Caterpillar delivered a quarter that its own leadership called historic. Sales topped $20 billion for the first time in company history, and profit per share jumped 73% from last year.
Notably, Caterpillar’s (CAT) adjusted operating margin came in at 21.9%, boosted by a surprise recovery of tariff costs the company had already absorbed.
The single line item is now shaping how Wall Street thinks about Caterpillar’s profitability for the rest of the year.
Here’s what happened, why it matters, and what it means for anyone watching CAT stock heading into the back half of 2026.
Caterpillar sales hit record highs
Caterpillar’s three main segments, Construction Industries, Resource Industries, and Power & Energy, all grew sales to end users during the quarter.
- Power & Energy led the pack, with sales to users up 33%, driven largely by demand for large generators and turbines used in data centers. Power generation sales jumped 72%.
- Construction Industries posted its sixth straight quarter of sales to user growth, up 22%, helped by strong rental fleet activity in North America.
- Resource Industries, which covers mining and heavy construction equipment, grew sales to users 17%.
CEO Joe Creed pointed to broad-based momentum across the business, stating:
“Strong order rates and a growing backlog reflect broadening momentum across our business.”
The backlog grew to $72 billion at the end of Q2, up $9 billion from the prior quarter and 92% higher than a year ago.
Every segment contributed to that growth, and 59% of it is expected to ship within the next twelve months, a share that has held steady for three straight quarters.
Tariff recovery lifts margins
Tariffs have been a drag on Caterpillar’s profits since early 2025, when new import duties started hitting its supply chain.
In the second quarter, the company recognized $392 million in what it calls IEEPA tariff recoveries, essentially money clawed back after adjustments to how earlier tariff costs were calculated.
CFO Kyle Epley explained that outside of that recovery, tariff costs for the quarter came in around $400 million, well below the $700 million the company had guided to back in April.
“This favorability was primarily driven by adjustments to the computation of tariffs previously incurred,” Epley said.
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That combination, a one-time recovery plus lower ongoing tariff costs, added up to a 430 basis point margin improvement compared to last year.
Without the recovery, Caterpillar says full-year margin would land near the bottom of its target range. With it, the company now expects to operate closer to the middle of that range.
For investors, this matters because it shows tariffs aren’t just a one-way headwind anymore.
Caterpillar is finding ways to recapture some of that cost, and management believes the tariff impact in the second half of the year will not be significant.
Wall Street responds to Caterpillar stock
According to Investing.com, Oppenheimer lifted its price target on Caterpillar to $1,118 from $1,105 following the results, while keeping its “Outperform” rating in place.
The investment firm pointed to acceleration across every business segment as the reason for the price hike.
The upgrade landed shortly after a broader pullback in stocks tied to AI infrastructure spending, a group Caterpillar has increasingly been lumped into given its exposure to data center power demand.
Oppenheimer pointed out that Caterpillar’s stock has become notably more sensitive to swings in AI-related trading, with its beta to that trade roughly doubling from about 0.8 in 2025 to around 1.6 now, a level that lines up with the stock’s five-year beta of 1.6.
Out of the 16 analysts covering CAT stock, eight recommend “Buy”, and eight recommend “Hold”. The average Caterpillar stock price target is $1,013, 18% above the current price.
What’s next for Caterpillar stock
Caterpillar raised its full-year sales outlook to mid- to high-teens growth, up from its prior guidance.
The company also expects free cash flow to land in the top half of its $6 billion to $15 billion annual target range.
Construction demand remains a bright spot, particularly through Major Projects, a new dealer-owned rental venture aimed at large-scale infrastructure and data center builds.
Creed said the strategy is about making it easier for big contractors to work with Caterpillar and its dealer network.
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Power & Energy remains the segment to watch.
Creed noted that customers are placing orders as far out as 2029 and 2030, and that lead times for gas engines used in data center power are already extended into late 2028.
“No one is slowing down at the moment,” Creed said, addressing concerns about whether AI-driven data center demand could cool off. “In fact, if we can get more units out, they’re asking us to give them more units.”
Financial Products, Caterpillar’s lending arm, also showed strength. Past-due accounts fell to 1.31%, the lowest level since 1998, a sign that Caterpillar’s customers are in solid financial shape even as the broader economy faces uncertainty.
Put together, the quarter tells a fairly clear story. Demand is broad and growing, the backlog gives Caterpillar visibility years into the future, and tariffs, while still a real cost, are proving more manageable than feared just a few months ago.
That’s the kind of setup that tends to keep margin expectations, and investor attention, pointed in Caterpillar’s favor.
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