UPDATE 1-International Coal Q3 profit up, cuts '10 shipment view

* Q3 EPS $0.12 vs yr-ago EPS $0.06

* Q3 net includes $27 mln gain

* Q3 revenue drops 4 pct to $296.6 mln

* Cuts 2010 production and shipment estimates

Oct 28 (Reuters) - International Coal Group Inc (ICO.N) posted higher third-quarter earnings, on gains from the termination of two supply agreements and higher margins, but cut its 2010 production and shipment forecasts citing continued weakness in coal demand.

For 2010, the company now expects to sell 16.5 million to 18 million tons of coal, on production of 16 million to 17 million tons.

The company had earlier forecast sales of 18 million to 19 million tons of coal, while production was expected to total 17.3 million to 18.3 million tons.

"We believe that 2010 could be a balancing year for coal demand that sets the stage for a much stronger market in 2011," Chief Executive Ben Hatfield said in a statement.

In the third quarter, the company posted a net income of $18.7 million, or 12 cents a share, compared with $9.3 million, or 6 cents a share, a year ago.

The company said its quarterly results included a $27 million payment received for the early termination of two related coal supply agreements.

Revenue dropped 4 percent to $296.6 million.

Analysts on average expected earnings of 4 cents a share, before items, on revenue of $293.1 million, according to Thomson Reuters I/B/E/S.

For 2009, the company expects to sell about 17.3 million tons to 17.5 million tons of coal on production of about 16.4 million to 16.6 million tons.

During the quarter, the company said it idled 400,000 annual tons of higher-cost production at its East Kentucky complex and reduced work schedules at several other locations.

In early October, the company cut an additional 500,000 tons at its Eastern complex.

Shares of the Scott Depot, West Virginia-based company closed at $4.13 Wednesday on the New York Stock Exchange. (Reporting by Antonita Madonna Devotta in Bangalore; Editing by Unnikrishnan Nair)