UPDATE 2-CSX profit up on higher pricing; stock rises

(Adds company comments on pricing outlook, analyst comment, stock action, byline)

By Nick Carey

CHICAGO, Jan 22 (Reuters) - Railroad CSX Corp (CSX.N) on Tuesday reported a better-than-expected quarterly net profit as strong pricing offset higher fuel costs and weaker freight volumes, sending its shares up more than 4 percent.

The results came on a day when U.S. markets slid due to investor fears of a recession. CSX Chief Executive Michael Ward said that he did not expect a downturn, and the U.S. Federal Reserve's 75-basis-point interest rate cut should boost the economy.

"We still see growth in the economy this year," Ward told Reuters in a telephone interview. "It will be slower growth, but I don't think we'll see a recession."

Fourth-quarter net income rose more than 5 percent to $365 million, or 86 cents a share, from $347 million, or 75 cents a share, a year earlier.

Excluding one-time items, profit increased to 85 cents a share from 57 cents. Wall Street analysts had expected 64 cents before one-time items, according to Reuters Estimates.

"Any way you slice it, this was another solid quarter of double-digit earnings growth driven by improved productivity and solid pricing," Bear Stearns analyst Edward Wolfe wrote in a note for clients. "Still, based on its high-end valuation and increasingly difficult comparisons and expectations, we retain our Peer Perform rating."

CSX reported surface transportation operating income of $609 million, compared with $505 million a year earlier.

Revenue increased 7.6 percent to $2.58 billion from $2.4 billion even though freight volumes were flat for coal and fell in the automotive and intermodal categories.

Like most other U.S. railroads, CSX has reported strong results in the past few quarters, largely because of strong pricing and rail network improvements.

Some analysts have questioned how long the railroads' pricing can continue if the economy weakens further.

CEO Ward said the company planned price increases of 5 percent to 6 percent for 2008 and expected freight volumes to be flat to slightly up.

"We still anticipate being able to implement those price increases," Ward said.

The Jacksonville, Florida-based company also reiterated its long-term financial targets of double-digit growth in operating income and earnings per share, plus free cash flow of $800 million to $1 billion before dividends by 2010.

In morning New York Stock Exchange trade, CSX shares were up $1.82, or 4.4 percent, at $43 after rising as high as $44.50.

The stock has been trading at 16.47 times anticipated 2008 earnings, compared with an average multiple of 16.05 for the sector. (Editing by Lisa Von Ahn)