Caterpillar Inc. (CAT) said on Thursday quarterly earnings more than doubled on continued strong demand, but the world's largest heavy construction equipment maker said it continues to struggle with higher raw material costs and the rapid increase in demand, as it did in the third quarter.

Net income jumped to $498 million, or $1.41 a share, from $222 million, or 62 cents a share, a year earlier. That was at the top end of analysts' estimates, which ranged from $1.24 to $1.45 a share, for an average of $1.35, according to Reuters Estimates.

"Their sales beat expectations but the company is clearly not out of the woods yet on costs and production inefficiencies," said Mark Koznarek, an analyst with FTM Midwest Research (search) who has the stock rated "neutral."

"Their margins are still really weak," he said.

Caterpillar shares initially rose slightly, but then fell $1.53, or 1.9 percent, to $78.86 on the New York Stock Exchange (search).

The company's revenue was much stronger than expected, rising 38 percent to $7.65 billion from $5.55 billion a year ago. Machinery sales increased 45 percent and engine sales rose 33 percent.

"While we're pleased with the profit improvement delivered this quarter, higher material costs and inefficiencies related to supply-chain bottlenecks affecting our global industry limited the profit pull-through we would expect to see with this strong sales growth," Chairman and Chief Executive Jim Owens said in a release.

Caterpillar reiterated its sales and earnings outlook for 2004 and 2005 that it gave three weeks ago at a mining trade show in Las Vegas. The company, often seen as an industrial bellwether, estimated its 2005 sales and revenue will rise about 10 percent after increasing 25 percent to 30 percent this year.

The company forecast record per-share earnings in 2005 after recording an increase of 80 percent to 85 percent in this year's per-share profit.

Analysts' 2004 estimates average $5.70 a share, a gain of 82 percent from a year ago, within a range of $5.55 to $5.80 a share.

For 2005, analysts estimates range from $6.23 to $7.25 a share, for an average of $6.92 a share.