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Boeing Earnings Boom On Commercial Jet Demand

Boeing's (BA) strong commercial aircraft segment and plans to increase 787 Dreamliner production lifted shares to a new high, but orders next year could slip and federal budget cuts will continue weighing on the defense business.

The aerospace giant's third-quarter earnings per share jumped 33.3% to $1.80. Analysts polled by Thomson Reuters were expecting $1.55. Revenue rose 10.7% to $22.13 billion, above views for $21.68 billion.

Commercial aircraft earnings jumped 40% as operating margins widened to 11.6% from 9.5%. Earnings from the military division fell 19% amid Pentagon budget cuts.

Shares soared 5% Wednesday to 129.02, hitting a record high.

During the quarter the commercial division booked 200 orders. Strong passenger traffic from airlines and demand for the new 737 variant boosted orders, said J.B. Groh, a senior analyst with D.A. Davidson.

The 777X should bolster next year's orders, but the total will probably decline, he predicted. This year "was just an extremely good year and to expect that every year is unrealistic.

Boeing lifted its full-year earnings outlook to $6.50-$6.65, which is above estimates, from a prior view of $6.20-$6.40. But implied Q4 EPS of $1.30-$1.45 are still below the $1.58 that analysts are expecting.

For the year, Boeing plans to deliver 635 to 645 passenger jets, with 60 of those being the Dreamliner. The company expects to ramp up production of the 787 to 12 aircraft per month in 2016 and to 14 a month before 2020 vs. 10 per month by the end of this year.

Groh said Boeing is raising its production rate for the 787s slower than he expected but sees recent problems with the plane being corrected over time.

CEO W. James McNerney told analysts reliability problems with the 787 are due to hardware and software issues but that engineering fixes are being made at the component level in an "all hands on deck" effort.

The Dreamliner started out as more of a nightmare for Boeing in January, when 50 787s were grounded after a battery caught fire while one was parked on a runway.

In July, another 787 blazed, but the flame was unrelated to the battery. In September, Norwegian Air had to ground its 787s multiple times due to issues with the oxygen supply to the cockpit, and Polish carrier LOT grounded its 787s after a system that identifies planes to air traffic controllers malfunctioned.

Boeing has equated the problems to early production — rather than systemic — issues with the new planes. And the company's shares continued to climb despite the many groundings. The stock has soared 78% since October 2012.