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

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Understanding how a heavy equipment and industrial machinery leader like CAT (Caterpillar) makes money is essential for investors and anyone interested in the business of global manufacturing and infrastructure. 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 (CAT) operates as a global manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. Revenue comes primarily from the sale of heavy machinery, engines, and related services to construction, mining, energy, and transportation sectors. The company’s business is organized into segments such as Energy & Transportation, Construction Industries, and others, each targeting distinct end markets.

Revenue Breakdown

• Total Revenue (Q3 2025): $17.6B (+9.5% YoY)
  • Energy & Transportation: $8.40B (47.6% of total, +16.8% YoY)
  • Construction Industries: $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 ongoing construction activity worldwide.

Gross Profit and Margins

• Gross Profit: $6.0B (33.8% gross margin)
  • Cost of Revenue: $11.7B (+12.2% YoY)
  • CAT maintains strong margins due to its scale, pricing power, and operational efficiencies in manufacturing and supply chain management.
• Most costs come from raw materials, manufacturing, logistics, and direct labor.

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, electrification, automation, and digital solutions.
  • SG&A: $1.82B (+9.2% YoY, 10.3% of revenue) — Covers global sales, marketing, administrative, and support functions.
  • CAT continues to invest in innovation and digital transformation while maintaining operational efficiency and expanding its global footprint.

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 scale, efficient operations, and pricing power in key markets.

What Drives CAT's Money Machine?

• Energy & Transportation: 47.6% of revenue, driven by demand for engines, turbines, and power systems in global energy and transportation sectors.
• Construction Equipment Sales: $6.76B, reflecting strong infrastructure and building activity.
• R&D Investment: $555M in Q3 2025, targeting electrification, automation, and digital solutions to maintain technological leadership.
• Future Growth Areas: Electrification, autonomous machinery, and digital services, which are strategic priorities but 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) taking the largest chunk.
• Even after significant investments in R&D and SG&A, 13% of revenue drops to the bottom line.

Key Takeaways

• CAT's money comes overwhelmingly from heavy equipment sales and energy/transportation solutions
• High gross and net margins illustrate the power of CAT's global scale and operational efficiency
• Heavy investment in R&D and digital transformation, balanced by efficiency in operating costs
• Ongoing growth is driven by energy infrastructure demand, construction activity, and innovation in electrification and automation

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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 the Energy & Transportation segment, which includes engines, turbines, and power systems for global energy and transport markets. Construction equipment sales are also a major contributor, accounting for 38% of revenue.

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%, reflecting strong profitability driven by scale, pricing power, and operational efficiency.

3. What are the largest expense categories for CAT?

The biggest expenses on CAT's income statement are cost of revenue (materials, manufacturing, logistics) and operating expenses, particularly Research & Development (R&D) at $555M and Sales, General & Administrative (SG&A) at $1.82B in Q3 2025, as CAT prioritizes innovation and global sales support.

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

The "Other" segment, despite generating $2.48B in revenue, posted an operating loss in Q3 2025. This is because CAT aggressively invests in emerging technologies and digital services within this segment, believing these 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%, consistent with previous years. This moderate rate is primarily due to the company’s global operations and the mix of international and domestic earnings.