Caterpillar is Set to Report Q2 Earnings: Buy, Sell or Hold the Stock?

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Caterpillar’s Earnings Surprise History

CAT’s earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters while missing once, the average surprise being 9.62%. This is depicted in the following chart.

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What the Zacks Model Unveils for CAT Stock

Our proven model predicts an earnings beat for Caterpillar this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is the case here, as you can see below.

You can uncover the best stocks before they are reported with our Earnings ESP Filter.

Earnings ESP: Caterpillar has an Earnings ESP of +4.96%.

Zacks Rank: CAT currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Likely to Have Shaped Caterpillar’s Q2 Performance

The broader manufacturing environment remained supportive during the quarter, as reflected in the Institute for Supply Management reporting readings above 50 (denoting expansion). The index was 52.7% in April, 54% in May and 53.3% in June. The New Orders Index also remained above 50 throughout this period. This is likely to have reflected in Caterpillar’s order volumes.

CAT’s record backlog of $63 billion at the beginning of the quarter, along with ongoing strength in aftermarket parts and service-related revenues, is likely to have supported its top line.  Volume gains across all segments are projected to have been the primary driver. Overall, we expect volumes contributing 11% to revenue growth, supplemented by 1.8% from pricing and a 0.7% favorable currency impact. 

However, tariffs, estimated to be around $700 million, are likely to have driven a 13% increase in the cost of sales. We anticipate a 4.4% increase in selling, general and administrative expenses and a 6.6% rise in research and development costs. 

However, the growth in revenues is expected to have offset by higher costs and our model projects a 22.5% year-over-year increase in adjusted operating income to $3.57 billion. We expect the operating margin to be 19.1% for the first quarter of 2026, implying an improvement from 17.6% reported in the second quarter of 2025.

Our Projections for CAT's Segments in Q2

Our model projects the Resource Industries segment's external sales at $3.97 billion for the quarter, indicating a 4.8% year-over-year rise. We expect a 3% rise in volume for the segment, a pricing impact of 1.3% and a positive 0.5% impact from currency translation.

The segment is expected to report an operating profit of $692 million, suggesting 23% year-over-year growth. The segment’s operating margin is projected to be 17.4%, higher than the 14.9% reported in second-quarter 2025.

The Construction Industries segment’s external sales are projected at $7.24 billion, indicating growth of 18% from the year-ago quarter’s actual. We expect a 14.8% improvement in volumes, a 2.7% impact of pricing and a 0.7% gain from currency translation. 

The segment’s operating profit is projected to be $1.62 billion, indicating year-over-year growth of 30.5%. We project the segment’s margins at 22.4%, higher than the year-ago quarter’s 20.3%.

For the Power & Energy segment, we expect external sales to be $6.67 billion, suggesting a 15.1% rise from the year-ago quarter’s actual. Volume growth is projected to be 13.3% on improved demand across all sectors: Power Generation, Oil and Gas and Industrial. Pricing is expected to contribute 1.1% to the segment’s sales growth, while currency is expected to have had a positive 0.5% impact.

Our estimate for the segment’s operating profit is $1.83 billion for the second quarter of 2026, suggesting a 17.5% increase year over year. Segment margin is projected at 27.4%, higher than the 26.8% reported in the second quarter of 2025.

Caterpillar’s Price Performance & Valuation

CAT has gained 96.7% in the past year compared with its industry’s 73.6% growth. It has also outperformed the broader Zacks Industrial Products sector’s 17.4% growth and the S&P 500’s climb of 21.6%. 

CAT stock has outpaced other players in the industry, like Astec Industries ASTE, Komatsu KMTUY and Terex TEX. In the past year, Astec, Komatsu and Terex have gained 41.3%, 38.2% and 27.6%, respectively.

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Caterpillar is currently trading at a forward 12-month P/E of 28.39X, a premium compared with the industry’s 26.61X.

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The stock is also not cheap when compared with Terex, Astec and Komatsu, all of which are trading at 11.53X, 13.25X and 16.79X, respectively. Notably, Terex, Astec and Komatsu are trading below the industry’s average.

Investment Thesis on CAT

Caterpillar’s long-term outlook remains compelling. The company is well-positioned to benefit from global infrastructure spending, urbanization trends and the ongoing transition toward cleaner energy systems. Its strong brand and market presence, and diversified business model position it for improved performance going forward. Expanding its service revenues, which generate higher margins, provides a solid foundation for sustained growth. Additionally, Caterpillar’s robust balance sheet supports continued investment in innovation, alongside shareholder returns through dividends and buybacks. While tariffs are expected to have raised costs, volume growth, as well as CAT’s pricing and cost-cutting efforts, can help counter the impacts.

How Should You Play Caterpillar Stock Pre-Q2 Earnings?

CAT's performance has always been closely watched by investors, as it serves as a key economic barometer for the sector. Caterpillar’s second-quarter revenues are expected to reflect the improvement in volumes in its segments. Earnings are expected to have increased owing to higher revenues and cost-control efforts despite higher costs owing to tariffs. 

No matter how the upcoming quarterly results play out, investors who already own CAT should retain its shares in their portfolios to benefit from its solid long-term fundamentals. However, given its premium valuation, new investors can wait for a better entry point.

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This article originally published on Zacks Investment Research (zacks.com).

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