⚠ The Cycle Has Not Been RepealedModerate threat

Caterpillar (CAT) — threat to the moat

Caterpillar's sales fell by a fifth in each of its last two downturns, and the construction business that drove those falls is still its largest.

Caterpillar's own annual report opens its risk factors on the cycle. The demand for its products and services "tends to be cyclical and can be significantly reduced in periods of economic weakness"1, and its history shows how quickly. Sales and revenues fell from $47,011 million in 2015 to $38,537 million in 2016, when the company lost $67 million2. They fell again from $53,800 million in 2019 to $41,748 million in 202034.

Sales and revenues in the last two downturns ($M)47,011201538,537201653,800201941,7482020Caterpillar Forms 10-K FY2019 and FY2022
Down 18% and 22%.

Today looks different. The backlog of about $72.1 billion5 and the power generation boom give more visibility than Caterpillar has had before. But the business most exposed to the cycle is still the largest: Construction Industries had $24,800 million of external sales in 20256, and its dealer inventory is rising7.

The dealer network amplifies the turns. Dealers restock in good times and stop ordering in bad ones, and the company says it expects Construction Industries' dealer inventory to be higher at the end of 2026 than a year earlier8.

A downturn would also hit two of Caterpillar's other pillars at once: Cat Financial's credit losses and the buyback programme, which spends most of the free cash flow the cycle produces.

Return on equity shows how deep the troughs were. Caterpillar's own five-year summary put return on average common shareholders' equity at 15.8% in 2015, minus 0.5% in 2016 and 5.6% in 2017, before 44.1% in 2018 and 42.4% in 20199. A business that swings from a loss to more than 40% on equity within two years is one whose earnings the market should average, not extrapolate.

Headcount follows the cycle too. Caterpillar's average employment fell from 110,800 in 2015 to 103,400 in 201910; at the end of 2025 it employed about 118,00011. A company that has added people through a boom will have to decide how many to keep when the boom ends.

The first sign would be sales to users turning negative in construction while shipments hold up. Construction Industries' sales to users rose 22% in the second quarter of 202612; a negative reading within a year of that peak would mean the cycle has turned and the backlog is carrying the numbers.

The number that tests this threat
Reported
Construction Industries sales to users, latest quarter
+22% worldwide (Q2 2026)

The earliest read on the cycle; a negative quarter while shipments hold up would mean dealers are stocking a turn.

Source: Caterpillar Q2 2026 retail sales statistics ↗
References
  1. ReportedThe demand for its products and services "tends to be cyclical and can be significantly reduced in periods of economic weakness", and its history shows how quickly.
    Caterpillar Form 10-K for fiscal 2025 - Item 1A risk factors. — FY2025 · publ. 13 February 2026 · source ↗
  2. ReportedSales and revenues fell from $47,011 million in 2015 to $38,537 million in 2016, when the company lost $67 million.
    Caterpillar Form 10-K for fiscal 2019 - five-year summary 2015-2019, segments 2017-2019, the dealer count and the 2017 Gosselies restructuring. — FY2019 · publ. February 2020 · source ↗
  3. ReportedThey fell again from $53,800 million in 2019 to $41,748 million in 2020.
    Caterpillar Form 10-K for fiscal 2019 - five-year summary 2015-2019, segments 2017-2019, the dealer count and the 2017 Gosselies restructuring. — FY2019 · publ. February 2020 · source ↗
  4. ReportedThey fell again from $53,800 million in 2019 to $41,748 million in 2020.
    Caterpillar Form 10-K for fiscal 2022 - segment sales and profit for 2020-2022, the dealer count, sales by application, and the $925 million Rail goodwill impairment. — FY2022 · publ. February 2023 · source ↗
  5. ReportedThe backlog of about $72.1 billion and the power generation boom give more visibility than Caterpillar has had before.
    Caterpillar Form 10-Q for the quarter ended 30 June 2026 - backlog, outlook, tariffs, dealer inventory, balance sheet and the RPMGlobal acquisition - MD&A: order backlog, dealer inventory, tariffs, IEEPA recoveries and the 2026 outlook. — Q2 2026 · publ. 5 August 2026 · source ↗
  6. ReportedBut the business most exposed to the cycle is still the largest: Construction Industries had $24,800 million of external sales in 2025, and its dealer inventory is rising.
    Caterpillar Form 10-K for fiscal 2025 - Item 7 MD&A: consolidated results, sales and profit bridges, tariffs, dealer inventory and the 2026 outlook. — FY2025 · publ. 13 February 2026 · source ↗
  7. ReportedBut the business most exposed to the cycle is still the largest: Construction Industries had $24,800 million of external sales in 2025, and its dealer inventory is rising.
    Caterpillar Form 10-Q for the quarter ended 30 June 2026 - backlog, outlook, tariffs, dealer inventory, balance sheet and the RPMGlobal acquisition - MD&A: order backlog, dealer inventory, tariffs, IEEPA recoveries and the 2026 outlook. — Q2 2026 · publ. 5 August 2026 · source ↗
  8. ReportedDealers restock in good times and stop ordering in bad ones, and the company says it expects Construction Industries' dealer inventory to be higher at the end of 2026 than a year earlier.
    Caterpillar Form 10-Q for the quarter ended 30 June 2026 - backlog, outlook, tariffs, dealer inventory, balance sheet and the RPMGlobal acquisition - MD&A: order backlog, dealer inventory, tariffs, IEEPA recoveries and the 2026 outlook. — Q2 2026 · publ. 5 August 2026 · source ↗
  9. ReportedCaterpillar's own five-year summary put return on average common shareholders' equity at 15.8% in 2015, minus 0.5% in 2016 and 5.6% in 2017, before 44.1% in 2018 and 42.4% in 2019.
    Caterpillar Form 10-K for fiscal 2019 - five-year summary 2015-2019, segments 2017-2019, the dealer count and the 2017 Gosselies restructuring. — FY2019 · publ. February 2020 · source ↗
  10. ReportedCaterpillar's average employment fell from 110,800 in 2015 to 103,400 in 2019; at the end of 2025 it employed about 118,000.
    Caterpillar Form 10-K for fiscal 2019 - five-year summary 2015-2019, segments 2017-2019, the dealer count and the 2017 Gosselies restructuring. — FY2019 · publ. February 2020 · source ↗
  11. ReportedCaterpillar's average employment fell from 110,800 in 2015 to 103,400 in 2019; at the end of 2025 it employed about 118,000.
    Caterpillar Form 10-K for fiscal 2025 - Item 1 business: history, products, Cat Financial, employees and order backlog. — FY2025 · publ. 13 February 2026 · source ↗
  12. ReportedConstruction Industries' sales to users rose 22% in the second quarter of 2026; a negative reading within a year of that peak would mean the cycle has turned and the backlog is carrying the numbers.
    Caterpillar second-quarter 2026 retail sales statistics (sales to users), Form 8-K exhibit 99.2. — Q2 2026 · publ. 4 August 2026 · source ↗
Sources
Generated September 25, 2026