UPDATE 2-Rockwell Collins misses estimates, shares fall

*Q4 EPS 84 cents vs. estimate 87 cents

*Revenue down 7 pct

*Shares off more than 3 pct

(Adds segment sales, shares)

ATLANTA, Nov 3 (Reuters) - Avionics supplier Rockwell Collins Inc (COL.N) posted lower-than-expected results on Tuesday as weak commercial aerospace sales offset strength in government demand, and its shares slumped more than 3 percent.

The company said it was starting to see signs of stabilization in commercial markets and expected improvement next year.

"We do believe that the first quarter will be the low-water mark for our business, and we should post sequential growth over the course of 2010," Chief Executive Clay Jones said during a conference call.

Net income fell 26 percent to $134 million, or 84 cents a share, for the fiscal fourth quarter that ended Sept. 30, compared with $182 million, or $1.13 a share, a year earlier.

Analysts expected 87 cents a share, according to Thomson Reuters I/B/E/S.

Sales fell about 7 percent to $1.19 billion, compared with $1.22 billion expected by analysts.

The government systems division, which supplies the Pentagon and other government agencies, had a sales rise of 17 percent to $741 million in the fourth quarter. In the commercial division, which caters to plane makers and airlines, sales fell 30 percent to $449 million.

Rockwell Collins has suffered this year as weak air travel led to production cuts for planes and business jets.

But the company cited improving flight cycles in business jets in recent months and said the airline travel market could gain traction by spring of next year, a factor that could help lift its product and maintenance sales.

Rockwell stood by a prior forecast calling for profit of $3.35 to $3.55 a share, including items, for 2010 on revenue of $4.6 billion to $4.8 billion.

Rockwell Collins shares were off 3.3 percent at $49.09 in morning trading on the New York Stock Exchange. (Reporting by Karen Jacobs, editing by Maureen Bavdek, Dave Zimmerman)