit per Share -- $19.06 for the year and $5.16 for the fourth quarter, with quarterly results above internal expectations due to strong Power and Energy volumes.
  • Backlog -- $51 billion at year-end, up $21 billion or 71% year over year, with 62% expected to deliver within the next twelve months.
  • Net Incremental Tariff Costs -- $1.7 billion in 2025, rising to an estimated $2.6 billion in 2026; management said, "the run rate should improve towards the second half of the year as we take actions to reduce our tariff exposure."
  • MP and E Free Cash Flow -- $9.5 billion for 2025 and $3.7 billion in the fourth quarter; 84% of full-year free cash flow returned to shareholders through repurchases and dividends.
  • Construction Industries Segment -- Full-year sales to users grew 5%, with fourth-quarter growth of 11%, driven by robust North American demand and rental activity.
  • Resource Industries Segment -- Sales to users declined 7% in the fourth quarter, attributed to lower mining demand driven by weaker coal prices; profit margin decreased 510 basis points year over year in the quarter.
  • Power and Energy Segment -- Fourth-quarter sales up 23% to $9.4 billion; full-year power generation sales exceeded $10 billion with more than 30% year-over-year growth; segment profit margin rose 30 basis points year over year in the quarter.
  • Financial Products Segment -- Revenues increased 7% to $1.1 billion in the fourth quarter; profit grew 58% to $262 million with lowest past dues and allowance rates on record.
  • Record Order Intake -- Backlog growth driven by strong fourth-quarter orders across all primary segments; CEO Creed stated, "really, really strong quarter from an order standpoint...strength across the board."
  • 2026 Outlook -- Full-year sales and revenues expected near the top of the 5%-7% CAGR target; all three primary segments to benefit from roughly 2% positive price realization, sustained services revenue growth, and volume gains.
  • Capital Expenditures -- Projected at approximately $3.5 billion in 2026, supporting capacity expansions, particularly within Power and Energy.
  • Notable Orders -- Announced a two-gigawatt generator set order for American Intelligence and Power Corporation's Monarch Compute Campus, to be reflected in first-quarter 2026 backlog, representing one of the largest single power solution orders for Caterpillar.

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Risks

  • Segment operating margins are expected to be near the bottom of the target range in 2026 due to elevated tariff costs, which are projected to increase by $800 million over 2025 to approximately $2.6 billion.
  • Fourth-quarter profit margins in Construction Industries and Resource Industries declined 470 and 510 basis points year over year, primarily from higher manufacturing costs tied to tariffs.

Summary

Caterpillar reported record sales, revenues, and backlog for the year and quarter, citing unprecedented order strength across all business segments. Management outlined concrete steps to advance capacity increases, particularly in Power and Energy, aiming to capture heightened demand linked to data center expansion and infrastructure investment. Tariff costs will continue to increase materially in 2026, with explicit guidance that margins will remain pressured, especially in Construction and Resource Industries. Shareholder returns remain a priority, with most free cash flow allocated to dividends and repurchases. Secured long-term orders and robust backlog visibility provide multi-year revenue confidence but also lock in a substantial portion of deliveries beyond the coming twelve months, shifting some risk to execution and cost management as capacity ramps.

  • Management announced a reporting change, moving the rail division from Power and Energy to Resource Industries in future filings, establishing a new baseline for segment analysis.
  • CEO Creed highlighted strong competitive positioning with cited market share gains in Construction Industries and leadership breadth in prime power and generator offerings below 38 megawatts.
  • Financial Products reported increased new business volume and historic lows in past due and allowance rates, supporting ongoing customer financial health.
  • The company unveiled a new AI-powered digital assistant and committed $25 million to workforce development, reinforcing technology leadership and human capital investment as strategic pillars.

Industry glossary

  • MP and E Free Cash Flow: Manufacturing, Precision, and Engineering free cash flow reflecting cash generated by core operational activities, net of capital expenditures.
  • Prime Power: Continuous, primary electrical generation solution intended for sites that require constant, non-grid power supply—essential in data centers or remote infrastructure.
  • Genset: Generator set; an integrated engine-generator system used for onsite electricity generation.
  • BESS: Battery Energy Storage System; equipment used to store energy for later use, often paired with generator sets for backup or grid support.

Full Conference Call Transcript

Joe will begin sharing his perspectives about our results and provide an update on our performance toward achieving our Investor Day targets. Then he'll share our full-year outlook and insights about our end markets, followed by an update on our strategy. Finally, Andrew will provide a detailed overview of results and key assumptions looking forward. We'll conclude the call by taking your questions. Now let's advance to slide three. Turn the call over to our CEO, Joe Creed.

Joe Creed: All right. Well, thank you, Alex, and good morning, everyone. Thanks for joining us today. Our centennial year marked a significant milestone, and we achieved full-year sales and revenues of $67.6 billion, the highest in Caterpillar's history. In a dynamic environment with net tariff headwinds of $1.7 billion, we delivered full-year adjusted operating profit margin within the target range at 17.2% and adjusted profit per share of $19.06. We also generated robust MP and E free cash flow of $9.5 billion in 2025, allowing us to deploy $7.9 billion to shareholders through share repurchases and dividends during the year. Our backlog grew to a record level of $51 billion, an increase of $21 billion or 71% compared to last year.

All-time high sales and revenues along with record backlog are evidence of the strength in our end markets and strong execution by our team. Now let me take a minute to walk you through our fourth-quarter results. Sales and revenues were $19.1 billion, an all-time record for a single quarter. The increase of 18% versus the previous year was better than we expected and reflects higher volumes in all three of our primary segments while price realization was about neutral. In particular, volume growth was better than expected in power and energy as we were able to ship more product than anticipated at year-end. Adjusted operating profit margin was 15.6%, and adjusted profit per share was $5.16.

