Caterpillar Inc. (CAT) reported a weaker first quarter for 2025, as both revenue and profitability declined sharply compared to the prior year, driven by lower dealer inventory builds and pricing pressures. Sales and revenues fell 10% year-over-year to $14.2 billion, mainly due to a $1.1 billion drop in volume and $250 million in unfavorable price realization. The impact of dealer inventory was especially significant, with a modest $100 million increase in Q1 2025 compared to $1.4 billion in Q1 2024, marking a sharp pullback from last year’s buildup.
Profitability followed a similar downward trend. GAAP profit per share dropped to $4.20 from $5.75, while adjusted profit per share declined to $4.25 from $5.60, reflecting weaker margins and operational performance. Operating profit decreased 27% to $2.58 billion, resulting in a GAAP operating margin of 18.1%, down from 22.3%. The adjusted margin of 18.3% also trailed the prior year's 22.2%. Despite these declines, the company maintained a solid financial footing, generating $1.3 billion in enterprise operating cash flow and deploying $4.3 billion to shareholders through $3.7 billion in share buybacks and $700 million in dividends.
Segment results painted a mixed picture. Construction Industries saw the steepest decline, with sales down 19% to $5.18 billion and profit plunging 42% to $1.02 billion, reflecting reduced volume and pricing headwinds. Resource Industries also struggled, posting a 10% drop in sales to $2.88 billion and an 18% decline in profit to $599 million. In contrast, Energy & Transportation proved more resilient, with sales down just 2% to $6.57 billion, and profit inching up 1% to $1.31 billion, buoyed by ongoing strength in power generation amid demand from data centers and energy transition investments. Financial Products posted a modest 2% increase in revenues to $1.01 billion, but profit fell 27% to $215 million, impacted by the absence of a prior-year insurance benefit, rising credit loss provisions, and lower yields.
Other financial elements also reflected broader challenges. Other income dropped to $107 million, down from $156 million, due in part to foreign currency headwinds. The effective tax rate rose to 22.3%, up from 19.5%, with the annual rate excluding discrete items estimated at 23.0%. Caterpillar ended the quarter with a healthy $3.6 billion in enterprise cash.
Looking ahead, management reaffirmed its focus on long-term profitable growth, supported by its diverse end markets. While softness is expected to continue in Construction and Resource Industries, the company anticipates ongoing strength in Energy & Transportation and growth in services revenue. Dealer inventories are expected to remain stable through the end of 2025. Despite the near-term pressures, Caterpillar remains committed to shareholder value, backed by a strong balance sheet and disciplined capital deployment.