Shares of Caterpillar Inc. (NYSE:CAT), the world’s largest manufacturer of construction and mining equipment, tumbled more than 7 percent Tuesday after falling commodity prices -- especially crude oil -- slashed demand for the U.S. company's products and cut last quarter's earnings 25 percent. Caterpillar reduced its sales outlook for 2015 as current oil prices remain a “significant headwind.” 

Caterpillar reported fourth-quarter net income plunged 25 percent to $757 million, or earnings per share of $1.23, as revenue fell 1 percent to $14.24 billion, compared with profit of $1 billion, or earnings per share of $1.54, on revenue of $14.40 billion during the same period of 2013.

The Peoria, Illinois-based company warned investors its revenue this year will suffer from weak crude oil prices, down more than 40 percent since June. That, in turn, has weighed on prices for key mined commodities, particularly copper, coal and iron ore. Weakening commodity prices, along with improved mine productivity, led to lower sales for the company’s Resource Industries division.

For all of last year, the company’s net income dropped 2 percent to $3.69 billion, or earnings per share of $5.88, as sales fell 1 percent to $55.184 billion, from a profit of $3.78 billion, or earnings per share of $5.75, on revenue of $55.65 billion in 2013.

The recent dramatic decline in the price of oil is the most significant reason for the year-over-year decline in Caterpillar’s sales volume and revenue outlook for 2015. “Current oil prices are a significant headwind for Energy & Transportation and negative for our construction business in the oil producing regions of the world,” CEO Doug Oberhelman said in a statement Tuesday.

In addition to declining oil prices, Caterpillar expects a strengthening U.S. dollar to negatively impact sales this year. Because much of Caterpillar's business is overseas, a strong dollar makes its products more expensive outside the U.S., thus putting it at a disadvantage when competing against companies who price their products in cheaper currencies.

“We expect world economic growth to only improve modestly in 2015. The relatively slow growth in the world economy and continued weakness in commodity prices — particularly oil, copper, coal and iron ore — are expected to be negative for our sales,” Oberhelman said.

Following the report, shares of Caterpillar dropped 7.23 percent Tuesday to $79.81 in late morning trading on the New York Stock Exchange.