Fourth-quarter adjusted operating profit margin and adjusted profit per share were better than we anticipated due to stronger than expected volume growth in Power and Energy. In the quarter, the net incremental cost from tariffs was near the top end of our estimated range. Robust ordering activity across all three primary segments contributed to the very strong backlog growth. Now I'll review fourth-quarter retail statistics for each of our three primary segments, starting with Construction Industries. Construction Industries total sales to users grew for the fourth consecutive quarter, rising 11%, which exceeded our expectations. Increases in North America were better than expected due to strong nonresidential and residential construction.

Rental fleet loading and our dealers' rental revenue also grew in the quarter. Sales to users declined slightly in EAME and Asia Pacific, in line with our expectations, and we saw growth in Latin America, which was better than anticipated. For Resource Industries, fourth-quarter sales to users declined 7%, consistent with our expectations. Mining sales to users were lower year over year as customers exercised capital discipline in response to weaker coal prices. In power and energy, our largest and fastest-growing segment, sales to users grew a robust 37%, with another quarter of double-digit growth across all applications. Power generation grew 44%, driven by strong demand for large Gensets and turbines used in data center applications.

Strong sales to users in oil and gas were driven primarily by turbines and turbine-related services. Industrial grew from relatively low levels, with the increase driven by sales to users in electric power applications. And finally, transportation increased primarily due to international locomotive deliveries. Moving to slide four. Our full-year 2025 results showed meaningful progress towards achieving the 2030 targets we outlined at our recent Investor Day. As I mentioned, we delivered record sales and revenues of $67.6 billion, resulting in 4% year-over-year growth. This increase was led by record sales in power and energy.

Notably, in addition to record sales in power generation, we also achieved record sales in oil and gas due to strength and demand for gas compression. Despite tariff headwinds, full-year adjusted operating profit margin of 17% was within the target range for our level of sales and revenues. Full-year services revenues totaled $24 billion in 2025. We continue to connect more assets, growing the fleet to over 1.6 million and made great progress in other initiatives like condition monitoring, prioritized service events, e-commerce sales, and tech-enabled machines. Our digital and technology initiatives, along with a growing installed base, position us well to increase services revenues towards our goal of $30 billion by 2030.

Robust MP and E free cash flow allowed us to deploy $7.9 billion to shareholders through $5.2 billion of share repurchases and $2.7 billion of dividends paid. We're proud of our continued dividend aristocrat status, paying higher dividends for thirty-two consecutive years, and remain committed to returning substantially all MP and E free cash flow over time. Andrew will share more about our cash deployment plans for 2026 in a moment. Turning to slide five. I'll highlight the advancements we made towards our 2030 targets in our three primary segments. In 2025, Construction Industries' growth outpaced the global industry supported by the success of our merchandising programs.

As a result, full-year total sales to users growth was 5%, advancing our progress towards the 2030 goal of growing 1.25 times the 2024 baseline. In Resource Industries, customer interest in our autonomous hauling solution remains strong. And we're making steady progress towards our 2030 goal to triple the number of CAT autonomous haul trucks in operation compared to 2024. We ended the year with 827 autonomous haul trucks in operation, up from 690 at the end of 2024. Adoption is expected to accelerate given our proven solution, our expansion into quarries, and our ability to support mixed fleets.

For example, last month Caterpillar and Sotrak, our dealer in Brazil, announced an agreement to provide Vale with an autonomy solution for a mixed fleet of more than 90 trucks. Power and energy delivered meaningful progress towards our 2030 goal to more than double power generation sales compared to 2024. In 2025, power generation sales exceeded $10 billion, which is year-over-year growth of more than 30%. We're also on track in our multiyear effort to double our large engine capacity and more than double our industrial gas turbine capacity. As we've discussed, the additional capacity will serve a broad range of applications, and the phasing will occur between now and 2030. Now on slide six. I'll provide our 2026 outlook.

Overall, we anticipate full-year sales and revenues to grow around the top of the 5% to 7% long-term compound annual growth rate target. As I mentioned earlier, our record backlog of $51 billion provides strong momentum to start the year. We're also starting to get multiyear visibility in power and energy, as we work closely with our customers to schedule factory orders in line with their project timeline. As a result, approximately 62% of our backlog is expected to deliver in the next twelve months, which is lower than our historical average. The strong backlog coupled with healthy end markets supports our expectation for volume growth in all three primary segments.

We also expect all three segments to benefit from positive price realization, about 2% of total sales and revenues, and continued growth in services revenues. Full-year adjusted operating profit margin should exceed 2025 levels but remain near the bottom of the target range for our expected sales and revenue. Our adjusted operating profit margin expectation reflects the ongoing impact of tariffs as well as investments we are making to execute our growth strategy. I remain confident that we'll manage the impact of tariffs over time as we aim to operate around the midpoint of our adjusted operating profit margin target range. Capital expenditures are expected to be around $3.5 billion, driven primarily by our capacity expansion plans.

And finally, MP and E free cash flow is expected to be slightly lower than 2025, reflecting the increase in capital expenditures. Now I'll discuss our outlook for key end markets starting with construction industries. Another year of sales to users growth is expected in 2026, supported by elevated order rates and a robust backlog. Overall, the outlook for North America remains positive. As sales to users grow moderately versus last year with construction spending remaining healthy due to IIJA funding and other critical infrastructure programs. We also anticipate accelerated investment in data centers, which will further bolster overall construction spending. Dealer rental fleet loading and rental revenue are both projected to increase compared to 2025.

