UPDATE 3-Arch Coal quarterly profit down but beats estimate

* Q3 EPS 16 cents vs Wall Street view 4 cents

* Company sees coal demand, prices starting to rise

* Shares up 2.7 pct in morning trading (Adds analyst comments, stock up)

NEW YORK, Oct 30 - Arch Coal Inc said on Friday that third-quarter profit dropped as it sold less coal at lower prices, but the results beat its second-quarter performance and exceeded Wall Street estimates.

The company said a combination of production cuts and growing demand as the global economy rebounds from last year's downturn was likely to push coal prices higher.

The results and outlook sent Arch shares 2.7 percent higher to $23.74 in morning trading on the New York Stock Exchange.

"It was a nice beat with very good operating performance," said analyst Jeremy Sussman, of Brean Murray Carret & Co. "But the strong results in Western Bituminous coal were offset by lower pricing for Central Appalachia as a whole."

Chairman and Chief Executive Steven Leer said Arch's recent acquisition of Rio Tinto's Jacobs Ranch mine -- adjacent to Arch's Black Thunder mine in Wyoming -- would help position the company "for the upturn which we believe is just beginning to be reflected in coal demand.

"We are also seeing domestic and global economies begin to transition from recession to recovery.

"Ongoing supply constraints here at home and around the world -- coupled with a rebound in energy demand globally -- will exert upward pressure on coal prices over the long term," Leer said in a statement.

Net earnings were $25.2 million, or 16 cents per share, compared with year-earlier earnings of $97.8 million, or 68 cents per share, the St. Louis-based company said. Revenue fell to $615 million from $769.5 million.

Analysts were expecting 4 cents per share on revenue of $605.1 million, according to Thomson Reuters I/B/E/S.

Arch said it sold 29.1 million tons in the quarter, down from 34.8 million tons in the same quarter of 2008, but an improvement on 27.4 million in the second quarter. The average sales price slipped to $20.05 from $20.38 a year earlier, but was higher than the $19.43 in the second quarter.

In July, with coal prices slumping, Arch lowered its sales volume estimate for this year to between 114 million and 118 million tons. It said on Friday it now expects sales volume in the 121 million to 125 million ton range. Last year Arch sold 137.8 million tons of coal.

It expects full-year 2009 earnings in the range of 28 cents to 43 cents per share. Analysts currently expect 31 cents.

Leer said Arch's third-quarter results were an improvement over the second quarter. "We achieved margin expansion in each operating segment, driven by increased metallurgical coal demand in Central Appalachia and continued successful cost control across all regions."

Arch completed the acquisition of Jacobs Ranch mine on Oct. 1, for about $764 million, which includes an estimate for working capital adjustments. The company estimates synergies from the transaction of between $45 million and $55 million annually, beginning in 2010.

About one-half of the synergies represent operational cost savings, while the remaining savings relate to administrative cost reductions as well as enhanced coal-blending optimization opportunities.

During the fourth quarter, Arch said it expects to record about $8 million of one-time acquisition-related expenses.