Boeing Co.'s (BA) third-quarter profits more than doubled thanks to a tax gain that more than offset the impact of an airplane assembly workers' strike, but a lackluster performance by its long-stellar defense business disappointed Wall Street on Wednesday.

Citing robust demand for its planes from commercial airline customers, Boeing raised its estimates for 2005 and 2006 earnings as it announced a $1.01 billion profit for the third quarter.

Investors gave that guidance a cool reception, however, since Boeing also reported an 11 percent decline in revenue from military and space contracts and acknowledged slowing growth and a cautious outlook for the defense unit, its biggest.

The aerospace company's stock fell $1.87, or 2.8 percent, to close at $65.10 per share on the New York Stock Exchange (search). They remain up about 30 percent from a year ago.

Chairman and CEO Jim McNerney (search), overseeing his first quarter since arriving from 3M Co. on July 1, said Boeing continues to experience "tremendous sales success" and booming orders at its Seattle-based commercial airplanes unit as it moves closer to the 2008 debut of its fuel-efficient 787 Dreamliner.

He admitted, though, that the defense marketplace is becoming more challenging and the company had suffered from some timing and performance issues in the quarter.

Boeing provided limited details about the defense contracts involved, some of which are classified, but one of the biggest revenue declines was related to a spy satellite program called Future Imagery Architecture. Revenue from aircraft and weapons systems also dropped 16 percent due to timing issues that led to fewer deliveries of the C-17 and other military aircraft, the company said.

The defense revenue drop was more than anyone expected, according to analyst Paul Nisbet of JSA Research, even if Boeing didn't lower its guidance for future defense results.

"There really wasn't any improvement on the defense side from a year ago," Nisbet said. "I can see why Wall Street isn't too delighted by it. But it's a temporary thing."

The quarter was marred by the four-week strike by the International Association of Machinists and Aerospace Workers (search), which Boeing said reduced earnings in the quarter by 27 cents a share — roughly three times what analysts had estimated. That caused it to deliver 21 fewer airplanes than planned and lower its expected fourth-quarter deliveries by an additional nine for a full-year delivery total of 290, down from the 320 targeted earlier.

Fitch Ratings analyst Craig Fraser said the airplane deliveries and a second straight quarter of poor results from the network systems part of Boeing's defense business were cause for near-term concern.

"There were some negatives," he said. "However, the foundation for Boeing's financial strength remains intact. They have very strong commercial (airplane) orders, excellent cash performance and the 787 program is still performing well."

Earnings for the July-through-September quarter amounted to $1.26 per share, up from $456 million, or 56 cents per share, a year earlier.

Analysts said it was not appropriate to compare the number with Wall Street consensus estimates because of the glut of non-recurring items, many of them unexpected.

Those included per-share gains of 62 cents for tax settlements and adjustments and 45 cents for the August sale of Boeing's Rocketdyne Propulsion & Power (search) unit to United Technologies Corp. (UTX) for $700 million, as well as per-share expenses of 6 cents for share-based plans and 14 cents for post-retirement expense related to the sale of operations in Wichita, Kan., and Tulsa, Okla.

Revenues fell 4 percent to $12.6 billion from $13.2 billion, which Boeing said reflected both the impact of the strike and the slower growth in its defense business.

In his first conference call since taking over, McNerney did not outline any big changes he intends to make at Boeing but said he is working to cut corporate costs and continue the push for more lean manufacturing in the defense and commercial aircraft businesses.

Boeing bumped up its estimates for earnings to a range of $2.95 to $3.05 per share for 2005, up 20 cents per share, and between $3.10 and $3.30 per share in 2006, up 10 cents per share.

The strike caused the company to lower its estimate for 2005 revenue to $55 billion; analysts had estimated $57.1 billion.

Chief Financial Officer James Bell indicated Boeing doesn't envision fully making up the deliveries lost to the strike until 2007 because it will be busy keeping up with an already-increased production schedule.

He said there's a "very good chance" the company will have enough commitments by the end of this year to launch the 747 Advanced, a larger, more efficient model of its jumbo jet, which has been eclipsed in size by the Airbus A380.

McNerney is Boeing's third CEO since December 2003, hired to restore stability at the top to a corporation shaken by the scandal-hastened departures of predecessors Phil Condit (search) and Harry Stonecipher (search).