Chessie System Inc. reported record annual profits and Chairman Hays T. Watkins predicted the railroad's merger with the Seaboard Coast Line will be completed this year.

At Chessie's annual stockholders meeting in Cleveland Wednesday, Watkins announced 1979 profits of $120.1 million (6.05 a share), up 18 percent from Chessie's best previous year, 1976, when the railroad earned $102 million.

Contrasting the 1979 earnings to the previous years' profits of $70.5 million (3.59 a share), Watkins said 1979 gave the Chessie none of the "calamities" of the previous year, when coal strikes and severe weather hampered business.

A 9 percent increase in coal traffic helped boost Chessie' 1979 revenues to $1.9 billion, from $1.6 billion the previous year.

Watkins told the shareholders "excellent progress" is being made toward completing the merger with the Seaboard, which has been stalled for months.

"The brightest prospect in the coming 12 months is the very strong possibility that the Chessie-Seaboard merger can be consummated," he said.

The merger would create a 27,000-mile railroad stretching from Michigan to Florida. Under the name CSX Corp., it would run the Chesapeake & Ohio, the Baltimore & Ohio, the Western Maryland, the Seaboard Coast Line, the Louisville & Nashville, the Clinchfield and several smaller lines.