Caterpillar Inc. (CAT), a longtime staple of the Bill & Melinda Gates Foundation Trust’s investment portfolio, is feeling the weight of a slowing global economy.
The construction and heavy machinery behemoth reported a steeper-than-expected 10% revenue drop in the first quarter of 2025, falling short of Wall Street estimates with $14.25 billion in sales. Earnings per share also slipped 24% year-over-year to $4.25—below the anticipated $4.30.
All three of Caterpillar's core business units—Construction Industries, Resource Industries, and Energy & Transportation—reported year-over-year sales declines, with construction particularly hard hit. The Construction Industries segment saw a 19% plunge, under pressure from high interest rates, falling residential and commercial demand, and aggressive post-sale pricing strategies. Sales in Resource Industries dropped 10% on waning mining equipment demand, while Energy & Transportation dipped 2%, partly offset by continued demand from data centers.
Tariffs, Inventory Declines, and a Murky Outlook
The company’s first-quarter miss came despite a standout $5 billion increase in organic backlog—an all-time record that reflects solid long-term demand. However, Caterpillar’s short-term picture remains clouded by dealer inventory reductions and macroeconomic uncertainty. Dealer inventories, a key sales driver, declined by $600 million in the Construction segment alone, contributing heavily to the revenue shortfall.
Adding further pressure is the specter of rising tariffs. Caterpillar warned that tariffs could raise second-quarter costs by as much as $350 million. Without tariff-related disruptions, the company expects full-year revenue to remain flat compared to 2024. With tariffs and a potential economic slowdown in the second half, sales may decline modestly—continuing the downbeat trend from the prior year.
Notably, Caterpillar’s geographic challenges are global. First-quarter construction sales dropped 24% in North America, 15% in Latin America, 13% in Europe, and 12% in Asia-Pacific, underscoring the broad-based nature of the slowdown.
The company’s first-quarter miss came despite a standout $5 billion increase in organic backlog—an all-time record that reflects solid long-term demand. However, Caterpillar’s short-term picture remains clouded by dealer inventory reductions and macroeconomic uncertainty. Dealer inventories, a key sales driver, declined by $600 million in the Construction segment alone, contributing heavily to the revenue shortfall.
Adding further pressure is the specter of rising tariffs. Caterpillar warned that tariffs could raise second-quarter costs by as much as $350 million. Without tariff-related disruptions, the company expects full-year revenue to remain flat compared to 2024. With tariffs and a potential economic slowdown in the second half, sales may decline modestly—continuing the downbeat trend from the prior year.
Notably, Caterpillar’s geographic challenges are global. First-quarter construction sales dropped 24% in North America, 15% in Latin America, 13% in Europe, and 12% in Asia-Pacific, underscoring the broad-based nature of the slowdown.
Still a Gates Foundation Favorite
Despite the disappointing quarter, Caterpillar remains a cornerstone holding of the Gates Foundation Trust, which owns $2.66 billion worth of CAT stock. The foundation, which has grown into the world’s largest private philanthropy, maintains a focused equity portfolio influenced by Bill Gates and Warren Buffett’s value-driven philosophy.
Caterpillar’s status within the portfolio underscores long-term faith in its global footprint and infrastructure relevance—even as near-term challenges mount. Morgan Stanley recently raised its rating on CAT from Underweight to Equalweight, citing the stock’s significant underperformance and a more balanced risk-reward profile. The firm did, however, cut its price target to $283, reflecting tempered expectations for 2025 earnings.
The upcoming leadership transition could mark a new chapter for the company. On May 1, COO Joseph Creed will take over as CEO, succeeding Jim Umpleby, who will step into the role of executive chairman after eight years at the helm. Creed’s ascent comes as the company faces a critical period defined by trade policy uncertainty, inflationary pressures, and shifting global demand.
For now, while Caterpillar's fundamentals are tested, long-term investors—like the Gates Foundation—appear willing to ride out the cycle. Whether the record backlog can translate into top-line stability remains a key question heading into the second half of 2025.
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