Arch Coal posted better-than-expected first-quarter profit despite a drop in coal prices that squeezed the miner's margins.
The company's shares rose , but analysts noted a similar rise in most coal producers' stock after AG Edwards raised its investment rating for Peabody Energy to a "buy" from "hold."
Arch Coal said net earnings fell from a year earlier, to $28.7 million, or 20 cents a share, from $60.6 million, or 42 cents a share, but still topped Wall Street forecasts.
Analysts, on average, had expected 15 cents per share, according to Thomson Financial.
Revenue fell to $571.3 million from $634.6 million a year earlier, the St. Louis-based coal company said.
Two months ago, Arch cut its 2007 production target, citing weakness in U.S. coal markets. Chief Executive Officer Steven Leer said at the time that Arch was sending less coal to market because electricity generating plants were maintaining historically high stockpiles of coal -- in some cases as much as 47 days' supply.
The company said it sold 31.4 million tons of coal in the first quarter, up from 29.6 million a year earlier, but down from 33.9 million in the 2006 fourth quarter.
Operating margin in the quarter fell to $2.11 per ton from $3.65 a year earlier as the average sale price of coal declined to $16.85 per ton from $17.53, and costs rose.
"Market conditions were considerably less favorable in the first quarter of 2007 than in the year-ago period," Leer said in a statement.
Coal prices are starting to rise again but they are still lower than the historic highs they reached in 2005. A ton of eastern U.S. coal now sells for around $43.75, down from $58.25 at the start of 2006.
Western coal from the Powder River Basin of Montana and Wyoming is selling for $8 a ton, down sharply from the $22 it was fetching 18 months ago.
Arch stood by its forecast for 2007 earnings of $1.25 to $2.00 a share, with adjusted earnings before interest, taxes, depreciation and amortization of $530 million to $650 million.
Coal market fundamentals appear to be improving, the company said, with electricity generation demand up 4.6% through mid-April versus the year-earlier level, and coal production down 1.8% so far this year.
The company estimated that nearly 11 gigawatts of new coal-fired electricity generation is under construction in the United States, representing more than 50 million tons of incremental annual demand for coal over the next five years.
Shares of Arch, Peabody, Consol Energy