Updated from 11:49 a.m. EDT

Caterpillar's ( CAT) troubles are about more than gloom in the U.S. economy.

The construction-equipment maker disappointed Wall Street Friday with its third-quarter profit report and domestic economic outlook, even as strong demand from overseas markets continued to fuel the company's growth.

But while developing economies like China and India are carrying the day for many multinational corporations amid the U.S. housing slump, analysts say Caterpillar is having problems with its supply chain that its competitors are not.

"Caterpillar is burdened with high expansion costs and supply chain problems," says Alexander Blanton, an analyst with Ingalls & Snyder. "They should have anticipated this years ago. Caterpillar could have done better in terms of anticipating the supply crunch. It's costing them money and hurting their margins."

For the third quarter, Cat earned $927 million, or $1.40 a share, up from last year's $769 million, or $1.14 a share. Analysts, however, were looking for earnings per share of $1.43 in the most recent period.

The report marked the second profit miss in a row for Caterpillar. In July, the company posted a 21% drop in profits , blaming many of the same factors it did in its latest report.

While the third-quarter profit was below Wall Street targets, revenue actually exceeded estimates, signaling that higher costs were a factor for the miss. Revenue rose 9% from a year earlier to $11.44 billion, compared with analysts' target of $11.19 billion.

Cat maintained its 2007 forecast for sales around $44 billion, but the company now believes it will earn $5.20 to $5.60 a share. While that's up from $5.17 in 2006, it's below the previous target of $5.30 to $5.80. Analysts had forecast earnings of $5.44 a share, according to Thomson Financial.

The company said its sales outlook stems from increased volume overseas, price realization and favorable currency impacts. The weaker profit view, meanwhile, comes from rising core operating costs and a higher tax rate.

Shares of Caterpillar recently were down $2.81, or 3.6%, to $74.85.

For next year, Cat expects a 5% to 10% increase in sales and earnings that are 5% to 15% above the midpoint of this year's projected range. Meanwhile, the company predicts that the U.S. economic growth rate will drop in 2008 to 1.5%, even slower than the 2% projected for 2007.

"The weak economy will encourage the Federal Reserve to reduce interest rates further," Cat said. "Our outlook reflects U.S. housing, nonresidential contracting and quarrying declining further. For the major U.S. machinery end markets, only coal mining shows a reasonable possibility of improvement from 2007."

On a conference call with analysts, Caterpillar Chairman and Chief Executive Jim Owens said the U.S. housing market is experiencing its worst conditions since World War II.

"Many U.S. industries important to our sales are in recession," Cat said in a press release. "Through the first nine months of this year, housing starts were down 26%, and we expect housing starts for the full year 2007 to be 1.4 million. Nonmetals mining and quarrying is down 18%; coal mining, 4%; nonresidential construction contracting, more than 2%; and freight movements, 2%. We expect further deterioration in most of these industries in the fourth quarter."

Overseas, the company sees continued strong demand as emerging markets build their infrastructures to serve a new era of consumerism.

"Internal demand, as people want a better life, is really driving the global infrastructure story in spite of the weakness in the U.S. and CAT remains a great investment play on that trend," says Blanton. "The long-term picture remains in place, but in the short-term, the company is having some real difficulties."

Caterpillar's Europe/Africa/Middle East business led revenue gains in the third quarter among geographic regions, up 36% to $3.65 billion. Its Asia/Pacific revenue increased 30% to $1.67 billion. Latin America revenue rose 20% to $1.14 billion.

North American revenue, however, fell 11% to $4.99 billion.

"We have become cautious on a lot of domestic industrials," says Longbow Research analyst Eli Lustgarten. "You're looking at a deteriorating domestic environment over the next few quarters."

That said, Lustgarten says Cat sounds overly bearish on the U.S. economy, and he also cited the company's cost controls as a major reason for Friday's selloff.

"They're having more difficulty than they should be managing the cost efficiencies in their supply chain," says Lustgarten. "They're lagging some of their peers, like Parker Hannifin ( PH), in that area."