Caterpillar's fourth-quarter earnings rose more than 10 percent, helped by strong sales to mining, energy and construction customers outside the United States, but the company warned it sees a recession as a "definite threat" to the U.S. economy.
The Peoria, Ill. company, which is often seen as an economic indicator, said it has been seeing "anemic growth" in the U.S. economy.
"Over time, weakness in the economy has spread from housing to nonresidential construction and more recently to employment and manufacturing," Caterpillar said in a press release announcing its results. "A recession is defined as a broad downturn in the economy, a development that seems to be taking place."
However, Caterpillar predicted that fast-growing sales overseas would permit it to meet its 2008 sales and earnings forecasts even if a recession does materialize.
The company continues to expect earnings per share will rise between 5 percent and 15 percent from its 2007 profit of $5.37 a share, while revenue will grow between 5 percent and 10 percent from $45 billion.
Caterpillar predicted 2008 would be another tough year for the U.S. residential housing market -- a key customer for its earth-moving machines -- and predicted "recessionary conditions to persist" in other key markets.
It said it expected housing starts to decline to 1.1 million units, down from 1.35 million in 2007, and said new problems would roil the property market, including "a high level of mortgage resets, an increase in home repossessions and the likelihood of a significant decrease in home prices."
Overall, Caterpillar is expecting North America to be its weakest growth region this year, but sales should be flat to slightly higher than a year ago.
"A weak U.S. economy in general and the hard-hit housing sector in particular are key negative drivers," Caterpillar said. But the company added, "If the Fed continues to cut interest rates as we expect and the U.S. government takes action to stimulate economic growth, 2008 could be the bottom of this U.S. machinery cycle."
Caterpillar is predicting that the U.S. Federal Reserve will continue to cut interest rates.
"The Fed recently indicated that a weakening economy is more of a threat than inflation and that it is prepared to move aggressively on interest rates," CAT says in earnings release. "We assume that the federal funds rate will end the year below 3 percent."
"It sounds like 2008 could be a challenging year, certainly (for) them domestically," said John Kearney, an analyst at Morningstar, "but it sounds like things should hold up pretty well provided we don't slip into a global recession."
The world's largest maker of construction and mining equipment said net income in the quarter ended Dec. 31 rose to $975 million, or $1.50 a share, from $882 million, or $1.32 a share, last year.
Sales rose 10 percent to $12.14 billion from $11 billion a year ago.
Caterpillar shares were recently trading up more than 3 percent.
Caterpillar Chairman and CEO James Owens will be a guest on CNBC's Closing Bell today at 3 p.m. You can also see his interview on CNBC.com.
--Reuters contributed to this report.