updated 4/20/2007 9:45:23 AM ET 2007-04-20T13:45:23

Caterpillar Inc., the world’s largest construction equipment maker, said Friday its first-quarter profit fell 3 percent, as strength in the company’s overseas business could not overcome a weak U.S. home building market and sharp decline in engine sales.

Net earnings decreased to $816 million from a record $840 million in the January-to-March period a year ago.

Earnings per share increased to $1.23 per share from $1.20, reflecting buybacks that reduced the averaged diluted share count by 34 million compared with last year. The results for the latest quarter also included a gain of $46 million related to the sale of a security.

Analysts polled by Thomson Financial forecast a profit of $1.09 per share. Thomson estimates usually exclude special items.

“While we expected a sales decline in on-highway truck engines and U.S. housing-related markets, the continued strength in most of the other industries we serve and exceptional growth outside North America helped us deliver good results in a tough quarter,” chairman and Chief Executive Jim Owens said in a statement.

Caterpillar said first-quarter revenue grew 7 percent to more than $10 billion from $9.4 billion a year ago, driven by international business that was much stronger than Wall Street expected. Analysts forecast revenue of $8.94 billion.

The company said its revenue gain came from greater sales volumes outside of the U.S., contributions from Progress Rail, which was acquired in June, and higher prices for products and services.

Sales at its core North America unit, however, fell by $996 million. The company cited a plan to reduce inventories at dealerships, a sharp decline in demand for on-highway truck engines and weak construction activity, particularly in the housing market.

Caterpillar has posted record profits for three straight years and predicts another record year in 2007, despite a weak U.S. home building market, that is expected to slow machine sales, and a downturn in engine sales for heavy-duty trucks.

The company boosted its 2007 forecast on Friday, projecting full-year revenue in a range of $42 billion to $44 billion, up from $41.5 billion last year. Profit per share is forecast in a range of $5.30 to $5.80, up from $5.17 in 2006.

Caterpillar earlier predicted revenue in a range from $41.5 billion to $43.6 billion, with profits in a range from $5.20 to $5.70 per share.

Beyond 2007, Caterpillar has projected compound annual growth in profit per share of 15 to 20 percent through 2010, with revenues rising above $50 billion.

“We’re working hard to execute our strategy and are well on our way to delivering or financial goals for 2010,” Owens said in a statement.

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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