* Q3 EPS $0.49 vs Street view $0.45
* Revenue $438.3 million vs Street view $445.9 million
* Mexico growth key
* Shares rise 5 percent (Adds analyst comment, updates share price, adds byline)
By Lynn Adler
NEW YORK, Oct 26 (Reuters) - U.S. railroad Kansas City Southern (KSU.N) reported a better-than-expected quarterly profit on rising freight volumes and cost cutting, sending its shares up nearly 5 percent.
The profit beat came despite a curb on revenue due to track damage caused by Hurricane Alex in July.
Rising cross-border traffic, especially as Mexico's economy expands, will contribute to low-double-digit revenue growth in 2011, the company said on a conference call.
"Our business in the U.S. remains stable to positive," said Chief Executive David Sterling. "Mexico is going to be the industrial growth engine for us."
Labor costs are significantly lower in Mexico than in the United States and essentially equal to rates in China, the company said.
It said it was seeing "higher daily average carloadings than at any time over the past four years, and we are back to pre-recession levels."
Third-quarter net income rose to $50.2 million, or 48 cents per share, up from $25.4 million, or 27 cents a share, a year earlier.
Excluding debt retirement costs of 1 cent a share, earnings were 49 cents a share, 4 cents above analysts' average forecast, according to Thomson Reuters I/B/E/S.
"They did really well with productivity and efficiency in the quarter even despite the impact of the hurricane, which really impacted all of July, and did better-than-expected as far as costs are concerned," said Neal Deaton, associate analyst at BB&T Capital Markets.
Revenue rose to $438.3 million from $386.1 million, short of analysts' average estimate of $445.9 million. The company said it lost an estimated $33 million in revenue from hurricane damage to Kansas City Southern de Mexico.
"Their revenues were up 13.5 percent year over year, but their operating expenses were only up 7 percent," Deaton noted.
Automotive revenues jumped 64 percent from a year ago as auto production rebounded, the company said.
It said it expects rebounding freight volumes to help boost second-half revenue by almost 20 percent.
Kansas City Southern estimated Hurricane Alex reduced third-quarter income by about 14 cents a share. It expects 9 cents of that to be covered by insurance.
Its shares were up $2.13 to $44.07 in midday trade after briefly touching a 52-week high of $44.91. The shares are up about 26 percent this year.