Morningstar DBRS Confirms Issuer Rating on Caterpillar Inc. at "A," Stable Trend; Discontinues and Withdraws Credit Rating on Senior Unsecured Debt

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating on Caterpillar Inc. (CAT or the Company) at "A" with a Stable trend. Morningstar DBRS also discontinued and withdrew its credit rating on CAT's Senior Unsecured Debt.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings confirmation and Stable trend reflect the Company's stable operating performance in 2024, combined with Morningstar DBRS' expectations of steady operational execution and solid cash flow generation in 2025. As a result, strong credit metrics should continue to support the credit rating and remain well ahead of current credit rating.

CREDIT RATING DRIVERS
Morningstar DBRS could take a positive credit rating action if the Company demonstrates lower volatility in operating and credit metrics over the next 12 months to 18 months while preserving its business risk profile. Conversely, and highly unlikely, Morningstar DBRS could take a negative credit rating action if CAT's credit metrics weaken substantially and on a sustained basis because of aggressive financial policies or a material deterioration in its business risk profile.

EARNINGS OUTLOOK
Despite continuing trade uncertainty and an increasing probability of a broad-based economic downturn, Morningstar DBRS expects CAT's earnings profile to remain resilient. Morningstar DBRS projects that Machinery, Energy & Transportation (ME&T) revenues to marginally decline but remain higher than $60.5 billion in F2025 compared with $61.4 billion in F2024 based on the diversity of CAT's end markets and significant order backlogs. At the segment level, Construction Industries and Resource Industries segments should reflect revenue decline offset by growth in the Energy and Transportation. The Company should see weaker price realization across all segments and largely flat or weaker volumes across its Construction Industries and Resource Industries segments. Morningstar DBRS expects Energy & Transportation segment to be the bright spot, benefitting from increased order activity in the oil and gas and power generation sectors as well as continuing demand from the data centre sector. In line with CAT's guidance, Morningstar DBRS expects that management's ability to significantly mitigate tariff impact without substantial and long-term investments will be limited. Absent any clarity on U.S. trade policy, operating margins could decline over the short term with adjusted EBITDA (as defined by Morningstar DBRS) potentially falling to below $13.5 billion in F2025 from $14.7 billion in F2024.

FINANCIAL OUTLOOK
Lower EBITDA should translate to lower year-over-year cash flow generation, with operating cash flow (as defined by Morningstar DBRS) remaining higher than $10.0 billion in F2025 compared with $11.6 billion in F2024. Morningstar DBRS forecasts that ME&T capital expenditures will increase to more than $2.5 billion for F2025 compared with $2.0 billion in F2024 as the Company focuses on developing its large engine capacity division, investing in new product development, and improving supply chain resilience, services, and autonomy, alternative fuels, connectivity, digital, and electrification related initiatives. In addition, Morningstar DBRS expects dividends to increase to more than $2.8 billion in F2025; as a result, ME&T free cash flow (after dividends but before changes in working capital) should be more than $4.5 billion. As such, in line with Morningstar DBRS' expectations, CAT's credit metrics should remain strong for its current "A" credit rating profile (i.e., debt-to-EBITDA remaining below 1.0 times in F2025).

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): A

The Company's strong investment-grade credit rating is based on solid business risk and financial risk profiles. CAT's business risk profile is underpinned by its leading position as a manufacturer of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives while its financial risk profile is supported by sensible financial policies. The Company maintains strong technological capabilities, superior product quality, and outstanding manufacturing operations that further support its leading market position and strong brand recognition. Additionally, CAT has a significant captive finance subsidiary and a global network of independent dealers which, together, provide intensive geographic coverage and support strong customer relationships. Growth opportunities in services and long-term energy transition trends should also provide significant tailwinds for the Company's business risk profile, which are balanced by CAT's inherent exposure to cyclical industries and volatile input prices.

Comprehensive Financial Risk Assessment (CFRA): AAH/AA
The CFRA reflects consistent and visible earnings and cash flow generation, given the Company's conservative financial policy. Combined with Morningstar DBRS' expectations that excluding a sharp impact stemming from the uncertainty in the U.S. trade policy, industrial leverage should remain under 1.0x.

Intrinsic Assessment (IA): A
The IA is based on the CFRA and CBRA. Taking into consideration peer comparisons, among other factors, Morningstar DBRS placed CAT's IA at the lower end of the IA range.

Additional Considerations: None
CAT's credit ratings include no further negative or positive adjustments because of additional considerations.

Further details on the Issuer's Intrinsic Assessment can be found at https://www.dbrsmorningstar.com/research/454113.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in Manufacturing and Production Industries (February 3, 2025) https://dbrs.morningstar.com/research/447185

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025 https://dbrs.morningstar.com/research/447186) which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodology has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024)
https://dbrs.morningstar.com/research/437781
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025)
https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the credit rating process for this credit rating action.

Morningstar DBRS did not have access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is an unsolicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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