updated 7/21/2006 10:41:23 AM ET 2006-07-21T14:41:23

Caterpillar Inc.'s second-quarter earnings surged 38 percent, the strongest financial performance in about four decades, the construction equipment maker said on Friday.

Caterpillar said higher prices helped sales top $10 billion and it raised guidance for the full year, pointing to robust demand from nonresidential and highway construction markets.

CEO Jim Owens called it the company's most impressive performance since the 1960s, reflecting strong fundamentals in the mining, energy and infrastructure development industries it serves.

Net income rose to $1.05 billion, or $1.52 per share, from $760 million, or $1.08 per share, in the second quarter of 2005. That was 10 cents higher than the average estimate of 12 analysts polled by Thomson Financial.

Sales rose 13 percent to $10.61 billion from $9.36 billion last year, beating the Wall Street estimate of $9.96 billion. Sales of machinery rose 14 percent to $6.88 billion, while engine sales added 12 percent to $3.08 billion.

Caterpillar said it now expects to earn between $5.25 and $5.50 per share in 2006 on sales growth of 12 percent to 15 percent, which translates into revenue of $38.09 billion to $39.11 billion. The previous outlook called for earnings between $4.85 and $5.20 per share on a 10 percent sales gain.

Wall Street had been looking for full-year profit of $5.33 per share and sales of $38.84 billion.

Owens said signs point to a continuation of a Caterpillar recovery that begin in mid-2003.

"While it's tough to predict the future, historically global industry recoveries have lasted six to eight years, and a variety of factors ... should help sustain this recovery," he said in a prepared statement.

Morningstar analyst Scott Burns said that on a pure numbers basis, the quarter was Caterpillar's best ever.

"For all the hand-wringing that's going on out there about the economy and its slowing down, it's clearly not slowing down for Cat," he said. "There was a little speed bump in residential construction, but nonresidential construction more than made up for it."

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