In EAME, economic conditions in Europe are expected to strengthen and construction activity in Africa and The Middle East is projected to remain strong. In Asia Pacific outside of China, moderate economic conditions are expected in 2026. We anticipate positive momentum in China off of low levels with full-year growth in the above 10-ton excavator industry. Growth in Latin America is expected to continue at a similar rate to 2025. Resource Industries had positive momentum in the fourth quarter with growing backlogs supported by healthy orders across a broad range of products. For 2026, sales to users are expected to increase, primarily driven by rising demand for copper and gold, positive dynamics in heavy construction in quarry and aggregates.

Most key commodities remain above investment thresholds, and customer product utilization is high, while the age of the fleet remains elevated. With modest increases in commodity prices projected in 2026, we expect rebuild activity to increase slightly compared to last year. And finally, for power and energy, the 2026 outlook is positive. Robust backlog growth in the fourth quarter was driven by continued momentum in both power generation and oil and gas. We anticipate growth in power generation for both CAT reciprocating engines and solar turbines driven by increasing energy demand to support data center build-out related to cloud computing and generative AI.

Additionally, we're starting to see orders for Prime Power trend higher as data center customers look for alternative power solutions to keep pace with their growth. For example, yesterday, we announced an order for two gigawatts of reciprocating generator sets for a prime power application from American Intelligence and Power Corporation. Generators will be used to support the initial development phase of the Monarch Compute Campus, which has a total potential of about eight gigawatts of power generation. This represents one of our largest single orders for complete power solutions. The value of the order will be reflected in our first quarter 2026 backlog. We expect to deliver the generator starting in late 2026 through 2027.

This exciting announcement is one of four orders we've booked with at least one gigawatt of Caterpillar equipment for data center prime power. After reaching record levels in 2025, oil and gas is expected to see moderate growth in 2026. Reciprocating engine sales are expected to increase driven by strong demand in gas compression applications. Solar turbines oil and gas backlog remains healthy with continued solar oil solid order and inquiry activity. And as a result, we expect another year of strong turbine sales comparable to our record 2025 performance. Demand for products in industrial applications is expected to grow moderately in 2026, as we see continued recovery from previous lows.

And in transportation, we anticipate full-year growth in rail services and locomotive deliveries. I'll close on slide seven with an update on our strategy. Since our Investor Day in November, the Executive Leadership Team and I have engaged our employees and dealers around the globe to launch our refreshed enterprise strategy for profitable growth. Our mission statement, solving our customers' toughest challenges, is creating strong alignment around keeping customer needs at the center of everything we do. The strategy is centered on three pillars for profitable growth: commercial excellence, being the advanced technology leader, transforming how we work, all built upon a foundation of continued operational excellence.

I look forward to advancing the strategy with regional leaders and dealers throughout 2026. And finally, we were excited to kick off the year with a showcase and keynote at CES 2026 in Las Vegas where we unveiled the next era of industrial AI and autonomy. This was an important opportunity to demonstrate our advanced technology leadership by highlighting Caterpillar's significant role in creating the invisible layer of the tech stack. The critical minerals, reliable power, and physical infrastructure that the digital world relies on to function. We made exciting announcements, including the launch of our new CAT AI assistant, which will allow customers to more easily buy, maintain, manage, and operate their equipment.

We also announced a commitment to the most important part of the invisible layer: people. Caterpillar pledged $25 million to ensure the future workforce has the tools they need to make advanced technology possible. With that, I'll turn it over to Andrew for a detailed overview of results and key assumptions looking forward.

Andrew Bonfield: Thank you, Joe, and good morning, everyone. As usual, I will begin with a summary of the quarter and then provide brief comments on the performance of the segments. Next, I will discuss the balance sheet and free cash flow, and conclude with comments on our high-level planning assumptions for 2026 as well as our expectations for the first quarter. Beginning on Slide eight. Sales and revenues of $19.1 billion reflected an 18% increase versus the prior year. As Joe noted, this was an all-time quarterly record. Adjusted operating profit was $3 billion and our adjusted operating profit margin was 15.6%.

We generated strong MP and E free cash flow of $3.7 billion in the quarter, and $9.5 billion for the full year. This was our third consecutive year with more than $9 billion of MP and E free cash flow. Moving to Slide nine, I'll discuss our top-line results for the fourth quarter. Sales and revenues of $19.1 billion exceeded our expectations driven by stronger than anticipated volume in power and energy. Versus the prior year, stronger sales volume supported the sales increase. Price was about neutral and roughly in line with our expectations. Volume growth reflected a 15% year-over-year increase in total sales to users, and a favorable impact from changes in dealer inventories.

Total machine dealer inventory decreased by about $500 million in the quarter compared to a $1.6 billion decrease last year. The decrease in the fourth quarter was larger than we had anticipated, primarily due to stronger than expected sales to users in Construction Industries. Services revenues increased in the quarter compared to 2024. Moving to operating profit on Slide 10. Operating profit in the fourth quarter decreased by nine while adjusted operating profit of $3 billion was about flat versus the prior year. As I mentioned, adjusted operating profit margin for the fourth quarter was 15.6%, slightly stronger than we had anticipated driven by volume being better than expected, partially offset by higher incentive compensation expense.

Versus the prior year, the 270 basis points decrease was primarily due to higher manufacturing costs driven by tariffs. Excluding tariffs, our fourth-quarter margin was higher than the prior year. For the full year, excluding the impact of tariffs implemented in 2025, margin was in the top half of the target range. Moving to slide 11. Profit per share was $5.12 in the quarter. Adjusted profit per share was better than we had anticipated at $5.16, excluding restructuring costs of 52¢ and mark-to-market gains of 48¢ for the remeasurement of pension and other post-employment benefit plans.

When you exclude the impact of mark-to-market gains from other income and expense, we had a headwind of about $73 million, which was mainly driven by the absence of foreign exchange gains related to MP and E balance sheet translation that occurred in the prior year. Excluding discrete items, the provision for income tax in 2025 reflected a global annual effective tax rate of 24.1% as compared with 22.2% in 2024. This is in line with our expectations.

