Dive Brief:
- Caterpillar will triple its large reciprocating engine capacity from 2024 levels to meet growing demand for data center and oil and gas customers, CEO Joseph Creed said on an earnings call Thursday.
- The Irving, Texas-based equipment manufacturer plans to invest heavily in this area from 2027 through 2029, Creed said. He did not disclose a specific dollar amount, but expects to see a “positive cash payback” on the entire investment by the end of 2030.
- Caterpillar raised its 2030 growth targets as a result of the additional power generation capacity. It expects a compound annual growth rate for sales and revenue between 6% and 9% from 2024 to 2030, Creed said.
Dive Insight:
Over the past year, Caterpillar has seen data center customers increase their capital spending for backup and primary power generation. Its order backlog for large reciprocating engines has grown more than 3.5 times since January 2024, Creed said. That was when Caterpillar initially announced plans to double its power generation capacity.
“The additional investment will begin as soon as possible,” Creed said on the call.
ProPetro’s ProPWR business recently struck a deal to purchase up to 2.1 gigawatts of power generation assets from Caterpillar over the next five years to support growing energy demand.
This is Caterpillar’s sixth agreement with a customer seeking at least 1 gigawatt of power generation equipment, Creed said. In addition to data center customers, the company is seeing growth in power generation demand from oil and gas, as well as mining.
“We continue to see attractive growth opportunities across all our segments due to our role in providing the invisible layer of the tech stack, the critical minerals, the reliable power and physical infrastructure that the modern world depends on,” Creed said.
Power and energy has become one of Caterpillar’s more lucrative equipment divisions, in line with construction and well above mining. The division generated $7 billion in sales and revenue during the first quarter, up 22% from a year ago.
Overall, the company reported $17.4 billion in sales and revenue, up 22% from a year ago. In addition to stronger momentum in power generation, stronger earnings were driven by higher sales volume and favorable pricing as dealer inventories increased for its construction division.
The company made a profit of $2.5 billion, up 27% over last year. Its order backlog also grew to a record $63 billion during the quarter, up $28 billion from a year ago, Creed said.
Construction saw sales and revenue surge 38% to $7.2 billion compared to last year. Creed said activity in North America was better than expected due to nonresidential construction, including offices, warehouses and factories.
Looking ahead, Caterpillar is expecting “low, double-digit growth” in sales and revenue for the full year, citing “resilient end markets” despite higher energy prices and increased geopolitical and tariff uncertainty, Creed said. The company also raised its operating profit margin expectations.
“The situation around tariffs remains fluid while we continue to execute our mitigation plans,” Creed said. Tariff costs during the first quarter totaled $600 million, which were better than the company expected due to accounting adjustments, Creed said.
Kyle Epley, who took over as CFO effective Friday, said on the call that Caterpillar is expecting tariff costs for the full year to be between $2.2 billion and $2.4 billion, slightly lower than previous estimates provided in January.
“We expect to ramp up our actions to mitigate our tariff costs in the back half of the year,” Epley said.
