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PEORIA, Ill. (TheStreet) -- Caterpillar (CAT) - Get Caterpillar Inc. Report did it again, surpassing Wall Street's quarterly estimates and lifting its outlook, following a pattern that the company has developed over the last year and a half.

Despite the better-than-expected numbers and relatively upbeat outlook, the stock fell into negative territory Thursday afternoon after jumping early on, right after the opening bell. Caterpillar shares were trading recently at $78.04, down 2.3%, on heavy volume. Earlier this month, the stock crested above $80 for the first time since June 2008.

Caterpillar's reported earnings for the third quarter came to $792 million, or $1.22, easily blowing past the $1.09 a share targeted by analysts. A year ago, CAT earned $404 million, or 64 cents a share.

Revenue, too, defeated expectations, surging 53% to $11.13 billion.

As for outlook, Caterpillar expects 2010 earnings to hit between $3.80 and $4 a share, better than the $3.15 to $3.85 it had previously called for. The company tightened the range of its revenue forecast as well. It now sees a top line of $41 billion to $42 billion for the year; it had earlier called for $39 billion to $42 billion.

Looking further out into the future, Caterpillar remains as daring as ever. In 2011, "growth in the developed world should result in Caterpillar sales and revenues that approach $50 billion," the company said in its press release. That would put its top line at close to record levels. (CAT's revenue in 2008 came to $51.3 billion, an all time high.)

Unsurprisingly, the

emerging markets

-- read: China and Brazil -- loomed large in the company's earnings report. Buyers in those regions have been eager to gobble up its yellow machines in order to fuel ongoing building booms. Caterpillar said that, in its all-important machinery segment, emerging markets accounted for more than half its year-over-year growth in sales volumes.

And, yet, Chinese economic officials have made moves all year to stem what they see as a potentially dangerous real-estate asset bubble.

It culminated this week with

China's surprise rate hike

, which economists don't believe will be the last one. The increase has again raised the specter that one of Caterpillar's strongest end markets may be in for a slowdown.

Back in the U.S., of course, a stubbornly weak construction industry has not aided in Caterpillar's recovery. The company has had to rely on emerging markets and mining equipment for its year-over-year growth, which comes against some extremely easy comparisons. Business for Caterpillar in 2009 was so weak that it fell to levels not seen since 2004.

Since Caterpillar appears to be so beholden to emerging markets, investors were keen to hear executives' thoughts on China.

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The company always gives a global outlook in its quarterly reports, and this time around it called for GDP growth in China in 2011 of 9.5%, down from its prior forecasts, which reflects "government efforts to reduce inflation." The outlook is in-line with most projections, perhaps slightly bullish. Chinese officials themselves have recently cut their forecasts to 9% from 10%.

As for profit margins and cost controls, another area of concern for company watchers, Caterpillar's numbers looked decent, said Jeff Windau, an equities analyst with Edward Jones in St. Louis. The company's cost of goods sold in the third quarter, for instance, came to 70% of sales, Windau said, the lowest point for that metric since 2006.

Caterpillar, like all manufacturers during the recession, has undergone vicious cost cuts, laying off some 30,000 workers since the financial crisis bloomed in 2008. That alone has probably saved the company something on the order of $1.5 billion per year, estimates Steven Wybo, a bankruptcy and turnaround consultant at Conway MacKenzie, a firm that advises middle-market auto and heavy-equipment suppliers.

But should demand for its gear continue to improve, as Caterpillar clearly anticipates it will, the company will attempt to keep itself as lean as possible. It won't add back all of those 30,000 workers, in other words, and this should make the company more profitable in 2011 than it was the last time it took in $50 billion in sales, in 2008, Wybo said.

-- Written by Scott Eden in New York

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