* Q1 EPS C$1.08 vs forecast C$0.79
* Net income jumps 21 percent
* Includes gain from Toronto-area track sale
* Upgrades earnings forecast (Adds comments from conference call)
Canada's biggest railroad also increased its earnings estimate for the year because of the stronger economy, saying it now expects free cash flow of about C$1 billion ($1 billion) in 2010, up from the C$700 million it had forecast.
That would allow for "solid double-digit" growth over the C$3.24 adjusted earnings per share it recorded last year, despite the impact of the stronger Canadian dollar, said CN, which operates in both Canada and the United States.
"The recovery has started to take hold in most of our markets," said Jean-Jacques Reust, CN's chief marketing officer.
Net income rose to C$511 million, or C$1.08 a share, in the first quarter, ended March 31, up from C$424 million, or 91 Canadian cents, a year earlier.
Revenue was just under C$2 billion, up from C$1.86 billion a year ago. Car loadings were up 16 percent, and revenue ton miles increased 14 percent, CN said.
Analysts expected Canadian National to earn 79 Canadian cents a share in the first quarter on revenue of C$2 billion.
The company acknowledged its operations in the quarter were also made somewhat easier by mild winter weather in some areas.
The results included an after-tax gain of C$131 million, or 28 Canadian cents a share, from the sale of a rail line to a Toronto-area transit agency.
The Montreal-based railway said it was able to increase its forecast on earnings while at the same time it was raising planned capital spending for 2010 to C$1.6 billion from C$1.5 billion.
Shares of CN ended at C$63.72 on the Toronto Stock Exchange on Monday, up 77 Canadian cents. The company released its results after the market closed. (Reporting by Allan Dowd, Editing by Frank McGurty)