Tough times eat away at Joy Global’s business

Difficult markets put Joy Global Inc’s (NYSE: JOY) order book under stress in the fiscal fourth quarter, sending the company’s net income from continuing operations plunging 87% to US$26.8 million, or 25¢ per share, down from US$212.4 million or US$1.99 per share in the year-earlier period.

Management attributed its weaker financial results to a toxic combination of supply surpluses in the major commodity markets it serves (after several years of investment in production capacity), lower prices for industrial metals and bulk commodities (that have fallen 20%-40% during the last 18 months), declining industry capex, and disappointing economic growth.  

Orders in the fiscal fourth quarter ended Oct. 25 fell 19% to US$1.1 billion from the year-earlier period. Original equipment orders fell a year-on-year 38% to US$364.6 million and after-market orders declined 3% to US$711.5 million.

Revenues dropped 26% to US$1.18 billion. Excluding a US$155 million asset impairment charge and other unusual items, the company earned US$1.11 per share.

President and CEO Mike Sutherlin commented in prepared remarks that although the company booked a major longwall project as it had expected in the fiscal fourth quarter ended Oct. 25, “there are fewer other projects moving forward which meet today’s stringent criteria of operating on the lower half of the global cost curve.” He also noted that “with a limited number of projects that can book in time to help 2014,” the company will continue to look for ways to lower its cost base.

Looking ahead, Ted Doheny, the company’s executive vice president and CEO-designee, forecasts  fiscal 2014 revenues of between US$3.6 billion and US$3.8 billion, with earnings per fully diluted share, excluding restructuring and unusual items, in the range of US$3.00-$3.50 per share.

“Although we believe our markets overall will begin to improve in 2014, the timing is difficult to predict,” he said in prepared remarks published in a press release. “Until a sustained demand catalyst emerges, we expect our customers will continue to be cautious and selective in deploying capex.”

On the bright side, Joy Global’s service bookings rate, while “still uneven,” appears “to have stabilized and should return to growth over the coming years as the machines delivered to the market between 2009 and 2012 begin to cycle through their periods of higher parts consumption and rebuilds.”