Updated from 3:44 p.m. EDT

Caterpillar

(CAT) - Get Report

reported an 11% rise in its second-quarter earnings, exceeding Wall Street's estimates, and the maker of farm and construction equipment attributed the results to improved manufacturing efficiencies and higher sales volume. However, the company's reiterating its outlook of moderate growth for the year kept its stock in the red in Thursday trading.

The Peoria, Ill.-based company said its net income rose to $315 million, or 90 cents a diluted share, compared with $283 million, or 78 cents a share, in the second quarter of 1999. Caterpillar had been expected to earn 87 cents a share in the latest quarter, according to the consensus estimate of analysts surveyed by

First Call/Thomson Financial.

Investors did not show a strong positive reaction to the news, however. Shares of Caterpillar, which has seen its stock's value decline significantly in the past few years, finished Thursday regular trading down 7/8, or 2.3%, at 37 1/16.

Caterpillar's shares are slipping because it repeated its outlook of only moderate growth for the year, according to Thomas G. Burns, an analyst for

Dresdner Kleinwort Benson

. The company reiterated its prediction of slightly increased sales and moderately higher profits in 2000. It said analysts' estimates of $3.08 for the year, up 17% from $2.63 last year, are higher than Caterpillar's own prediction of an 8% to 15% increase.

The company said it expects its construction equipment sales in the U.S. to decline 10% to 15%, instead of its previous prediction of a 10% drop, due to higher interest rates, lower housing starts and a drop in replacement buying.

Burns, who has an add rating on Caterpillar, said investors are frustrated with the company's pattern this year of exceeding expectations while announcing less-than-optimistic outlooks. "The better things are, the less good the outlook," he said. Dresdner Kleinwort Benson has done no underwriting for Caterpillar.

Combined sales and revenues for the second quarter, including the company's machinery and engines sales and the financing and insurance it provides, rose 5%, to $5.36 billion, from $5.1 billion a year earlier.

Caterpillar said its gains in the second quarter were partly offset by discounts on the securitization of receivables and foreign exchange losses, particularly because of the euro's weakness.

The company also suffered from problems in North America, where sales remained near year-earlier levels. Caterpillar's second-quarter sales of machinery and engines in North America were $1.94 billion, slightly lower than $1.95 billion last year.

"Operationally, their earnings were up 33% in the quarter," Burns said. "If the rest of the line had followed, they would have had a much better quarter than anybody expected."

Profits might have increased more if they had not been set back by a "softened market for construction equipment and truck engines" in the U.S., said Glen Barton, chairman and chief executive, in a statement. Higher interest rates were among the factors that reduced demand in the U.S., where sales were 52% of Caterpillar's worldwide sales, compared with 53% last year.

Caterpillar repurchased 3.06 million shares during the second quarter, in a program announced in 1998 to reduce its outstanding shares to 320 million over a three-to-five year period.