Will CAT report adjusted operating margin at or above 19% in any quarter of H2 2026?

The 19% threshold requires 180bps improvement from FY2025's 17.2%. E&T at ~20% margins (48% of revenue) is the key tailwind, and tariffs are guided to improve toward H2 ($800M/quarter in Q1, decreasing). However, management guided only to 'exceed 17.2%' and 'near bottom of target range including tariffs' — tepid guidance that doesn't signal a return to 19-20%. CI margin recovery from 14.9% is the swing factor; if CI reaches 17-18% with tariff moderation and E&T stays at 20%, a single quarter at 19% is plausible but not base case.

Segment math reveals the challenge: E&T at 20% (48% weight) = 9.6pp; CI at 17% (35% weight) = 5.95pp; RI at 15% (17% weight) = 2.55pp; total = 18.1%. To hit 19% blended, CI needs to reach 18-19% or RI 16%+. CI recovering from 14.9% to 18%+ in ~6 months is ambitious even with tariff moderation. Restructuring costs ($300-350M) create additional drag. The rail division transfer from E&T to RI further complicates segment margin dynamics. The collectively DEMANDING expectation stack from the Myth Meter is well-calibrated.

FY2024 had ~20% margins, so 19% is not unprecedented — it represents returning to levels achieved just one year prior. The key driver is tariff moderation: $2.6B total guided, improving toward H2. If Q3/Q4 tariff impact drops to $500-600M/quarter (vs $800M in Q1), that's ~120-180bps of margin improvement from tariff moderation alone. Add +2% pricing (~40bps) and E&T mix shift. From the Q4 2025 trough of 15.6%, these combined tailwinds could push toward 18-19% in a favorable quarter, particularly Q3 when seasonal patterns are constructive.

Management explicitly guided margins to 'exceed 17.2%' not 'return to 19-20%.' They said 'near bottom of target range including tariffs.' This is a company telling you margins will improve modestly, not dramatically. The EXPECTATIONS_PRICED signal is literally DEMANDING — the market requires this level of margin recovery but the company is not promising it. The 19% target represents what the elevated valuation (~20x+ P/E) needs to be justified, not what management is guiding toward.

The E&T mix shift is real — 48% of revenue at 20% margins, growing faster than CI/RI. Each 1pp shift in mix toward E&T adds 3-4bps to blended margin. Tariff improvement in H2 is guided explicitly, and if tariffs drop to ~$500M/quarter by Q4, that's a $300M improvement vs Q1 worth ~170bps on segment margins. Combined with pricing and mix, 19% in Q4 specifically is within the realm of possibility but requires CI recovery, tariff moderation, AND pricing all delivering simultaneously — an above-average expectation stack.

The CI margin debate is the central unresolved question. Pre-tariff CI margins were 19.8-20.4% in Q1-Q3 2025, then collapsed to 14.9% in Q4 under tariffs. If tariffs moderate in H2, CI could recover toward 17-18% but full recovery to 19-20% seems unlikely with $2.6B still hitting. RI at 10.7% faces structural headwinds from mining capex discipline and weak coal markets. The committee's assessment — 'individually demanding but not unreasonable; collectively above-average expectation stack' — accurately captures why 19% is possible but improbable.

FY2025 was 17.2%, FY2024 was ~20%. Management guides improvement but not back to prior levels. H2 tariff improvement is a tailwind, but 19% requires ~180bps jump from FY2025 average. Multiple conditions needed simultaneously: CI recovery from 14.9%, tariff stabilization, and +2% pricing all delivering. Not base case but possible in a single strong quarter given E&T stability at 20% margins.

Management's 'near bottom of target range including tariffs' suggests FY2026 margin may land in 17.5-18.5% range. But quarterly variation matters — H2 is guided to benefit from tariff improvement, and a single quarter could print 19% even if full-year is 18%. The question only requires ONE quarter at 19%, not sustained performance. Seasonal strength in Q3 historically combined with tariff moderation creates a window for a single 19% print.

Five lenses agree E&T margin stability is the strongest signal, but 19% blended requires CI and RI recovery too — not just E&T stability. Management guidance is notably cautious and the DEMANDING signal from Myth Meter suggests this is what the market needs, not what's likely. The unresolved CI margin baseline debate (15-17% vs 19-20%) creates significant uncertainty about whether recovery is structural or aspirational.