Caterpillar Inc. (NYSE: CAT), the world's biggest manufacturer of mining and construction equipment, is expected to report a 40 percent decrease in profit as a steep drop in demand for mining equipment, especially from Chinese buyers, offsets modest increases in U.S. construction equipment sales.

The Peoria, Ill., giant, which also produces diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives, will report net income of $961 million, or $1.42 per share, compared with $1.59 billion, or $2.37 per share, in the year-earlier period, according to a survey of analysts by Thomson Reuters. Revenue is expected to fall to $13.74 billion compared with $15.98 billion in the first quarter of last year.

Caterpillar will report Monday before markets open.

"This quarter will be one of Caterpillar's toughest in a while," Adam Fleck, an analyst with Morningstar, Inc., said, adding that  the U.S. housing market was one of the few bright spots in a quarter that has been hit hard by a global downturn in mining.

"Mining is why their business is hurting now," Fleck said. "Mining is a third of their revenue yet half of their operating profit [pre-tax and pre-interest]."

Slowing growth and falling commodity prices have caused mining equipment dealers worldwide to reduce orders for new machines, he said.

Also, the fact that this year's winter has been colder and longer than normal is expected to trim the seasonal uptick in demand for heavy equipment, Lawrence De Maria of William Blair said. Adding to that problem is the fact that last year's winter was shorter and warmer, creating a tough year-over-year comparison for the company.

Caterpillar gets 70 percent of its revenue from outside the U.S., much of it from China. However, the latest quarterly economic report from the world's second-largest economy showed growth of only 7.7 percent, well below the 8 percent forecast. 

Besides weakening demand in China, Caterpillar faces increasing competition from local Chinese rivals including Sany Heavy Industry and Zoomlion Heavy Industry. 

Fleck said the earnings decline won't come as huge surprises to the company or its shareholders as orders for mining were already trending down before Q1. "Even in the third quarter the numbers fall off in commodities prices," he said. 

As the size of Caterpillar's first-quarter earnings decline has become clearer, analysts have trimmed their expectations. The 18 analysts in Thompson Reuters' survey downgraded Caterpillar's target figures, citing China's slowing economy as the chief concern.

Meanwhile, the U.S. construction sector's slow recovery provided a modest boost to Caterpillar equipment sales in Q1, according to Zacks Equity Research.