Caterpillar Q3 Earnings Report: Is This Industrial Giant Still Worth Following?

Core Data Overview

Caterpillar reported record revenue of $17.6 billion in Q3, a 9.5% increase year-over-year, ending six consecutive quarters of decline. However, this good news was dampened by tariff pressures—costs surged by 16%, and adjusted operating profit actually fell by 4% to $3.05 billion. The stock price subsequently rose by 8.6%, with a year-to-date increase of 57%, outperforming the S&P 500 (up 16%) and the industrial index (up 7%).

Highlights and Concerns of the Financial Report

The good news is that the order book has reached a record high of $39.9 billion, indicating that future capacity utilization is assured. Growth is flourishing across all regions and sectors, with resource and construction-related businesses both recovering and growing.

The bad news is that profit margins have been squeezed—adjusted operating profit margin fell from 20% in the same period last year to 17.5%. Earnings per share decreased by 4% (reported at $4.95), all due to tariffs. Cash flow is also not as good as the same period last year (first nine months 815 million vs 864 million).

2025 Outlook Adjustment

The management has upgraded the full-year revenue guidance from “slightly above” to “moderately above” 2024, which is considered mildly optimistic. But the key point is — they expect tariff costs to consume $1.6 billion to $1.75 billion, which will keep the adjusted profit margin at the bottom of the target range.

Valuation Red Flag

CAT's current forward P/E ratio is as high as 26.87 times, a premium over the industry average of 24.57 times. Peer comparisons: Komatsu (11.70 times) and Terex (8.6 times) are much cheaper. The financial rating is only D grade, which means the price is simply too tight.

Is the long-term logic still there?

Yes. The increase in U.S. infrastructure spending, the strong demand for mining equipment due to energy transition, the efficiency improvements driven by autonomous driving technology, coupled with the high gross margin characteristics of after-sales service revenue (targeting to double to $2.8 billion by 2026), provide solid support.

Investment Advice

New investors? Be cautious entering the market now, as valuations are too high + the industry is sluggish + profit expectations for the year are declining. Current holders? Hold firmly, the long-term fundamentals are still strong. Zacks gives a Hold rating (#3), and we agree.

Data Benchmarking Competitors performed moderately in Q3: Komatsu's EPS fell by 6%, and while Terex's EPS grew by 2.7%, revenue was boosted by acquisitions, with organic growth still in the negative. The entire manufacturing sector is experiencing turbulence - the U.S. manufacturing PMI has been below 50 for eight consecutive months, dropping to 48.7% in October, a clear signal of recession.