How CAT (Caterpillar) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a global industrial leader like CAT (Caterpillar Inc.) makes money is essential for investors and anyone interested in the business of heavy machinery and equipment manufacturing. In this post, we break down CAT's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick CAT Overview

Caterpillar Inc. (CAT) operates as a leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. The company’s business model centers on designing, manufacturing, and selling heavy machinery and engines, as well as providing related financial products and services.
Revenue comes primarily from the sale of equipment and engines to construction, mining, energy, and transportation sectors worldwide. CAT’s business segments include Energy & Transportation, Construction Industries, and Other (which includes financial products and ancillary services).

Revenue Breakdown

• Total Revenue (Q3 2025): $17.6B (+9.5% YoY)
  • Energy & Transportation: $8.40B (47.6% of total, +16.8% YoY)
  • Construction Industries Revenue: $6.76B (38.3% of total, +6.5% YoY)
  • Other: $2.48B (14.1% of total)
• Growth is powered by robust demand in energy infrastructure, transportation, and global construction markets.

Gross Profit and Margins

• Gross Profit: $5.97B (33.8% gross margin)
  • Cost of Revenue: $11.70B (+12.2% YoY)
  • CAT maintains strong margins due to its scalable manufacturing operations, global supply chain efficiencies, and premium product positioning.
• Most costs come from raw materials, manufacturing labor, logistics, and warranty provisions.

Operating Income and Expenses

• Operating Income: $3.05B (-3.0% YoY, 17.3% margin)
• Operating Expenses: $2.91B (+13.9% YoY)
  • R&D: $555M (+4.1% YoY, 3.1% of revenue) — Focused on next-generation engines, autonomous machinery, and sustainability initiatives.
  • SG&A: $1.82B (+9.2% YoY, 10.3% of revenue) — Includes global sales teams, marketing, administrative overhead, and dealer support.
  • CAT continues to invest in innovation and operational expansion while maintaining cost discipline.

Net Income

• Pre-Tax Income: $3.13B (+0.9% YoY, 17.7% margin)
• Income Tax: $836M (26.7% effective tax rate)
• Net Income: $2.29B (-7.1% YoY, 13.0% net margin)
• CAT converts a significant portion of sales into profit due to its global scale, operational efficiency, and pricing power.

What Drives CAT's Money Machine?

• Energy & Transportation: 47.6% of revenue — Driven by sales of engines, turbines, and related services to energy producers and transport operators.
• Construction Equipment Sales: CAT’s core business, with strong growth in emerging markets and infrastructure projects.
• R&D Investment: $555M in Q3 2025 — Focused on automation, electrification, and digital solutions for heavy equipment.
• Future Growth Areas: Expansion into autonomous machinery, digital fleet management, and sustainable energy solutions, though these segments are not yet major profit contributors.

Visualizing CAT's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially SG&A and R&D) taking the largest chunk.
• Even after large investments in innovation and global expansion, 13.0% of revenue drops to the bottom line.

Key Takeaways

• CAT's money comes overwhelmingly from equipment sales to energy, transportation, and construction sectors
• High gross and net margins illustrate the power of CAT's global manufacturing scale and premium product positioning
• Heavy investment in R&D, balanced by efficiency in operating costs
• Ongoing growth is driven by infrastructure spending, energy transition, and digital innovation

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FAQ About CAT's Income Statement

1. What is the main source of CAT's revenue in 2025?

CAT generates over 47% of its revenue from Energy & Transportation, primarily through sales of engines, turbines, and related services. Construction Industries contribute another 38%, with the remainder from financial products and other services.

2. How profitable is CAT in Q3 2025?

CAT reported net income of $2.29B in Q3 2025, with a net margin of approximately 13.0%, reflecting strong profitability driven by global scale and operational efficiency.

3. What are the largest expense categories for CAT?

The biggest expenses on CAT's income statement are operating expenses, particularly Research & Development (R&D) at $555M and Sales, General & Administrative (SG&A) at $1.82B in Q3 2025. R&D investment is focused on automation, electrification, and sustainability.

4. Why does the "Other" segment operate at a loss?

The "Other" segment, despite generating $2.48B in revenue, posted an operating loss due to aggressive investment in financial products and ancillary services, which CAT believes will drive long-term growth—even if the division is unprofitable today.

5. How does CAT's effective tax rate compare to previous years?

CAT's effective tax rate in Q3 2025 was 26.7%, higher than previous years. This higher rate is primarily due to lower tax benefits from share-based compensation and changes in international tax structuring.