UPDATE 2-Foundation Coal Q1 earnings fall, trail Wall Street

(Recasts, adds details, analyst comments)

By Hezron Selvi

BANGALORE, April 23 (Reuters) - Foundation Coal Holdings Inc (FCL.N: Quote, Profile, Research) reported a drop in first-quarter earnings, trailing market estimates, as it was hurt by a delay in the start-up of production in a new part of its Emerald Mine, arbitrage transactions and higher fuel, royalty and labor expenses.

The company reported first-quarter net income of $6.1 million, or 13 cents a share, compared with $24.6 million, or 53 cents a share, a year earlier.

Excluding special items, earnings were 19 cents a share. Revenue rose 4.4 percent to $412.3 million.

The longer-than-expected ramp-up period on the second longwall at the company's Emerald Mine reduced net income by about 10 cents a share, the company said in a statement.

"The start-up of the new longwall... just took a little bit longer than what they anticipated... In the coal world that's just kind of how it works... Coal generally is a pretty challenging business," Gordon Howald, an energy analyst with Calyon Securities, said from New York.

Arbitrage transactions cut into net income by about 7 cents a share, the company said in a statement.

In a research note, analyst Paul Forward of Stifel, Nicolaus & Company said the 7 cents charge was related to a coal purchase in Northern Appalachia that allowed Foundation to divert its coal production to high-priced spot markets later in 2008.