Consol Energy Posts Quarterly Profit but Stock Drops

Coal miner Consol Energy Inc posted a third-quarter profit Thursday from higher-priced contracts, following a loss a year earlier when one of its mines was idled by a roof fall.

The company slightly lowered its fourth-quarter coal production estimate, but said it expects to produce more in the next three years than this year and that prices will increase again after the short-term fall during the current period of economic uncertainty.

"Despite this uncertainty, we believe that the long-term demand for coal and natural gas will continue to be strong," said President and chief executive officer Brett Harvey.

"Developing countries will continue to compete for energy with the industrialised nations. This will put upward pressure on pricing over the long-term."

Despite the positive outlook and a 35% boost in revenue in the quarter which helped Consol's results beat Wall Street expectations, the company's stock fell 2.7% to $27.07, off an earlier low at $25.89 on the New York Stock Exchange.

"We are viewing these results as a slight positive, especially as management believes it can work through the difficult operating environment that it is currently facing," analyst Jeremy Sussman of Natixis Bleichroeder said in a research note.

"In our opinion, the focus going forward is squarely on the company's ability to deliver on its production targets in Northern and Central Appalachia."

Pittsburgh-based Consol said net earnings were $90.1m, or 49 cents per share, compared with a loss of $5.4m, or 3 cents per share, in the 2007 quarter.

Revenue rose to $1.2bn from $868.4m in the 2007 quarter, when production was reduced by a roof fall at the Buchanan mine in Virginia which resulted in the mine being idled until this year.

Analysts on average were expecting earnings of 40 cents per share, according to Reuters Estimates.

"The strength of coal and gas markets over the last twelve months has allowed us to continually and systematically lock in higher prices that drive the average realized price up as older contracts are replaced with newer, higher priced ones," said Harvey.

However, spot coal prices have fallen some 40% in the past three months as financial market turmoil has sparked economic uncertainty. A ton of Eastern US coal selling for $139.69 1 July was going for $121.20 at the end of the quarter 30 September, according to the industry newsletter Coal & Energy Price Report. The price was down to $75 this week.

Consol said it expects fourth-quarter production in the range of 17.5 million to 19.5 million tons, down slightly from its previous estimate of 17.8 million to 19.8 million.

But it sees 2009 production around 70 million to 74 million tons - more than the 68 million to 72 million it expects to mine this year. The 2010 production is seen at 76.6 million to 80.6 million tons and 2011 at 76.7 million to 80.7 million.

Consol shares, which reached a 52-week high of $119.10 19 June, fell to a low of $27.62 10 October.

By Steve James; editing by Derek Caney and Matthew Lewis, Reuters.