Caterpillar's second-quarter sales topped $20 billion for the first time in the company's history, with profit per share up 73% from a year earlier. A one-time tariff cost recovery pushed the adjusted operating margin to 21.9%, and Oppenheimer raised its price target on the stock after the results.
The company's adjusted operating margin reached 21.9% in the second quarter, boosted by a surprise recovery of tariff costs it had already absorbed. The single line item is now shaping how Wall Street thinks about Caterpillar's profitability for the rest of the year.
Sales climb across every segment
Construction Industries, Resource Industries, and Power & Energy — Caterpillar's three main segments — 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 generators and turbines used in data centers, and 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, and the backlog grew to $72 billion at quarter's end, up $9 billion from the prior quarter and 92% higher than a year ago. Fifty-nine percent of that backlog 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 weighed on Caterpillar's profits since early 2025, when new import duties began hitting its supply chain. In the second quarter, the company recognized $392 million in what it calls IEEPA tariff recoveries — money clawed back after adjustments to how earlier tariff costs were calculated. Outside of that recovery, tariff costs for the quarter came in around $400 million, well below the $700 million the company had guided to in April.
According to TheStreet: "This favorability was primarily driven by adjustments to the computation of tariffs previously incurred." Together, the one-time recovery and lower ongoing tariff costs added a 430-basis-point margin improvement compared with 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 land closer to the middle.
Wall Street lifts its price target
Oppenheimer raised its price target on Caterpillar to $1,118 from $1,105, keeping its "Outperform" rating, and pointed to acceleration across every segment as the reason. The upgrade landed 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.
The stock's beta to that trade has roughly doubled, from about 0.8 in 2025 to around 1.6 now, in line with its five-year beta of 1.6, Oppenheimer noted. Of the 16 analysts covering CAT stock, eight recommend "Buy" and eight recommend "Hold," with an average price target of $1,013, 18% above the current price.
Source: TheStreet
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