Turning to the next slide, I’ll discuss our full-year performance. The past four years have been transformative for CSX , and we have emerged a stronger company for our customers and shareholders. That strength drove new full-year records in 2014 for revenue at $12.7 billion, operating income at $3.6 billion, and earnings per share of $1.92 and the operating ratio remained essentially stable at 71.5%. That’s an extraordinary testament to the work of the CSX employees, because it follows a period during which we lost nearly $900 million of coal revenue, as the country transitioned through changes in the energy sector.
At the same time, the diversity of CSX’s business mix generated revenue more than offsetting those coal losses. That growth, combined with inflation plus pricing, efficiency gains, and cash deployment for share buybacks, generated modest earnings growth for the shareholders during this transition period. These financial results are continued evidence that the company’s employees, core strategy, and diverse business mix can create sustainable value for shareholders even in an evolving and challenging business environment. With strategic infrastructure investments, locomotives and operating employees coming online, we expect service levels to gradually improve throughout 2015 to superior levels.
With that, I’ll turn the presentation over to Fredrik, who will take us through the top and bottom line results in more detail. Fredrik?
Fredrik Eliasson, Chief Financial Officer
Well, thank you, Michael, and good morning, everyone. Let me begin by providing a summary of our fourth quarter results. As Michael mentioned, revenue increased 5% versus the prior year on 6% higher volume driven by broad based strength across merchandise, intermodal and coal. Expenses increased 3% versus last year, driven primarily by higher volume and included a $39 million G&A workforce reduction charge. Operating income was $901 million, up 11% or $88 million versus the prior year. Looking below the line, interest expense and other income were slightly favorable versus the prior year period, and income taxes were $284 million in the quarter, reflecting higher pre-tax earnings for an effective tax rate of approximately 37%. Overall, net earnings were $491 million and EPS was $0.49 per share, up 15% and 17% respectively, versus the prior year period.
Now let me turn to the market outlook for the first quarter. Looking forward, we expect a positive demand environment in the first quarter with stable to favorable conditions for 96% of our markets and unfavorable conditions for the remaining 4%. Looking at some of the key markets, chemicals is favorable as we continue to capture opportunities in the domestic oil and gas industry. Housing starts are expected to rise considerably in 2015 which should drive a favorable outlook across our construction markets, forest products, minerals, and waste and equipment. Automotive is favorable driven by growth in North American light vehicle production and the recovery of volume loss to trucking last year.
Strong intermodal growth will continue, as our strategic network investment support highway to rail conversions. We expect domestic coal volume growth will be strong in the first quarter attributable to cycling weaker first quarter 2014 volume and a new iron ore facility. Export coal volume is expected to be significantly lower in the first quarter through reflected continued soft global market conditions. For the full year, our best estimate at this time is around 30 million tons. Overall, we anticipate high demand levels for our service will continue in the first quarter.
Turning to the next slide let me talk about our expectations for expenses in the first quarter. Beginning with labor and fringe, despite G&A workforce reductions, we expect first quarter average headcount to increase sequentially by 1% as we continue to ramp up operating employees to accommodate higher volumes. This represents a 4% increase versus the prior year. We expect 2015 labor inflation to be around $35 million per quarter in the first half and then moderate to around $25 million per quarter in the second half. This represents an increase from the $20 million per quarter levels seen in 2014, driven by union wage inflation and payroll taxes.
