UPDATE 3-Boeing profit beats expectations, defense strong


* Defense revenue slips but margins improve

* Profit $1.35/share vs Street view $1.13

* Revenue $20 billion vs $17.7 billion a year earlier

* Shares up 1.4 pct

Oct 24 (Reuters) - Boeing Co posted stronger-than-expected results for the third quarter on Wednesday as its defense business improved and commercial aircraft deliveries surged, and the company raised its full-year forecast for the third time this year.

Defense revenue fell slightly from a year earlier but margins in that business improved. This showed Boeing's ability to be ``very aggressive'' in cutting costs at a time when defense spending is contracting in the United States and Europe, said Ken Herbert, an analyst at Imperial Capital LLC.

``They're ahead of the curve compared with their peers,'' the analyst said.

Boeing earned $1.0 billion, or $1.35 a share, in the third quarter, compared with $1.1 billion, $1.46 a share, a year earlier. Revenue rose to $20.0 billion from $17.7 billion.

Analysts surveyed by Thomson Reuters I/B/E/S had expected earnings per share of $1.13.

``Boeing is getting pretty good at this,'' Robert Stallard, an analyst at RBC Capital Markets, wrote in a note to clients. He called it ``another trouble-free quarter with no execution issues.''

Boeing shares were up 1.4 percent to $73.84 in morning trading.

Boeing raised its full-year earnings forecast to a range of $4.80 to $4.95 a share, compared with $4.40 to $4.60 previously. It said revenue should reach $80.5 billion to $82 billion, driven by more sales in the defense, space and security businesses. Revenue in 2011 totaled $68.7 billion.

The commercial aircraft business delivered 22 more jets in the third quarter than a year ago, due in large part to 787 deliveries, opening a second 787 assembly line, and ramping up output of 737 and 777 jets.

The delivery increase drove revenue in the commercial airline business up 28 percent to $12.2 billion.

But Boeing earned less from the jets because many were newer aircraft, which tend to have lower profit margins. The business also earned less from aircraft services, which tend to have higher margins. Overall margins contracted to 9.5 percent from 11.4 percent.

The commercial airplane business ``was a little soft on the top line and slightly softer on the margin, but not as weak on margins as feared,'' Herbert said.

Boeing said that excluding pension costs, its earnings rose 5 percent from a year earlier. Factoring out the pension costs, earnings were $1.89, up from $1.80 a year ago.

The company said it expects pension expense to rise by $1 billion next year, to $3.5 billion.

Despite ``pension headwinds,'' the defense, space and security business ``maintained double-digit margins in a challenging environment, while commercial airplanes continued to build momentum with 787 deliveries and 737 MAX orders,'' Boeing CEO Jim McNerney said in a statement.

Defense revenue fell 4 percent to $7.8 billion in the third quarter, but margins improved to 10.5 percent from 10 percent. The higher margins surprised most analysts, but left questions about whether they can be sustained.

``I am encouraged by the improved margin trends,'' said Carter Leake, an analyst at BB&T Capital Markets. ``But we'll see if these margins can be continued into 2013.''

Analysts said they were focused on whether Boeing can continue to speed up delivery of 747 and 787 jets, which currently drag on the earnings, and get to the point where they are contributing to cash flow.

``The question is when they get to cash-flow break-even on 47, 87,'' Leake said.