Canadian National Railway reported a 38 percent jump in quarterly profit and raised its full-year forecast based on its strong results over the last six months and expectation that the economy will continue to recover.

CN, Canada’s biggest railway, said it now expects 2010 adjusted earnings per share will be 25 percent above the C$3.24 it reported for 2009. It also expects free cash flow of C$1.1 billion ($960 million).

“We’ve had very, very strong first-half results and we expect the economy to continue on its gradual course of recovery, Luc Jobin, the railroad’s chief financial officer, said on a conference call.

“We do expect the pace of growth to be lower in the second half ... (but) we do not expect a double dip economic scenario at this point.”

Previously, CN said it aimed for double-digit growth in 2010 adjusted earnings per share over 2009, with free cash flow of $1 billion.

For its second quarter, the company said net income rose to C$534 million, or C$1.13 a share, from C$387 million, or 82 Canadian cents a share, a year earlier.

Revenue was C$2.09 billion, up from C$1.78 billion, on higher freight volumes.

Revenue ton miles increased by 15 percent.

CN also said it will make a voluntary C$250 million payment to top up its pension plan.

“We feel that it is prudent, given the less than stellar equity returns that we have seen and the prospect for a continued low interest rate environment at least for the short-term, Jobin said.

The railway, which has lines across Canada and into the United States, also said its operating ratio improved by 6.1 percentage points to 61.2 percent.

CN said the rise in revenue came on higher freight volumes in all its markets, higher fuel surcharges and freight rate increases. (Reuters)