(Adds CEO comments)
By Ankit Ajmera and Eric M. Johnson
July 25 (Reuters) - Boeing Co on Wednesday posted better-than-expected quarterly profit and revenue but shares dropped as much as 3.6 percent after it reported $426 million in higher costs on its long-delayed KC-46 aerial refueling tanker program.
Analysts worry that the world's largest planemaker's exposure to an escalating trade fight between Washington and Beijing as well as mounting costs on the tanker program will slow Boeing shares, up more than 21 percent year to date.
"The KC-46 has returned to again haunt Boeing's results," Vertical Research Partners analyst Robert Stallard said in a research note.
"Management has previously expressed confidence that there would be no more tanker charges, and yet they keep coming," Stallard said, adding that the higher tanker costs came with unchanged earnings and cash flow forecasts.
Chicago-based Boeing said the KC-46 program cost an additional $426 million before taxes in the quarter as the company worked through test delays and production changes to eight aircraft in various stages of production.
Boeing has amassed roughly $3 billion in costs on the program, a derivative of its 767 commercial aircraft, as it works to deliver tankers to the Air Force in October - more than two years behind schedule.
Boeing Chief Executive Officer Dennis Muilenburg told analysts on a post-earnings conference call that plans to complete manufacturing on the tankers was "clear, and firmed up."
Muilenburg also said he was not surprised by the unusually high number of plane orders announced during last week's Farnborough Airshow with unnamed buyers. Rival Airbus said the firms did not want to be identified due to jitters about appearing to side with the United States or other economic powers amid heated trade rhetoric.
"I don't find it (the anonymity) surprising one way or the other," Muilenburg said, adding that Chinese demand for Boeing aircraft extends far beyond a single air show.
"As we think about the China-U.S trade relationships, aerospace is something that is good for both countries," Muilenburg said. "It creates growth capacity in China. It's helping to grow their economy. It's growing jobs in China. And as China grows, it's growing jobs in the U.S."
Despite the KC-46 problems, Boeing beat expectations on quarterly profit. Core earnings, which exclude some pension costs, were $3.33 per share, while the average analyst estimate was $3.26, according to Thomson Reuters I/B/E/S.
Overall revenue rose 5 percent to $24.26 billion, also topping estimates, while commercial aircraft deliveries increased by 6 percent to 194 aircraft. Boeing booked 239 net orders during the quarter, including 91 wide-body jets.
For the full year, the company expects total revenue of $97 billion to $99 billion, compared with its previous estimate of $96 billion to $98 billion.
Boeing also forecast a 2018 operating margin of 10 percent to 10.5 percent in its defense business, down from its previous outlook of roughly 11 percent, and did not change its 2018 core earnings outlook of $14.30 to $14.50 per share.
Wall Street has estimated $14.56 per share.
The stock was down 2.6 percent to $349.11 in afternoon trading. (Reporting by Ankit Ajmera in Bengaluru and Eric M. Johnson in Seattle Additional reporting by Mike Stone in Washington Editing by Saumyadeb Chakrabarty and Jeffrey Benkoe)