Boeing Co , the world's second-largest plane maker, on Wednesday reported a quarterly profit that beat expectations on a 42 percent revenue increase and lower-than-expected costs, sending its shares higher.

Chicago-based Boeing boasted that it ended a difficult year on a high note with the first flight of its long-delayed 787 Dreamliner. The company reiterated that it plans to deliver the first 787 in the fourth quarter of 2010.

Commercial margins were well ahead of expectations due to a good delivery mix and lower-than-expected (research and development), said JP Morgan aerospace analyst Joseph Nadol.

Boeing's shares gained 3.4 percent, or $2.01, to $59.72. The stock initially fell after the report, and one analyst blamed the company's 2010 earnings outlook, which was well below Wall Street forecasts.

Boeing and its top rival Airbus were dogged in 2009 by fewer orders for airplanes as carriers around the world grappled with falling travel demand in the sagging economy. Meanwhile, Boeing's defense unit struggled with sweeping government budget cuts.

There's definitely some challenges. But I think coming off a year where you had almost a perfect storm, they performed very well, said Alex Hamilton, an analyst at Jesup & Lamont.

The company forecast a profit of $3.70 to $4 per share in 2010, which reflects the 777 production rate reduction and reduced scope on Army modernization and missile defense programs. Wall Street analysts expected the company to earn $4.26 per share in 2010 on revenue of $65.42 billion.

Boeing's said it anticipates 2010 revenue of $64 billion to $66 billion. The company expects that 2011 revenue will be higher than 2010's.

Hamilton said he was looking for any signs that Boeing will cut production of its hot-selling 737 plane.

Chief Executive Jim McNerney said in a statement that Boeing generated solid core operating performance in 2009.

Focus areas for 2010 are to continue our strong operational performance, certify and deliver the 787 and 747-8, and further reposition our defense, space and security business, McNerney said.

FOURTH-QUARTER PROFIT

Boeing reported a quarterly net profit of $1.27 billion, or $1.75 per share, compared with a year-earlier loss of $86 million, or 12 cents per share. The year-ago loss was partly caused by a 2008 labor strike.

Excluding one-time items, Boeing reported a quarterly profit of $1.77 per share, compared with a Wall Street consensus estimate of $1.36 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 42 percent to $17.9 billion.

Boeing Commercial Airplane reported earnings of $1 billion, compared with a loss of $968 million a year ago. Revenue in the quarter rose to $9.2 billion, up from $4.6 billion.

Boeing said this month that orders fell 61 percent to 263 commercial airplanes in 2009, amid a steep decline in air travel and freight transport.

In terms of demand, 2009 goes into the history books as the worst year the industry has ever seen, Giovanni Bisignan, CEO of the International Air Transport Association, said in a statement on Wednesday.

Boeing Defense, Space & Security reported earnings of $829 million, compared with $881 million a year earlier, and revenue of $8.5 billion compared with $8 billion a year ago.

(Reporting by Kyle Peterson, editing by Maureen Bavdek)