Caterpillar flags $2.6 billion tariff hit in 2026, power equipment demand lifts quarter

Jan 29: Caterpillar warned it could face a $2.6 billion hit from tariffs in 2026, even as robust demand for its power-generation equipment helped lift fourth-quarter revenue and profit. The surge in data-center construction—fueled by rapid adoption of artificial intelligence and the need for reliable back-up power—continues to support the company’s performance despite broader industrial headwinds.

Quarterly results show steady gains

For the quarter ended December 31, Caterpillar reported adjusted earnings of $5.16 per share, a slight increase from $5.14 in the prior-year period. Revenue rose to $19.1 billion from $16.2 billion, reflecting sustained strength in energy and power applications tied to data centers and other critical infrastructure.

Tariff pressures intensify

The company’s operating profit declined 9% to $2.66 billion, primarily due to $1.03 billion of unfavorable manufacturing costs that were largely linked to higher tariffs. Caterpillar now expects a significantly larger tariff impact ahead, flagging a potential $2.6 billion hit in 2026. That outlook follows guidance from October 2025, when the company anticipated annual tariff costs of $1.6 billion to $1.75 billion. The updated figure underscores the mounting cost challenges that could weigh on production expenses and profitability in the coming years.

Data center build-out boosts power equipment

Explosive growth in AI-driven workloads is intensifying demand for computing capacity, prompting major technology firms to invest heavily in new data centers. This trend has bolstered sales of Caterpillar’s back-up power generators and related power systems, a segment that continues to deliver resilient performance. The company’s position as a key supplier in mission-critical power infrastructure has helped offset pockets of softness elsewhere in its portfolio.

Pricing supports margins

As a bellwether for the global industrial economy, Caterpillar has managed profitability by raising prices across its industrial equipment lines. These actions have supported margins and helped counter a slower recovery in its construction-equipment business. While some end markets remain mixed, pricing discipline and favorable product mix—particularly in power systems—have contributed to stable results.

Construction outlook brightens into 2026

Analysts expect Caterpillar’s construction segment to return to growth in 2026. Anticipated drivers include stronger dealer orders, stabilizing non-residential construction activity, and increased demand from rental fleets. If realized, these trends could provide a secondary tailwind to complement ongoing strength in power equipment, helping balance tariff-related cost pressures.

Key takeaways

• Fourth-quarter adjusted EPS rose to $5.16, with revenue increasing to $19.1 billion.
• Operating profit fell 9% to $2.66 billion due to higher manufacturing costs tied to tariffs.
• Caterpillar now sees a potential $2.6 billion tariff impact in 2026, up from prior annual cost expectations of $1.6–$1.75 billion.
• Power-generation equipment demand, driven by data-center expansion, remains a core growth engine.
• Pricing actions have supported margins as construction markets work through a gradual recovery.
• Analysts forecast a construction rebound in 2026 on improved dealer demand, stable non-residential activity, and stronger rental fleet purchases.