Finally, the year-over-year impact from the reduction in the average number of shares outstanding primarily due to share repurchases, resulted in a favorable impact on adjusted profit per share of approximately $0.14 as compared to 2024 and benefits of the full year by about $0.66. Moving to Slide 12, I'll now discuss segment results. Construction industry sales increased by 15% in the fourth quarter to $6.9 billion. This is roughly in line with our expectations as the stronger sales to users were about offset by a larger than expected decrease in dealer inventory and slightly unfavorable price realization.

Compared to the prior year, higher sales volume reflected stronger sales to end users and the positive impact from changes in dealer inventories. Dealer inventory decreased less during 2025 than during 2024. Fourth-quarter profit for construction industries decreased by 12% versus the prior year to $1 billion. The segment's margin was 14.9%, a decrease of 470 basis points versus the prior year. The margin decrease was primarily due to higher manufacturing costs driven by tariffs, which had an impact of about 600 basis points on margins. Margin was lower than we had expected due primarily to higher incentive compensation and a slightly unfavorable price realization, which offset the impact of stronger volume. Turning to Slide 13.

Resource Industries sales increased by 13% in the fourth quarter to $3.4 billion, which was in line with our expectations. Sales volume was slightly more favorable than we had anticipated, while price realization was a slightly larger headwind than we had expected. Compared to the prior year, the sales increase was primarily due to higher sales volume driven by the impact from changes in dealer inventories. Fourth-quarter profit for Resource Industries decreased by 24% versus the prior year to $360 million. The segment's margin of 10.7% was a decrease of 510 basis points versus the prior year primarily due to higher manufacturing costs driven by tariffs, which had an impact of about 490 basis points.

The margin was lower than we had anticipated, primarily due to higher short-term incentive, higher tariffs, and a slightly unfavorable price realization. On slide 14. Power and energy sales increased by 23% in the fourth quarter to $9.4 billion. Sales exceeded our expectations driven by stronger than anticipated volume, particularly in power generation and oil and gas. Compared to the prior year, sales increased primarily due to higher sales volume and favorable price realization. Fourth-quarter profit for Power and Energy increased by 25% versus the prior year to $1.8 billion. The segment's margin of 19.6% increased by 30 basis points versus the prior year on the higher volume. The tariff impact was about 220 basis points.

The margin was stronger than we had anticipated, primarily due to favorable volume. Price was also slightly more favorable than we had anticipated. Moving to slide 15. Financial products revenues increased by 7% versus the prior year to about $1.1 billion, primarily due to a favorable impact from higher average earning assets partially offset by the impact from lower average financing rates. Segment profit increased by 58% to $262 million. This was due in part to a favorable impact of higher margins at insurance services, due to lower loss ratios, higher average earnings, and a lower provision for credit losses, also benefited profitability. Our customers' financial health remains strong.

Past dues were 1.37% in the quarter, down 19 basis points versus the prior year, and our lowest year on year-end on record. The allowance rate was 0.86%, the lowest ever reported in any quarter. Business activity at Cat Financial remains healthy. Retail credit applications increased by 6%, and our retail new business volume grew by 10% versus the prior year. In addition, demand for our used equipment remains healthy on relatively stable pricing, inventories remain at historically low levels. Conversion rates remain above historical averages, as more customers choose to buy equipment at the end of the lease term. Moving to slide 16.

As I mentioned, we continue to generate strong MP and E free cash flow, with $9.5 billion in 2025, which was slightly higher than 2024 despite an $800 million increase in capital expenditures. In 2025, we deployed about $7.9 billion or 84% of our MP and E free cash flow to shareholders. We continue to expect to return substantially all MP and E free cash flow to shareholders over time. This quarter, we expect to enter into a larger accelerated share repurchase compared to the $3 billion ASR we executed in early 2025. Our balance sheet remains strong with an enterprise cash balance of $10 billion at the year-end.

In addition, we held $1.2 billion in slightly longer-dated liquid marketable securities to improve yields on that cash. Now on slide 17. Before I begin, I'll remind you that my comments today assume the rail division within Power and Energy, as was the case through year-end 2025. In March, we will file an 8-K recasting our historical periods to reflect the movement of our rail division to resource industries. This will establish an appropriate baseline for evaluating future segment-level performance and expectations. If necessary, we will also update any of our segments' specific forward-looking assumptions impacted by this change. Obviously, there will be no impact on the enterprise-wide assumptions. Now let me start with our expectations for the full year.

As Joe mentioned, we expect enterprise sales and revenues to grow versus the prior year, likely around the top end of that 5% to 7% CAGR target, on higher volume and favorable price realization. We anticipate sales growth across each of our primary segments, with Power and Energy delivering the strongest year-over-year rate of growth supported by the robust backlog. Growth in this segment will be paced by the timing of bringing capacity increases online over the next few years. Our planning assumption is that the $500 million decline in machine dealer inventory in 2025 will be offset by an increase by 2026, a tailwind to 2026 sales.

As Joe mentioned, we expect favorable price realization to account for a roughly 2% increase in sales for the full year. For perspective on the quarterly sales cadence, we anticipate the lowest sales of the year to occur in the first quarter, which aligns with our normal seasonal pattern. On Enterprise adjusted operating profit margin, excluding the impact of tariff costs, we expect to be in the top half of the target range at our anticipated sales level, supported by favorable price realization and volume. Specific to volume growth, we anticipated the attributable profit pull-through or incremental margin to reflect our recent operational performance, which has been impacted by tariffs.

