Companies
Caterpillar tumbles as tariff costs squeeze its profit margin
Caterpillar shares tumbled 9.3% after the heavy equipment maker warned that tariff costs would push its profit margin toward the bottom of its target range. The warning overshadowed a quarter that beat forecasts.
Quick Read
- Caterpillar shares tumbled 9.3% on Oct. 29 after the company warned that tariff costs would squeeze its profit margin.
- Third-quarter profit and revenue beat analyst forecasts, helped by strong demand for power equipment used at data centers.
- The company kept its full-year sales growth forecast but expects its adjusted operating margin near the bottom of its target range.
What happened to Caterpillar's shares?
Caterpillar (NYSE: CAT) shares tumbled 9.3% on Thursday, Oct. 29, closing at $647.39. They had ended the previous session at $713.38. The heavy equipment maker lost $30 billion in market value during the session.
Why it matters: The drop stood apart from the wider market. The S&P 500 fell 0.3%. A fund tracking industrial stocks rose 1.0%. Caterpillar shares worth $5.3 billion changed hands during the day.
Why did the stock fall after a strong quarter?
The quarter itself came in ahead of expectations. Profit per share, known as EPS, and revenue both topped the consensus, the average analyst forecast. The company credited higher sales volumes and better pricing.
The outlook weighed on the shares, according to reports. Caterpillar warned of higher costs from tariffs, which are taxes on imported goods paid by the importer. It now expects its adjusted operating margin, the profit the core business keeps from each dollar of sales, near the bottom of its target range.
The company kept its full-year sales growth forecast. Its operating margin in the quarter also widened from a year earlier.
What is driving demand for its equipment?
Data centers are a large part of the story. Caterpillar's Power & Energy unit sells turbines, large engines and backup power systems that these sites depend on. Both sales and profit in that unit rose from a year earlier.
"Our third-quarter results reflect the durability of our end markets, with strong order rates and a record backlog," Chairman and CEO Joe Creed said. The company is taking orders for large engines into 2029 and turbines into 2030, according to reports.
Some investors question how long that pace can last, reports said. Revenue growth slowed from the second quarter, and limited production capacity caps how quickly the company can fill orders.
What comes next?
What’s next: Creed expects moderate sales growth in Power & Energy in the fourth quarter, with Construction Industries sales largely unchanged. He acknowledged challenges in the Middle East but expects limited effect on sales in Europe, the Middle East and Africa.
The shares now sit 39.2% below their 52-week high of $1,064.90. A $1,000 stake bought a year ago was worth $1,106 after Thursday's close. The government's September factory orders report, due Nov. 3, may give a wider read on equipment demand.
For readers
What it could mean for you: People who hold Caterpillar shares directly carry the full weight of this news, with no other holdings to soften it. The open question is costs, not demand. If tariff costs keep climbing, the company's margin could stay near the low end of its range. That may hold back profit even as orders grow. If data center spending keeps lifting power equipment sales, that could offset part of the pressure. Caterpillar's next quarterly report may show which force proves stronger.
Questions and answers
Why did Caterpillar stock drop after earnings?
The company warned of higher tariff costs and said it expects its adjusted operating margin near the bottom of its target range. That outweighed a quarter in which profit and revenue beat estimates.
Did Caterpillar beat earnings estimates?
Yes. Third-quarter EPS and revenue both topped the consensus forecast, and the company reported a record order backlog.
How is Caterpillar tied to data centers?
Its Power & Energy unit sells turbines, large engines and backup power systems used at data centers. Creed said demand from cloud computing and backup power remains strong.
Did Caterpillar change its outlook?
It kept its full-year sales growth forecast. Creed expects moderate Power & Energy sales growth in the fourth quarter and largely unchanged Construction Industries sales.
The numbers
| Caterpillar (CAT) price | $647.39 |
|---|---|
| Caterpillar (CAT) change | −9.25% |
| Caterpillar (CAT) market value | $300 billion |
| Caterpillar (CAT) 52-week high | $1,064.90 |
| S&P 500 change | −0.30% |
| 10-year Treasury yield | 4.98% |
Thursday’s close
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