NEW YORK (Reuters) ? Diversified manufacturer Ingersoll-Rand Co. Ltd. said quarterly net income fell 43 percent, reflecting the sale of a business, but results beat Wall Street forecasts on demand for Bobcat machines and technology used in construction.

But its shares, which opened higher, fell four percent in afternoon trading after the company said next quarter?s results may be lower than analysts expect and said operating income, as a percentage of revenue, fell from a year earlier.

?The margins were lighter than expectations,? said Jeff Graff, capital goods analyst at Victory Capital Management. ?It gives people less confidence in the 2006 outlook.

?But at the same time, estimates seem reasonable and the company is doing a good job at cash flow generation and returning it to shareholders. I?m a little surprised by the magnitude of the downturn.?

Ingersoll-Rand reported net profit of $291.6 million, or 87 cents a share, compared with $515.2 million or $1.48 a share, a year ago.

It said the year-ago results included 84 cents a share in earnings from discontinued operations, including turbine maker Dresser-Rand Co., which went public in August 2005.

Earnings from continuing businesses rose 23 percent to $272.9 million, or 81 cents per share, topping analysts? average forecast of a 77 cent per share profit, according to Reuters Estimates.

The company said first quarter profit, including stock options expensing, will be between 69 cents and 73 cents per share, below Wall Street?s 75 cent estimate.

It said 2006 earnings, also after taking account of stock options, will be in a range of $3.34 to $3.44 per share, compared with Wall Street estimates of $3.40.

Chief Executive Herb Henkel said raw material prices defied expectations and continued to push up costs, adding Ingersoll may push more aggressively to demand higher prices from customers, while raising productivity and relying on facilities in India, China, and the Czech Republic.

Sales rose ten percent to $2.71 billion, matching expectations. Full-year sales topped $10 billion for the first time in the company?s 100-year history.

A new product line-up helped increase revenue in the Bobcat unit, which makes compact machines for loading, digging and paving, by 12 percent from a year earlier, but higher raw material costs and a strong U.S. dollar pressured profit margins.

?There?s no complaints with Bobcat,? said Morningstar analyst Eric Landry. ?It?s benefiting from the trend towards smaller equipment. That business is carrying that segment right now.?

CEO Henkel said that, if the US residential construction market weakens over the next two years, stronger international demand for Bobcats will pick up the slack.

Henkel said he would continue to use bolt-on acquisitions to complement the company?s internal growth, but would likely emphasise smaller, private transactions.

?Larger, public deals are becoming very, very pricey,? he said. ?We?re going to have to do smaller and do more of them.?

Ingersoll-Rand was down $1.73, to close at $38.15 on the New York Stock Exchange.