In contrast to prior years, we are committed to investing for long-term profitable growth, which includes capacity investments, will impact depreciation expense, and higher technology and digital spend. We believe these investments will support future absolute dot OPEC dollar generation, which I'll remind you is our definition of winning. Including the impact of tariffs, we expect margin to be near the bottom of the target range. I'll provide some perspective, but let me explain how we intend to report to you about tariffs as we move forward. The absolute dollar value of new tariffs imposed in 2025 was $1.8 billion. Mitigating actions can come in two forms.

First, those that reduce the direct tariff exposure bill, which will include actions like sourcing changes. These reduce the actual dollar value of tariffs paid. And second, there are cost control actions and pricing, which help reduce the impact on our profitability. Most of the actions taken in 2025 related to cost controls, which could be specifically attributed to tariff mitigation, and these amounted to around $100 million, resulting in a net incremental tariff impact of $1.7 billion. Looking forward, it will become increasingly challenging to pass out and track whether cost control or price action is directly tied to tariff mitigation versus being taken in the normal course of business.

Therefore, going forward, we report our absolute incremental tariff cost, which will only take into account those mitigating actions that reduce the absolute value of the tariff exposure. As a reminder, the incremental tariffs we report are measured against the 2024 baseline year. For the full year, incremental tariff costs are expected to be around $2.6 billion, which is $800 million higher than incurred in 2025. If we did not take the actions we plan to take in 2026, this bill would be around 20% higher. We expect incremental tariff costs of around $800 million in the first quarter, a level similar to 2025.

The run rate should improve towards the second half of the year as we take actions to reduce our tariff exposure. Finally, please remember that tariffs are volume sensitive. We will continue to take actions to manage our costs in the normal course of business and remain committed to operating within our adjusted operating profit margin target range with the goal of being around the midpoint of the range over time. Now concluding our expectations for the year, we expect restructuring costs of roughly $300 million to $350 million.

Our global annual effective tax rate is anticipated to be 23% excluding discrete items, MP and E free cash flow should be slightly lower than 2025 reflecting the high CapEx of around $3.5 billion in 2026. Now turning to slide 18. To assist you with your modeling, I'll provide color on the first quarter. Starting with the top line, we would expect stronger sales and revenues versus the prior year. We anticipate stronger volume in K, including sales to users growth, and a tailwind from machine dealer inventories. We expect a more typical machine dealer inventory build this quarter aligning with a seasonal pattern to the first quarter build in excess of $1 billion.

This compares to flash levels in 2025. We also anticipate a favorable impact from price realization. In Construction Industries in the first quarter, we anticipate strong sales growth with the increase versus the prior year, driven by volume and favorable price realization. We expect continued sales to users growth with our confidence supported by the strong order rates and backlog. In addition, we anticipate a sizable benefit from changes in dealer inventories given a more typical seasonal pattern build in the first quarter. In Resource Industries, we anticipate strong sales growth versus the prior year driven by volume, including healthy sales to users growth, and a favorable impact from changes in dealer inventory.

Price realization should be relatively flattish, though we anticipate favorability as we move through the year. In Power and Energy, we anticipate sales growth versus the prior year driven by strength in power generation and oil and gas, along with favorable price realization. As is typical, we expect first-quarter sales in power and energy will be the segment's lowest of the year and sequentially lower than 2025. This expectation aligns with the seasonal pattern. Now I'll provide some color on our first-quarter margin expectations.

Excluding incremental tariff costs, we expect a higher adjusted operating profit margin percentage year over year supported by strong volume and price realization, partially offset by higher manufacturing costs and SG&A and R&D expenses tied to our strategic investments. As a reference, we would expect some seasonal margin uplift in the first quarter compared to 2025. Including incremental tariff costs at a level similar to the fourth quarter or around $800 million, margin is expected to be lower than versus the prior year. Now on to first-quarter margin expectations by segment.

In Construction Industries, excluding incremental tariff costs, we anticipate a higher margin percentage compared to the prior year, on favorable price realization and volume, partially offset by higher manufacturing costs. In Resource Industries, excluding incremental tariff costs, we anticipate a slightly lower margin percentage compared to the prior year, favorable volume is more than offset by unfavorable manufacturing costs and higher SG&A and R&D expenses, including spend on strategic investments in autonomy. We do anticipate some unfavorable mix impact, as we expect proportionally higher sales of original equipment compared to the prior year.

In Power and Energy, excluding incremental tariff costs, we anticipate a higher margin percentage compared to the prior year, driven by favorable price volume and price realization, partially offset by higher manufacturing costs, particularly spend including higher depreciation related to our capacity expansion project. During the first quarter, we anticipate around 50% of the incremental tariff costs will be in construction industries, 20% in resource industries, and 30% in power and energy. All segment margins are expected to be lower than they were in 2025 after taking into account incremental tariffs. So turning to Slide 19, let me summarize.

In a year marked by uncertainty, our team delivered record sales and revenues, maintained adjusted operating profit margin within our target range, and achieved a healthy adjusted profit per share of $19.06. We generated $9.5 billion of MPE free cash flow, our third consecutive year of generating over $9 billion. For 2026, we anticipate sales growth across all three primary segments, driven by stronger volume and price. We also anticipate services revenue growth. Excluding the impact of incremental tariffs, we expect the operating profit margin to be in the top half of our target range, but near the bottom, including tariffs.

And we expect MP and E free cash flow to be slightly lower than 2025 reflecting slightly the higher capital expenditures. We continue to execute our strategy for long-term profitable growth. And with that, we'll take your questions.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand to join the queue. If you would like to withdraw your questions, simply press 1 again. Please note, we are only allowing one question per analyst. Your first question comes from the line of Mig Dobre with Baird. Your line is now open.

Mig Dobre: The thing that obviously stood out most in the quarter was just a very impressive order growth and backlog growth that you had. And I guess my question related to this maybe twofold. First, can you comment a little bit about what's happening in some of the other segments outside of and maybe P and T or power generation? And then as you sort of think on a go-forward basis, if I understand correctly, you got roughly $20 billion of backlog that is not going to be delivered in the near term. And it sounds like this figure might further grow as we think about Q1.

