When holding on to underperforming stocks, investors often wonder, "is this the bottom?". Given the continual decline of coal stocks over the past several years, there has been a veritable cottage industry of bottom-callers for coal stocks. Article after article ponders whether the latest event marks the bottom for the sector. And time after time, the bottom-callers have been wrong. Coal stocks continue to trend lower as the U.S. coal industry suffers from oversupply and high production costs. 

But even in the worst climate, there is the occasional good news that makes one wonder whether an event truly marks the bottom, and in Alpha Natural Resources' (NYSE: ANR) case, it seems that the good news came this quarter.

First quarter earnings 
If one removes the effect of a one-time sale, Alpha Natural Resources' earnings were on the surface not very impressive.

Revenue for the quarter came in at $1.1 billion, down 16.5% year over year, mainly due to lower realized prices for thermal and metallurgical coal. 

Adjusted earnings came in at $0.07 per share, beating consensus analyst estimates by $0.65 and adjusted EBITDA came in at $289 million, increasing from $117 million for this time last year. 

Adjusted earnings and adjusted EBITDA were higher mainly because the company booked a $250 million gain with the exchange of its Alpha Shale joint venture with Rice Energy. That one-time gain is not sustainable.

The good news from earnings is that Alpha Natural Resources' efforts at containing costs have been relatively successful  - total expense for the quarter was only $1.3 billion versus $1.5 billion this time last year. 

Expenses were lower in part due to the company's lower cost of production. The company's adjusted cost of coal sales in the East, for example, decreased to $65.73/ton in the first quarter from $69.33/ton last year. By containing costs, the company should be in better position to weather any further downturn. 

Potential bottom in metallurgical prices
Another piece of good news for all metallurgical miners -- including Walter Industries (WLTGQ) -- is that Alpha Natural Resources believes that metallurgical coal prices have bottomed and may rally beginning in 2015. 

The company believes that metallurgical coal prices have bottomed because there has been a substantial round of supply cuts in Canada, the U.S., and Australia. Since the beginning of 2014, coal miners have made commitments to take a cumulative total of more than 10 million tons of metallurgical coal production offline. 

Alpha Natural Resources itself, for example, expects to ship only 15 to 18 million tons of metallurgical coal this year versus the 16 to 20 million tons that the company previously guided for. 

With metallurgical prices weak, there could be more cuts in the near future. Once those supply cuts are made, supply and demand may reach equilibrium at a higher price level.

The bottom line
Even with the positive earnings report and forecast that metallurgical coal prices have bottomed, it is uncertain whether the bottom is in for Alpha Natural Resources. With the Chinese economy weak and Europe recovering from a recession, conditions in the coal industry remain difficult.

The best that coal miners can do is play good defense by containing costs and cutting capital expenditures. Alpha Natural Resources certainly did that this quarter. The good news is that if the company is right about metallurgical coal prices bottoming, it may not have to wait long for the eventual rebound, whenever that might be.