* Q3 EBIT 117 million euros vs 103 million in a Reuters poll
* Order intake 1 bln euros, up 38 percent yr/yr
* Net sales 1 bln euros, down 11 percent yr/yr
* Repeats 2010 guidance
* Wartsila shares up 3 percent vs falling sector index
(Adds background, quotes, analyst, shares)
By Terhi Kinnunen
HELSINKI, Oct 20 (Reuters) - Finnish engineering group Wartsila posted a smaller-than-expected drop in third-quarter profit on Wednesday, benefiting from cost cuts and recovery in demand for ship engines and power plants. July-to-September operating profit, adjusted for non-recurring items, dropped to 117 million euros ($163 million) from 133 million a year ago, beating all expectations in a Reuters poll of analysts.
Wartsila shares were up 3 percent at 47.51 euros by 0922 GMT, outperforming a slightly negative STOXX Europe 600 Industrial Goods and Services index.
"The numbers were slightly above market estimates, and of course there is a bit of distraction when it comes to the role of one-offs," said Swedbank analyst Erkki Vesola.
He added that the positive share reaction could also be fuelled by management's general optimism looking ahead.
Order intake for the firm, which provides machinery and services to the shipping industry and power plants, increased to 1 billion euros, up 38 percent from a year ago, and roughly in line with analysts' average forecast of 1.02 billion.
Wartsila repeated its outlook from Oct. 14 for a roughly 15 percent drop in net sales this year compared with 2009, and for an adjusted operating profit exceeding 10 percent.
"The improvements in Wartsila's market environment that started in the second quarter have continued, and we expect the order intake for the full year to clearly exceed last year's levels," Wartsila Chief Executive Ole Johansson said in a statement.
But the company said that though markets had bottomed out, it expected the order volumes to remain at lower levels than during the previous peak years and said shipping companies, for instance, were still minimising maintenance costs.
"Competition and price pressures among shipbuilding suppliers will remain intense," it said.
The shipping industry has started to recover from the global economic recession, but conditions in the dry bulk shipping sector, for example, are expected to remain challenging due to growing fleet supply and uncertainty over demand prospects.
While rates for dry bulk vessels have recovered from record low levels seen in 2008, analysts say the seaborne sector still needs to see a stronger pick-up in global demand for key commodities such as coal and iron ore.
Wartsila's rival truck and engine maker MAN publishes its third-quarter results on Oct. 28. ($1=.7193 Euro) (Additional reporting by Victoria Klesty; Editing by Hans Peters and Will Waterman)