So how do you think about these deliveries that now are stretching to '27 and beyond? And I'm asking through the lens of price cost, making sure that you know, you are ensuring that you have the proper margins and the proper pricing given how volatile just the cost picture and the tariff picture has been. Thank you.

Joe Creed: Yeah. Good morning, Mig. This is Joe. Thanks for that question. There's a lot in there. I'll try to make sure I get to most of them. So we are really excited. I'm really excited about how we finished the year with our backlog at $51 billion, you know, at 70% higher than year-end prior and $11 billion higher than where we finished, you know, the third quarter. So as you suggest, I'll talk about it and frame it in the way of order rates that we saw in the fourth quarter, and they were strong in all three segments. It's not just power and energy.

CI had one of its best quarters from an order standpoint, ever, supported by both the growing industry that we think confidence, in the industry in '26 from us and our dealers, and strength in our STUs. You know, we've continued to outperform the industry and we'll we hope to try to do that again here in 2026. I'd say for CI as well, just keep in mind, we're also returning to a more normal seasonal pattern. So the selling season, you know, coming in the spring and us getting ready for that, we entered 2025, you know, at a much slower pace. And so we're getting back to more normal seasonal patterns in CI.

RI had a great order run rate in the quarter. It's one of the best quarters since 2021 that we've seen, and that's supported by strength in heavy construction in North America as well as some good mining orders, particularly in South America related to copper mining. And then obviously, power and energy had a really strong order intake quarter as well. Power generation continued to be strong. We're seeing more deals, a little more mix into prime power like the one that we announced yesterday, which obviously wasn't in this backlog figure. It'll come in the first quarter. But we've had four now prime power orders of greater than a gigawatt.

We've had a handful of other sizable orders that were less than a gigawatt. The other thing there is we're seeing strong orders in oil and gas, particularly for gas compression. So, you know, the more power that is needed out there, we're gonna move a lot of gas. We have to feed turbines and engines to continue to provide that power. So we had a really, really strong quarter from an order standpoint. And again, it was strength across the board. When it comes to visibility farther out, I think that's a good thing for us.

You know, one of the things that we're trying to do, particularly most of that's in power and energy, is work closely with our customers to schedule their orders in our factory to deliver when they need them in their project timing. And what that allows us to do is make sure we're not sending things ahead of time and we can satisfy more customers and make sure every order gets to the customer when they need it. Obviously, as you suggest, you know, we're taking orders farther out, for those types of orders. We have frame agreements for a lot of customers. Those will have inflationary indices tied in there for pricing.

And for non-frame agreements, we usually have escalators if they're out past the normal twelve-month type period. So again, really, really happy with the order performance that we had in the fourth quarter and the outlook that we have ahead of us.

Operator: We'll go next to Michael Feniger at Bank of America.

Michael Feniger: Yes. Thanks for taking my question. Just the 50 gigawatt power by 2030 that number you guys provided in Investor Day. Can you just give us a sense where that kind of finishes '26 and '27? And the genesis of the question is there's always worries that with everyone raising capacity, if data center slows, you know, do we get into an overcapacity type of market? How much of this 50 gigawatt is going into other markets outside of data centers? Energy, gas compression, downstream, and when you're booking these orders, I know Mick talked about pricing. But how are you also thinking about terms and conditions, service agreements, you know, prime moves to backup?

Just how are you guys thinking of also preparing yourself for down the road as, you know, as you've seen boom and bust in the past? Thank you, everyone.

Joe Creed: Yeah. Thanks, Mike. So when it comes to the capacity increase, we obviously, you know, work all of our industries, kind of work with our customers and figure out what the forecast is. So, you know, there could be puts and takes, forecasts move around, but what we've sort of gauged the capacity we need based on what we see in all industries. We're gonna make sure, like I said, we're gonna move a lot of natural gas in the next few, so we're gonna make sure we take care of our oil and gas customers as well as power generation.

And I think rightfully, as you point out in there, you know, some of the things that are also in that capacity, it's not all just assembling finished product. Right? There's supply base, and there's components machining, and component capacity for us to make sure we can grow services. So when we take prime power or gas compression applications that run continuously, right? Those will hit overhaul cycles, and those are great services business for us. So we need to make sure we have capacity in place to do that as well. So all that's taken into consideration. You know, we have we're on schedule.

We were able to ship a little bit more at year-end in our large engine facility than we anticipated, which is a great thing. Need to be able to sustain that throughout 2026, and we expect a big chunk of capacity, the first real big step up to come towards the end of this year and heading into 2027. And then the turbine investment started a little later. It'll start to come on a little bit after that. So we continue to stay close to our customers. I mean, talk to hyperscalers and large data center customers weekly and make sure we stay in line with their plans.

And like I said, we're starting to take farther out, and I think that's a good thing.

Operator: We'll go to our next question from David at Evercore ISI.

David Raso: I'm trying to reconcile the sales guide for '26. Right? The roughly 7%. If you look at the backlog that ships the next twelve months, on a year-over-year basis, it's up about 44%. The orders for backlog that ships in the next twelve months are up 36%. And your view of retail being up in '26, just trying to understand why such a low sales growth given the order momentum, the size of the backlog, and you see retail up in '26. And if you indulge me, just a clarification, maybe I missed it. The tariff impact, the $800 million, does that include expected pricing for '26 netting against a gross number? Or is it before any pricing actions?

Thank you.

Andrew Bonfield: Yes, David. So first, let me answer the second part of your question. That is, it does not take into account any pricing actions. The 2% pricing action we talked about is completely separate. So this is just the incremental cost that we dollar cost that we will actually incur or pay for tariffs in 2026. And then when you talk about the backlog and the sales guide, the one thing I'd just point out to you and Joe mentioned it, was last year, if you remember, we actually did in particular in construction. There was a very low there was no virtually no increase in dealer inventory in the first quarter, which was unusual.

