Caterpillar Inc. (CAT), the world's largest heavy equipment maker, reported lower-than expected quarterly earnings on Thursday as higher operating costs offset increased volume and selling prices.

Caterpillar shares, a component of the Dow Jones Industrial Average, fell 6 percent to $72.31 in early trading on the New York Stock Exchange, the Dow's biggest point decline. The stock had closed Wednesday at $76.95 a share.

The Peoria, Ill.-based company said it decided to satisfy "unprecedented" customer demand even though that increased core operating costs by $254 million. Those costs were mainly steel surcharges and increased expediting costs to ensure timely delivery of material, it said in a release.

"This is frankly somewhat disappointing," said Mark Koznarek, an analyst with FTN Midwest Research. "Maybe it's not unexpected because of the dramatic growth, but CAT has long been established as a world-class manufacturer so you'd think if anyone could manage through it, they could."

The company's second-quarter net income increased 38 percent to $552 million, or $1.55 a share, from $399 million, or $1.15 a share, in the year-earlier period.

Analysts' estimates have ranged from $1.55 to $1.90 a share, with an average estimate of $1.71 a share, according to Reuters Estimates.

Sales increased to $7.56 billion from $5.93 billion. Caterpillar attributed the gain to higher volume of both machinery and engines, higher selling prices and improved results at its financial unit.

While the weakening of the U.S. dollar, mostly against the euro, boosted sales, currency had a net unfavorable impact on profits of $63 million, the company said.

Caterpillar increased its full-year earnings outlook, saying it expects per-share profit to rise about 80 percent to 85 percent, It previously had predicted a gain of 65 percent to 70 percent.

It also forecast a full-year revenue increase of 25 percent, up from 20 percent previously.

Analysts' 2004 estimates have averaged $5.52 a share, a gain of about 76 percent, according to Reuters Estimates.