Caterpillar, one of the world's largest heavy equipment makers, said net earnings fell even though revenue rose 7 percent to $11.36 billion _ a company record for the second quarter _ from $10.61 billion last year.
The company cited sluggish housing construction and engine sales in North America, higher than expected operating costs and a planned reduction in inventories for the decline.
Caterpillar earned $823 million, or $1.24 per share, in the three months ended June 30, down from $1.05 billion, or $1.52 per share during the same period last year, when the heavy equipment maker posted its strongest earnings in at least four decades.
Analysts surveyed by Thomson Financial expected a profit of $1.49 a share on revenue of $11.12 billion.
"On the revenue side, no doubt it was a very solid quarter, but if you can't manage costs and get the strong results to flow through to the bottom line investors will get concerned," said Matt Collins, an analyst with Edward Jones.
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Alexander Blanton, an analyst with Ingalls & Snyder, called the second-quarter earnings decline a blip, saying the company will continue to ride strong demand fueled by construction in China, India and other rapidly developing nations.
"This is a very strong trend and it's not going to go away. It's a factor of people in emerging countries wanting a better life and they have to have infrastructure to do that," Blanton said.
Caterpillar said overseas sales helped offset sluggish revenue in North America, where machine sales lagged due to a weak U.S. housing market, demand for on-highway truck engines dropped and the company continued a planned reduction in dealer machine inventories.
"We're pleased with second-quarter sales and revenues which demonstrated the strength of our global reach," Caterpillar Chairman and Chief Executive Jim Owens said in a statement.
David Burritt, Caterpillar's chief financial officer, said earnings were hurt by supply chain disruptions, higher-than-expected material costs and manufacturing stops and starts as the company shifts to a just-in-time delivery system.
"We need to tighten our belts. We need to take a fresh look at where we're spending our money to see what we can do," Burritt said.