Will CAT report positive CI price realization in both Q1 and Q2 2026?

The trajectory from negative CI price realization (Q1-Q3 2025) to approximately neutral (Q4 2025) combined with management's +2% FY2026 enterprise pricing guidance strongly suggests positive CI pricing ahead. The lapping of merchandising programs is the primary mechanism. However, this market requires a conjunction — BOTH Q1 AND Q2 must be positive — which mechanically reduces probability. The dealer inventory swing from -$500M to +$500M reduces incentive pressure. Tariff escalation remains the primary downside risk that could force extended merchandising.

The +2% enterprise guidance implicitly requires positive CI pricing since CI is the largest segment (~$25B). The approximately neutral Q4 already shows improvement. However, 'approximately neutral' is ambiguous — it could still be slightly negative. The conjunction penalty is moderate, not severe, since if Q1 is positive the same structural forces (lapped merchandising, CONEXPO products, dealer inventory tailwind) drive Q2 positive too. The Moat Mapper resolution was at E1-E2 (evidence-limited), introducing residual uncertainty about whether the normalization thesis is correct.

Four lenses independently converged that CI merchandising was normalization, not structural erosion — strong cross-lens reinforcement. The dealer inventory swing from -$500M to +$500M in FY2026 is a meaningful tailwind that reduces the need for merchandising incentives. CONEXPO 2026 new product launches support premium pricing. Pre-tariff CI margins of 19.8-20.4% were stable, validating that competitive position is intact. The primary risk is tariff escalation — Q4 2025 CI margins already showed 600bps tariff impact — but management has explicitly guided for positive pricing, suggesting they have visibility into merchandising program wind-down.

Management doesn't guide +2% price realization unless they have confidence in the trajectory. The merchandising programs being 'lapped' is the key mechanism — once the comparable period passes, year-over-year price realization turns positive almost mechanically. Q4 already neutral confirms the inflection. Both Q1 and Q2 should benefit from the same lapping dynamic plus CONEXPO product launches. The main risk is tariff escalation forcing new rounds of merchandising, but management's guidance suggests they've accounted for current tariff levels.

The conjunction requirement is the critical analytical feature. Even if each quarter independently has ~80% probability of positive pricing, the conjunction drops to ~64%. However, Q1 and Q2 CI pricing are highly correlated — same competitive environment, same tariff regime, same product lineup, same dealer inventory dynamics. So if Q1 is positive, Q2 probably is too (~90% conditional probability). The real risk is that 'approximately neutral' Q4 was actually still slightly negative and the improvement trajectory is slower than management suggests. No historical CI pricing baseline pre-COVID means we cannot calibrate the new normal.

Management guided +2% enterprise-wide pricing. CI is the biggest segment and they cannot achieve +2% overall with negative CI pricing — the math doesn't work. The dealer inventory swing from -$500M to +$500M reduces pressure on financing incentives through Cat Financial. STU growth at +11% in Q4 2025 shows demand is robust, reducing need for price concessions. The resolution criteria is 'positive price realization (any amount above zero)' — even marginally positive counts. With the trajectory and guidance, this is more likely than not but the conjunction adds meaningful uncertainty.

Clear trajectory: negative to neutral to guided positive. Management +2% guidance, dealer inventory +$500M tailwind, CONEXPO products all support positive pricing. Conjunction risk is moderate given high quarter correlation. Tariff escalation is main downside.

+2% guidance and neutral Q4 support positive trajectory, but the Moat Mapper resolution was evidence-limited (E1-E2) and no pre-COVID CI pricing baseline exists. Tariff risk could extend merchandising programs. Both quarters needed adds conjunction risk. Slightly above coin-flip.

Improving price trajectory with management's explicit +2% guidance. Dealer inventory +$500M swing and CONEXPO launches provide tailwinds. Four-lens convergence on normalization thesis adds confidence. But conjunction requirement and tariff uncertainty prevent higher probability.