Defense contractor General Dynamics Corp reported a higher-than-expected quarterly profit on Wednesday as revenue improved in all business segments.

The maker of tanks, ships and submarines raised its full-year forecast, and its shares rose modestly.

The outlook boost was widely expected, Collins Stewart analyst James McIlree said. He expressed continued caution about the aerospace division, which has suffered from the business jet slump.

The defense business is going to be modest-to-no-growth, and aerospace isn't getting worse, but that doesn't mean that we're back to growth, McIlree said.

Second-quarter net earnings fell to $618 million, or $1.60 a share, from $641 million, or $1.60 a share, a year earlier.

Excluding discontinued operations, profit was $1.61 a share, topping the analysts' average forecast of $1.57, according to Reuters Estimates.

Revenue rose 11 percent to $8.10 billion, while analysts were expecting $8.14 billion.

Analysts cited better-than-expected margin performance, particularly in aerospace. Sanford Bernstein analyst Douglas Harned said Gulfstream, the company's business jet unit, booked positive net order flow in the second period after reporting net cancellations in the first quarter.

Aerospace operating margins came to 15.2 percent in the second quarter, down from 18.1 percent a year earlier but up from 13.7 percent in the first quarter.

Aerospace revenue rose 6.5 percent, helped by the acquisition of Jet Aviation in 2008, but operating profit fell 10.4 percent.

Combat systems, which supplies tanks and machine guns, had a revenue increase of 19 percent, while operating profit rose 6 percent.

The marine systems and information systems divisions posted revenue increases of 17 percent and 4 percent, respectively.

On Tuesday, jet rival Textron Inc , the parent of Cessna, said the business-jet market was stabilizing and noted order trends had improved in June from previous months.

General Dynamics said it now expects full-year profit from continuing operations of $6.05 to $6.15 a share, compared with its April forecast of $6.00 to $6.10.

General Dynamics shares were up 41 cents, or 0.8 percent, at $54.15 in morning trading.

(Reporting by Karen Jacobs; editing by John Wallace and Lisa Von Ahn)