updated 1/29/2007 12:12:20 PM ET 2007-01-29T17:12:20

Caterpillar Inc., the world's largest maker of heavy construction equipment, said Friday its fourth-quarter profit rose 4 percent as higher operating costs partially offset strong sales.

But its shares rose more than 2 percent in morning trading as the company forecast strong 2007 results.

Net income grew to $882 million, or $1.32 per share, up from $846 million, or $1.20 per share, a year ago, but fell short of Wall Street's expectations. Analysts surveyed by Thomson Financial predicted earnings per share of $1.34.

The heavy equipment maker said revenue for the quarter that ended Dec. 31 rose 14 percent to $11 billion, up from $9.66 billion a year ago.

"I'm anticipating great things for Caterpillar in 2007. Despite a sharp decline in two key North American industries — on-highway truck engines and U.S. housing — and an expected reduction in dealer inventories, we are projecting another record year in 2007," Chairman and CEO Jim Owens said in a statement. "We expect to improve profit per share at a higher rate than sales and revenue, and that means a key focus in 2007 will be cost management."

Peoria-based Caterpillar's full-year profits for 2006 topped $3.5 billion, up 25 percent from about $2.8 billion in 2005. Profit per share rose to $5.17 last year from $4.04 in 2005.

Full-year revenues climbed 14 percent to $41.5 billion from $36.3 billion in 2005.

Caterpillar posted its third straight year of record profits and revenue in 2006 and forecast another record year in 2007.

The company predicts revenue in a range from $41.5 billion to $43.6 billion, which is flat to up 5 percent. Profits are forecast in a range from $5.20 to $5.70 per share.

Caterpillar said last year that a four-year sales surge would slow in 2007, with a weak residential housing market and drop in sales of truck engines holding back revenue growth.

But the company called the slowdown a pause, not the end of a sales surge that has doubled revenues since 2002.

Looking beyond 2007, Owens said the company projects revenues will top $50 billion, with compound annual growth in profit per share of 15 to 20 percent from 2005 to 2010.

Caterpillar shares rose $1.34, or 2.1 percent, to $60.97 in morning trading on the New York Stock Exchange. Its shares have traded in a 52-week range of $57.98 to $82.03.

The company designs and manufactures construction and mining equipment, as well as engines for earth moving and construction equipment. It also is the world's leading manufacturer of electrical generators.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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