Neighboring cells in topographical sensory maps may transmit similar information to the next higher level of processing. How information transmission by groups of nearby neurons compares with the performance of single cells is a very important question for understanding the functioning of the nervous system. To tackle this problem, we quantified stimulus-encoding and feature extraction performance by pairs of simultaneously recorded electrosensory pyramidal cells in the hindbrain of weakly electric fish. These cells constitute the output neurons of the first central nervous stage of electrosensory processing. Using random amplitude modulations (RAMs) of a mimic of the fish's own electric field within behaviorally relevant frequency bands, we found that pyramidal cells with overlapping receptive fields exhibit strong stimulus-induced correlations. To quantify the encoding of the RAM time course, we estimated the stimuli from simultaneously recorded spike trains and found significant improvements over single spike trains. The quality of stimulus reconstruction, however, was still inferior to the one measured for single primary sensory afferents. In an analysis of feature extraction, we found that spikes of pyramidal cell pairs coinciding within a time window of a few milliseconds performed significantly better at detecting upstrokes and downstrokes of the stimulus compared with isolated spikes and even spike bursts of single cells. Coincident spikes can thus be considered "distributed bursts." Our results suggest that stimulus encoding by primary sensory afferents is transformed into feature extraction at the next processing stage. There, stimulus-induced coincident activity can improve the extraction of behaviorally relevant features from the stimulus.