Caterpillar Inc. (NYSE:CAT), the world's largest maker of construction and mining equipment, is expected to report a 6 percent drop in earnings for the first quarter of 2014, an improvement over the 44.7 percent drop in the same quarter last year, as the global economy slowly benefits the company's construction and electricity sectors, barely offsetting a dismal global mining industry.

When the company announces earnings Thursday before U.S. markets open, it's likely to report net income of $755 million, or $1.23 a share, on revenue of $13.2 billion, based on the average estimate of analysts surveyed by Thomson Reuters. In the same period a year earlier, net income was $880 million, or $1.31 a share, on $13.21 billion in revenue. Excluding one-time items, Caterpillar is expected to report earnings of $1.13 a share.

J.P. Morgan analysts maintained their neutral rating of Caterpillar, based on “the company’s long-term growth prospects and exposure to global GDP, which we believe will be a positive for equipment demand over the long run,” they wrote in an April 10 note, adding that this is balanced by its exposure to the mining industry, “which we believe has entered a long down-cycle.”

Last year, the Peoria, Ill.-based company saw $10 billion in sales and revenues, down from $66 billion the year earlier.

The main problem had to do with inventory. As the global mining sector slumped in 2012, demand for resource equipment decreased, leaving dealers with an excess of inventory, which the company has been slowly fixing. By the end of the third quarter, the backlog had dropped from $23.1 billion to $19.1 billion in the space of year.

Revenues fell 16 percent last year to hit $55.7 billion, and earnings fell 32 percent as demand for mining equipment plummeted as companies cut spending. The sector accounts for at least a third of Caterpillar's total business.

“Our inventory problem,” said CEO Doug Oberhelman at the analyst meeting at Conexpo in April, “was painful on the way up and it was very painful on the way down.”

Resource sales were down 37 percent in the three months ending in February, as miners continue to be reluctant to purchase new equipment. In its annual outlook, Caterpillar predicted a 10 percent fall in mining sales, though offset by moderate growth in other businesses.

For the three months ending in February, resource industries declined 37 percent, including a 55 percent drop in Asia, the weakest region thanks to major destocking of inventory, and tight fiscal conditions.

Over the past two decades, Caterpillar has set up 26 manufacturing plants in China and employs more than 15,000 people there -- more than a tenth of its global workforce.

Though analysts from Macquarie expect that Caterpillar will continue to “make strides in China from a market-share perspective,” they’re dubious about a strong rebound in the region. Larry Hu, the firm's China economist, indicated in a note that he has “not seen signs that destocking has turned into restocking,” and also noted that liquidity conditions could worsen on policy decisions from the People’s Bank of China and capital inflows, which would decelerate growth in the second quarter of 2014, according to an April note.

“The China construction bubble fueled a rise in commodity prices,” wrote William Blair & Co. analyst Lawrence De Maria, citing iron ore, metallurgical coal and copper, 40 percent of which are consumed in that region.

“Absent another emerging market bubble, we do not see a reason for another huge capital expenditure cycle,” he wrote, adding that he expects miners to continue being cautious about buying new equipment to conserve cash flow during a tough time for prices.

But others disagree. Deutsche Bank analysts wrote that despite a track record of missing earnings in the past five quarters, they expect a modest uptick in Caterpillar's first quarter on “positive commentary on construction and signs of recovery in mining to act as a positive catalyst for shares,” they wrote, adding their prediction that earnings could be as high as $1.27, five cents over consensus.

Indeed, Caterpillar does much more than mining.

“As deep as the cycle seems to be, I like where we’re positioned with power systems, construction, resources and financial,” said Oberhelman at the conference.

A slow uptick on the post-recession global economy, emphasized by growth in the U.S., has been a positive development for Caterpillar’s energy and transportation sector (formerly called power systems,) as well as construction.

The company recently started publishing data from its 178 independent dealers, outlined by sector and geography. For the three months ending in February, construction sales were up 9 percent.

“In our view, higher profits from these two segments, aided by cost cuts, will likely more than offset the decline in the company’s mining profits,” wrote analysts from Trefis Team at

Another offset to mining trouble has been a variety of cost-cutting initiatives. Caterpillar, which is used to adapting to commodity cycles, has been making various adjustments  for more than two years now to help survive the tough climate. Last year, the company managed to reduce manufacturing, research and administrative expenses by $1.2 billion. Execs reduced their workforce by around 9,700 employees, cut 17 percent from research and development costs, slashed administrative costs by 6 percent and shut down plants.

“We figure in the first quarter, gains from these large scale cost cutbacks will protect CAT’s profits from the decline in its mining sales,” wrote the Trefis analysts.

Analysts at William Blair are also optimistic, and expect a positive quarter for Caterpillar, raising their earnings estimate due to “better constriction and margin estimates as a result of higher production rates in the quarter,” according to a recent note.

“Increasingly positive sentiment has trumped economic, weather, and geopolitical fears, causing an industrial repositioning into capital goods stocks,” reads a note from analysts at William Blair, who gave Caterpillar an “outperform” rating, citing completed inventory cuts, higher demand for oil and gas and stable mining aftermarkets as tailwinds.