* Q4 adj EPS 50 cents

* Lower pension expense to aid 2012

* Shares up about 5 pct

March 2 (Reuters) - ITT Exelis posted a lower quarterly profit, but the defense contractor forecast full-year 2012 earnings above analysts' expectations and its shares rose about 5 percent.

For 2012, ITT Exelis - the defense business that ITT Corp spun off in October as part of that company's three-way split - expects to earn $1.80 to $1.86 per share, excluding items. Revenue of $5.4 billion to $5.5 billion is expected this year, down from $5.8 billion in 2011.

Analysts were expecting ITT Exelis to earn $1.59 a share for 2012 on revenue of $5.38 billion, according to Thomson Reuters I/B/E/S.

ITT Exelis said changes tied to its pension plan would result in lower pension expense this year compared with 2011.

The company, which derives about 70 percent of its revenue from the U.S. Department of Defense, is working to increase its exposure to nonmilitary government agencies and commercial enterprises as the Pentagon looks to cut billions in spending over the next decade.

"It's going to be competitive," ITT Exelis Chief Executive David Melcher said during a conference call. "Success will require taking market share, prioritizing on affordability and outstanding program management."

He said Exelis, which is known for its night-vision goggles and jammers that prevent roadside bombs, would look to expand in core electronics, intelligence and air traffic management.

In the October-December quarter, ITT Exelis posted net income from continuing operations of $64 million, or 34 cents a share, down from $141 million, or 75 cents a share, last year. Adjusted for items, profit was 50 cents a share.

Revenue fell 10 percent to $1.48 billion.

ITT Exelis said a significant shift in sales in favor of service contracts led to adjusted operating margins falling to 10 percent in 2011 from 11.7 percent in 2010.

The company expects its products-to-services sales mix to largely stabilize in 2012 and beyond.

IIT Exelis shares, which have gained more than 30 percent since touching a low of $8.26 in December, were up about 5 percent at $11.19 in afternoon trading on the New York Stock Exchange on Friday.

• A Permanent Economic Emergency