Caterpillar flags $2.6 billion tariff hit in 2026, data center demand powers quarter

Jan 29 (Reuters) – Caterpillar warned of a $2.6 billion tariff cost in 2026, including about $800 million in the first quarter, after beating Wall Street estimates for fourth-quarter results on sustained demand for its power-generation equipment amid a rapid build-out of data centers.

Industrial firms were among the hardest hit by President Donald Trump’s expansive tariffs last year, slashing forecasts and raising prices. While many U.S. firms have told investors this year that the tariffs are “manageable,” early earnings-season commentary suggests profit margins are under pressure.

The world’s largest construction and mining equipment maker said in October 2025 it expected a $1.6 billion to $1.75 billion annual tariff hit.

Caterpillar outlined two scenarios for its annual operating profit margin, echoing a trend from last year, highlighting difficulties in financial planning due to Washington’s evolving trade policies.

Including tariffs, the company expects its full-year adjusted operating profit margin to be near the bottom of the target range.

The company said at its November investor day that it is targeting an adjusted operating profit margin of 15% to 19% through 2024, rising to 21% to 25% by 2030, depending on sales levels.

Caterpillar said its operating profit fell 9% in the fourth quarter to $2.66 billion, driven by $1.03 billion of unfavorable manufacturing costs, largely tied to higher tariffs.

The company reported an adjusted profit of $5.16 per share for the quarter ended December 31, up from $5.14 per share a year earlier. Revenue rose to $19.1 billion from $16.2 billion.

Analysts on average expected the company to report a quarterly profit of $4.68 per share and revenue of $17.86 billion, according to data compiled by LSEG.

POWERED UP BY AI

The company’s Power and Energy division, covering diesel and natural gas engines, diesel-electric locomotives, and power-generation systems, reported total sales of $9.40 billion, up 23% from last year, with segment margins at 19.6%, compared with 19.3% previously.

The surge in artificial intelligence adoption is driving demand for computing power and pushing tech heavyweights to invest billions in new data-center infrastructure, boosting demand for Caterpillar’s back-up power generators.

Shares of the company were up about 1% in premarket trading.

Caterpillar, widely viewed as a bellwether for the global industrial economy, has been supported by stronger pricing on its equipment, helping sustain margins and offset softness as the construction equipment business recovers.

Analysts expect the construction segment to return to growth in 2026, supported by stronger dealer orders, stabilizing non-residential construction activity, and increased rental fleet demand.

(Reporting by Abhinav Parmar in Bengaluru; Editing by Sriraj Kalluvila)