So one of the factors that you have to take into account when you're looking at backlog is the fact that, obviously, CI's backlog is stronger, but part of that is for the, and machines for the billion-dollar plus increase in dealer inventory that we expect in the first quarter, which is a difference versus the prior year. So that's one factor. Overall, you know, just to remind you that in power and energy, we are capacity constrained. Obviously, we are basing our estimates based on the capacity we have today. As Joe mentioned, we are obviously trying and we managed to bring it a little bit earlier online. But, obviously, that is not certain at this stage.

So, obviously, if we are able to bring something on, there will be some upside in the second half of the year.

Operator: We'll go next to Tammy Zakaria at JPMorgan.

Tammy Zakaria: Hi. Good morning. Thank you so much. So the AIP announcement last night, could you give some color on what the battery energy storage system opportunity could be for an order of that magnitude in addition to recip engines? Could it be half and half, 25-seventy-five, seventy-five-twenty-five? Or any color on the revenue mix with the engines and BESS would be helpful. And related to that, do you have enough capacity for BESS products should there be more deals like this?

Joe Creed: Hey. Good morning, Tammy. Most of that order is gonna be, you know, in generators and natural gas generators. You know, I think you saw as part of the JUUL, it's a complete system. Same similar to JUUL. So when we do have batteries in there, it's a small portion of the overall total. So most of it is gas generator sets. And, you know, as far as capacity goes, that's all part of our capacity planning. So, you know, we feel like we can continue to keep up with the growth in prime power and hopefully continue to see more mix shift that way.

Because as we said, you know, that would help from a services standpoint, and we'll have to look at components farther out because obviously even mean more upside to services, you know, in that kind of three to five years half after, after delivery of those gensets. So exciting opportunities for sure.

Operator: Our next question comes from Chad Dillard at Bernstein.

Chad Dillard: A couple of questions for you on Prime Power. So for that application, what's the future role of backup diesel generators versus BESS? You know, when you're talking to the customers, like, how are you thinking about how that evolves over the next several years? And then also, with regard to your capacity ramp in power gen, do you think you can keep the revenue momentum growing in '26 versus '25? I think it goes up to 30%. Or, you know, should we be angling more towards that 20% CAGR that you've laid out for power gen?

Joe Creed: Yeah. A couple of questions there. I think the last one first, as Andrew stated, it's not a demand issue for us. It's really going to be can we bring on supply faster. Kind of what we have in that revenue guide now is what we have high confidence in. You know, if everything turns up heads, remember, it's not just us. We have to bring our supply base along with us. You know, we're gonna get out as much product as we can, and, obviously, that would provide, you know, a little bit of upside if we can continue to outpace our current plans for bringing the capacity online.

When it comes to these prime power applications, most of what we're seeing so far is still having backup power, and they're also with gensets. Not with batteries. In fact, in these, they're using our fast start gas gensets for backup power versus diesel when they do a couple of the big orders we've seen for gas prime power. So, right now, we're not seeing, you know, a 100% battery backup. It's mostly generators.

Operator: We'll move next to Jamie Cook at Truth Securities.

Jamie Cook: Hi, good morning and congratulations. Sorry, Joe, another question on backlog. Just given the strength. Was there anything sort of one-time in that growth number or pull forward perhaps an announcement that you weren't able to press release? You know me understanding that the AIP that goes into next quarter. But just wondering if there's a pull forward in your understanding there'll be lumpiness quarter to quarter, but do you still see an expectation where you can grow your backlog double-digit as we exit 2026 for the full year? And then just again, the growth you're seeing, is there any way do you think you're outgrowing the market for whatever reason, competitive positioning, product, dealer?

I'm just wondering if you're getting a greater share of the market relative to your peers. Thank you.

Joe Creed: Yes. Thanks, Jamie, and good morning. As far as orders in the quarter, on your first question, I think nothing of significant note where we had something that we couldn't announce. I would, you know, there are a couple of things outside of power and energy. We talked about CI and the seasonality. Would also say, you know, the strong orders in RI again, those are RI can be a lumpy business, and those orders come in big orders. And it's not, you know, steady. So, we're happy to see the orders that came in. You know, I don't know that you can count on repeat every quarter of that. As we exit, we'll see where we exit this year.

Right? We wanna ship a lot of product and, you know, I appreciate you asked this question last time as well. I mean, the backlog is a nuanced number. We need it to go up because we're adding capacity and other things. But, you know, if I can, you know, slow that growth in the backlog because I can significantly get more product out while orders are still increasing, that's obviously a good thing as well. So, you know, we're focused on winning as much of the business as we can. You know, we outpaced the industry in CI.

I think we are, you know, definitely a market leader in power and energy for what we provide in that space just from a scale standpoint. So and we have the widest offering below 38 megawatts between turbines and engines. And burn a lot of fuel. So we feel really good in our competitive position. From a lead time standpoint, they are extended, but still, you know, we're able we're one of the fastest solutions out there for data centers who are trying to get up and running quickly. So yeah, we'll see how the year plays out, but we have great momentum, and I'm hopefully I'm planning on and expect the momentum to continue throughout this year.

Operator: Our next question comes from Jerry Revich at Wells Fargo.

Jerry Revich: I'm wondering, Joe, if you could just talk about for the turbine business. You had spoken about potential for it to be used in some key plant applications by utilities. Any update on how those conversations are tracking when we might see those use cases? And then in the prepared remarks, you folks spoke about comparable shipments. 26 versus 25 for turbines. But you're ramping up really significant deliveries in Titan 350s, I thought, in 26 versus 25. So I just want to make sure I'm not missing any outsized shipments in the fourth quarter or any other moving pieces there. Thank you.

