Less than a year ago, in August 2008, machinery and engine giant Caterpillar (NYSE:CAT) announced that it would spend mightily beefing up its operations, largely in developing nations.

In those days, "CAT" and its competitors -- including Deere (NYSE:DE), CNH Global (NYSE:CNH), Terex (NYSE:TEX), and Manitowoc (NYSE:MTW) -- were all shooting the proverbial lights out. But now, with the world's economy fluttering, Caterpillar's quarterly earnings have dipped by 66%. Its machinery unit has been hit especially hard by the effects of the world's softening economy.

For the second quarter, the company's earnings came in at $0.60 a share, down from $1.74 per share for the same quarter a year ago. Redundancy costs -- essentially, costs related to the sizable number of layoffs at the company -- reduced earnings by $85 million in the period. Excluding those expenses, the company's profit for the quarter would have been $0.72 per share. Total sales and revenue came in 41% lower than last year's $13.62 billion, at $7.98 billion.

Caterpillar operates through two primary units, Machinery and Engines. On the Machinery side, the company experienced a sales reduction of 49% year over year. Specifically, Europe, Africa, and the Middle East led the sales decline with a 61% drop, followed by North America's 51% slide. On the Engine side, Europe, Africa, and the Middle East performed worst, down by 36%, followed by Latin America at 31%, with the overall Engine unit clocking in down 32%.

But despite the across-the-board slippage in geographic sales, CEO Jim Owens has retained a reasonable note of optimism regarding his company's future. As he stated, "There is still a great deal of economic uncertainty in the world, but we are seeing signs of stabilization … credit markets have improved significantly. Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work."

Nevertheless, the company predicted that its third quarter would be the weakest of the year. Indeed, management expects that dealers will delay new orders to work off about $1.5 billion of inventory. Rolling factory shutdowns and temporary layoffs are likely. In fact, management went so far as to raise the possibility of a loss in the quarter.

But Caterpillar is a strong company. Despite the third-quarter concerns, it raised its earnings forecast for the year. Caterpillar will be back, which means a small position might very well be worth a gander.  

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Fool contributor David Lee Smith doesn’t own shares in any of the companies mentioned above. He does welcome your questions or comments. The Fool owns shares of Terex. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.