Caterpillar Inc. (CAT) cut is full-year sales and profit forecasts Tuesday and admitted it had underestimated the severity of the global economic downturn.

The world's largest maker of construction equipment had seen sales soar during the extended commodity boom, but the company is cutting production and it underscored the uncertainty over a recovery as its 2009 sales forecast carries a range of plus or minus 10%.

The U.S. company, which beat expectations in reporting a first-quarter loss, said the "overall economic environment has deteriorated" despite government stimulus efforts and a relatively bullish stance on commodity prices.

"This will likely be the worst year for global GDP growth in over 50 years," said chairman and CEO Jim Owens during a conference call with analysts. "We modeled for a worldwide recession, but not one quite as severe as we've seen."

Caterpillar trimmed its forecast for global GDP growth this year from flat to a decline of at least 1.3%. The company added that tight credit conditions could delay a recovery for at least a quarter, though its finance arm is fully funded for 2009 after successfully issuing debt.

Caterpillar halved its 2009 earnings forecast to $1.25 a share on mid-range revenue of $35 billion. In January, Caterpillar said it expected to earn $2.50 a share on sales of about $40 billion.

The company reported a net loss of $112 million, or 19 cents a share, in the March quarter compared with year-earlier income of $922 million, or $1.45 a share. Excluding $558 million in costs for employee layoffs and plant closings, the company would have posted a 39-cent profit. Sales in the quarter fell 22% to $9.23 billion. The company easily topped Wall Street analysts' expectation of 4 cents per share of earnings on revenue of $8.54 billion. But its downward revision to its 2009 guidance disappointed some analysts.

"They said they built the business so we don't have these extreme troughs any more," said John Kearney, an analyst with Morningstar Inc. "That just doesn't seem to be playing out."

First-quarter machinery sales fell 29% to $5.34 billion, and engine sales slipped 8% to $3.16 billion.

Caterpillar expects total restructuring costs this year to reach $700 million. It is shedding about 25,000 jobs as it closes plants, shortens work weeks and implements other cost-cutting initiatives. The company expects to lower inventory by about $3 billion this year.

Owens said the company's board is discussing whether a stock-dividend reduction is needed to preserve cash but added that no decision has been reached. Caterpillar predicted the U.S. economic stimulus program is having little effect on sales, concluding the $70 billion designated for infrastructure construction is not enough to offset the declines seen in private-sector construction spending. It was more optimistic about overseas initiatives, notably in China.

"There's much more focus on hard infrastructure," Owens said.

Caterpillar's stock was recently up 1.44% at $30.92 a share.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

(Tess Stynes contributed to this report)