Joe Creed: Yeah. I mean, we're seeing most, you know, the 350 first units have gone out and we're trying to ramp 350. So it's a relatively new product that's going out there. So, you know, Solar had a record year in 2025. We expect something comparable in 2026. We announced the capacity increase for solar, but, again, we just announced that, you know, middle of last year, late last year, so that's not gonna really have a significant impact on 2026 results. I think we'll see a mix to the larger frames, you know, like the 350 as we're shipping a few more of those in 2026 as well.

And then, you know, we continue to work all the deals that we can for power, and we're seeing, you know, traditionally, Solar's business has been, you know, very heavy weighted towards oil and gas. That business is still really strong. But now we're starting to see more of the mix shift into power gen as well. So, you know, we're anxious to get that capacity program moving along and we'll provide updates as we move throughout it. We'd love to get more product out. But right now, you know, that's what we have line of sight to in 2026.

Operator: Our next question comes from Rob Wertheimer at Melius Research.

Rob Wertheimer: Morning, Rob. So the project scope at the Monarch data center looks interesting, and I wonder if you could give us a mini education. I think that they're gonna use the waste heat from the cat engines to provide cooling to power chillers. You know, there's been an argument that combined cycle in conjunction, you know, combined cycle turbines with steam turbine attached are higher efficiency. I don't quite know how to compare the efficiency with this, but, obviously, using the waste heat is good. And in Juul, I think there was backup diesel with Prime recip and gas. In this case, I think you're just over sort of overbuilding the gas recips and there's no diesel involved?

And last question, just, you know, do you get a lot of inquiries on this sort of thing, or is there a robust, you know, kind of quoting and activity pipeline behind it? Thank you.

Joe Creed: Yeah. Rob, I need my engineers or Jason to talk to you on the technical specs of it, but, you know, as you're looking at customers who are wanting speed to market, bringing your own power is definitely, you know, one of the ways that they can do that, and we can support them. And I think once you make that decision to go to gas prime power and kind of have your own mini power plant there with the gensets, it's we've been able to sit with them and say, okay. Let's make it as efficient as possible.

So, obviously, if we can use the heat to help with the cooling and use that energy on-site, it makes the whole project more efficient, and the competitiveness of it better from a financial standpoint. So we continue to work with all of our customers on that. I think we'll continue to make headways. You know, we also, you know, announced partnerships with Vertiv. We're trying to find ways to make these solutions as cost-effective and efficient as possible for our customers. And we're having a lot of these discussions. Juul, I think in the early days, if I'm not mistaken, was diesel backup, but then switched to actually gas-fired fast start backup power as well. So all natural gas.

And I think, you know, the latest one is natural gas as well. So, you know, that's one of the great things about our portfolio. You know, we up to 38 megawatts, we have all sorts of different solutions, and we can configure it however is best for that customer site, what type of fuel availability they have, and the size and what they're trying to do to make it the most efficient. So, you know, we have a team that really sits with customers and has turbine experts and recip experts on it. We have a lot of microgrid experience, and, essentially, that's what these are.

And so we're working with customers to put the best solution forward, and I think it's gonna be exciting. We have more and more discussions around it daily.

Joe Creed: Roger, we have time for one more question.

Operator: Thank you. Today's final question comes from the line of Kristen Owen with Oppenheimer.

Kristen Owen: Good morning. Thank you so much for taking the question. Going to ask a rare question on Construction Industries. And just help us unpack some of the demand drivers that you're seeing there. How much of this is just a return to a normalized replacement level? How much of this is actually supported by data center activity? And how much should we expect is embedded in your market share growth for 2026? Thank you.

Joe Creed: So I'll make some comments, Andrew. You can chime in here. But, you know, we expect North America to continue to be strong. Obviously, you know, the data center build-out is not just good for power and energy. You know, that drives a lot of construction activity as well. There are a number of other construction projects moving along. And as we said in our prepared remarks, you know, we continue to see that strength here in North America, IIJA spending continuing to go on. The Middle East, in particular, continues to be really strong.

And then we expect, you know, China has been really low, and we'll hopefully see some positivity there in above 10-ton excavators coming off of low levels as we enter into this year. From a competitive standpoint, we made great progress and were able to the industry last year. With the strength of our merchandising programs. We have exciting things to continue to roll out. We continue to work on our rental strategy with our dealers. We'll have some things to share at CONEXPO as well. When it comes to our, you know, BCP equipment, the smaller part of the CI lineup, which has a ton of momentum in the industry.

So we feel pretty good about our ability in CI. It is some of that order strength is getting back to that more normal seasonal pattern. But we have great confidence around the industry and where it's heading. So with that, I want to thank you all for joining us today, and we appreciate your questions and interest in Caterpillar. Really proud of our team. We had exceptional performance in 2025 as they delivered record sales and revenues, an adjusted operating profit margin that was within our range, and robust MP and E free cash flow. These results demonstrate the strength of our end markets and our team's disciplined execution.

So with a record backlog, we enter the New Year with strong momentum and a continued focus on delivering long-term value for our customers and our shareholders. Now I'll turn it back to Alex.

Alex Kapper: Thank you, Joe, Andrew, and everyone who joined us today. A replay of our call will be available online later this morning. We'll also post a transcript on our investor relations website as soon as it's available. You'll also find a fourth-quarter results video with our CFO, an SEC filing with our sales to users data. Click on investors.caterpillar.com, and then click on financials to view those materials. If you have any questions, please reach out to me or Rob Wrangel. Investor relations general. Phone number is (309) 675-4549. Now let's turn it back to Audra to conclude our call.

Operator: That concludes our call. Thank you for joining. You may all disconnect.