UPDATE 3-CSX expects higher profit, sues hedge funds

(Adds CSX CEO, analyst comment, bylines; updates stock action)

By Scott Malone and Nick Carey

BOSTON/DETROIT, March 17 (Reuters) - U.S. railroad company CSX Corp (CSX.N) forecast on Monday its first-quarter profit would rise by up to 48 percent and said it filed suit against two hedge funds that have proposed a slate of new directors.

CSX charged the funds violated U.S. securities laws by not disclosing their full holdings in the company.

"We saw some extraordinary and strange stock movements around our record date," CSX Chief Executive Michael Ward told Reuters in a telephone interview. "We want to get a full hearing on this in the courts before we have our shareholders' meeting."

CSX said it would now hold its annual meeting on June 25, from a previous date of May 7.

The Children's Investment Fund and 3G Capital Partners said the allegations were without merit and promised a vigorous defense.

Jacksonville, Florida-based CSX said it expects first-quarter profit of 74 cents to 77 cents per share, including a one-time gain of 4 cents per share related to the sale of real estate.

Analysts, on average, expect 64 cents per share, according to Reuters Estimates.

Ward said freight volumes were down slightly in the first quarter so far, due to the ongoing U.S. housing sector meltdown and weak sales in the automotive sector.

"Both of those sectors are showing no signs of recovery at this point," he said.

But Ward said CSX's strong first quarter has been driven by growth in shipments of metals, fertilizers, ethanol and coal for export. The railroad has also stuck to its forecast of freight rate increases in a range from 5 percent to 6 percent in 2008, he said.

"So far we have been on the high end of that range," Ward said.

CSX forecast full-year profit of $3.40 to $3.60 per share. Wall Street expected $3.05.

The company also said it aims to grow earnings per share by 18 percent to 21 percent annually through 2010, and it is targeting $3 billion of share buybacks by the end of 2009.

Credit Suisse raised its target price on CSX stock to $60 from $53.