updated 10/21/2005 11:36:50 AM ET 2005-10-21T15:36:50

Construction giant Caterpillar Inc. said Friday third-quarter profit grew 34 percent as strong global demand and improved prices boosted revenue. But the company cut its full-year profit forecast on potential charges and a higher tax rate. Its shares tumbled more than 8 percent in early trading.

Earnings increased to $667 million, or 94 cents per share, for the three months ended Sept. 30 from $498 million, or 70 cents per share, last year. Total sales and revenue climbed to $8.98 billion, up 17 percent from $7.66 billion a year earlier.

Analysts were expecting adjusted earnings of $1.06 per share on revenue of $8.47 billion, according to a Thomson Financial poll.

The company cut its full-year forecast, saying it now expects 2005 earnings of $3.85 to $4 per share, down from its previous estimate of $4 to $4.20 per share.

Caterpillar said its lowered earnings expectations included potential charges of about $100 million before tax, which it expects to take in the fourth quarter for changes in its dealer distribution software and a product realignment under consideration. The lower estimate also accounts for a higher tax rate of 30 percent, instead of 29 percent.

The company said it expects revenue and sales to be up about 20 percent from 2004, rather than up between 18 percent and 20 percent.

Analysts have forecast adjusted full-year earnings of $4.15 per share on revenue of $34.22 billion.

The company said it expects 2006 sales and revenue to grow about 10 percent from the previous year, with profit up 15 percent to 25 percent from the middle of its 2005 earnings outlook. Based on the company’s 2005 guidance, that implies a 2006 profit estimate of about $4.51 to $4.91 per share.

Analysts expect 2006 earnings of $4.83 per share on revenue of $36.59 billion.

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