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XMFSinchiruna (26.41)

Joy Global quarterly results provide excellent confirmation the commodity bull remains strong!!!



September 03, 2008 – Comments (8) | RELATED TICKERS: JOY

I have an article on these earnings coming out shortly, but the strength of the management's discussion regarding the overall health of global demand for commodities of all kinds across every geographic region is significant enough, given the current market sentiment, that I wanted to post the discussion here for Fools to consider carefully before they run for the exits. Here we have evidence of continued robust demand with a solid outlook for years to come, whereas those reports decrying the end of the line for the Chinese growth story, etc. have furnished me with no such evidence. Sure... the liquidation of a large hedge fund that was long commodities will create a big sell-off under any circumstances, but provided the underlying strength of global demands remains, such a sell-off presents nothing more than an opportunity.

Joy Global Inc. Announces Fiscal 2008 Third Quarter Operating Results

Sep 3, 2008 (GlobeNewswire via COMTEX News Network) --

* Record-high new orders of $1.5 billion
* Sales of $904 million, up 45% over the prior-year period
* EPS of $1.03, inclusive of a $0.22 benefit related primarily to
the realization of foreign tax credits
* Operating cash flow of $142 million

Continued Positive Long Term Market Outlook

The Company continues to see strong demand for its equipment based on the fundamentals of commodity demand versus supply and customer investments in productivity and capacity expansion. This view is consistent across all geographies and all commodities that the Company serves. Although there has been recent softening in the prices of exchange-traded commodities, the spot prices for physical delivery continue to remain strong and stay significantly above comparable benchmark and contract prices. Commodity end users, such as power generators and steel companies, are expanding their investment in mining companies to lock in surety of supply and as a hedge against future commodity price increases. Consolidation continues in the mining industry, as the Company's customers seek the critical mass needed to take on larger, green field projects to meet the growing demand for commodities over the long term.

Worldwide demand for steel should continue to grow at 4-5% per year over the next five years, driven by the industrialization of the emerging markets. Demand in China and India should continue to grow near or into double-digit rates over this period. This growth exceeds the capacity of both iron ore and metallurgical coal producers. Benchmark prices for these commodities have roughly doubled and tripled, respectively, and are expected to rise further next year. As a result, the Company's customers are making significant investment to accelerate new capacity in these commodities.

Seaborne traded thermal coal demand has been largely driven by the electrification of the emerging markets. Earlier this year, the Company saw evidence that supply was not meeting demand as stockpile levels depleted in China, India and South Africa. Stockpile levels in South Africa have improved at the expense of exports, but still remain at less than half the targeted levels. Thermal coal demand in China continues to exceed supply, resulting in stockpile levels staying below three days. Demand continues to grow in China, with 80 new generating plants scheduled to come on line this year. In response, China is reducing export licenses for the remainder of this year to about half the year ago level and has added a 10% tariff to thermal coal exports to further limit outflow from the country.

Seaborne traded thermal coal supply is further exasperated by export restrictions from tradition coal exporting countries. Indonesia has halted exports by six of its coal producers. Australia is expanding its rail and port capacity, but significant relief is not expected before 2010. As a result, seaborne traded thermal coal continues to trade above its benchmark price and the supply deficit is expected to continue for several more years.

The U.S. is the only coal producing region with upside capacity in the near term, and has become the swing supplier to the international market. Exports last year were 59 million tons and are running about 50% above last year through the first half of 2008. As a result, the export prices are setting pricing levels in the U.S. market, with Eastern coal selling at prices around two-and-a-half times year-ago levels. At the same time, power generation in the U.S. is up 1.7% from the previous twelve-month period. Stockpile levels were staying above 50 days, but heavy cooling demand this summer has reduced that to 45 days. There are 29 new coal fueled power plants under construction in the U.S. Of this, 14 gigawatts will come on line by the end of 2009 and an additional 8 gigawatts will come on line by 2013, adding about 80 million tons of coal demand. The Company has consistently supported the fact that coal is essential to meeting this country's future energy needs and that coal-to-liquids with carbon capture and storage technologies are important to delivering that essential energy with a cost advantage and a competitive carbon footprint. The recent focus on energy prices and the effects of wealth transfer have broadened the understanding and support for the critical role that coal must play in our energy future.

Copper prices have weakened to six-month lows. The Company believes that much of the softness is due to normal seasonal factors and restricted industrial activity in China in the build-up to the Olympics, but also acknowledges impact from the weak U.S. economy and the slowing economies of Europe and Japan. Despite weaker prices, there has been little change in inventories because copper production is down 3.5% due to labor, weather, declining grades and other operational problems. Copper expansion requires long lead times, and the Company's copper mining customers continue to pursue mine expansion projects and purchase equipment in anticipation of the extra supply that will be needed in 2010 and beyond, when these projects begin to come on line.

The oil sands region continues to grow at high rates. Investment in oil sands projects is expected to reach $20 billion this year, almost double the investment rate of just three years ago. To support this growth, the Company has major expansion projects underway in both Edmonton and Ft. McMurray that will more than double capability to support the Company's current and growing fleet of its equipment in this region.

The strength of these market fundamentals, combined with the specific projects and prospects that are jointly being discussed with various customers, convinces the Company that the demand for its equipment will remain strong for several more years.

Updated Forward Guidance for Fiscal Year 2008

"Despite orders that have set new records for the past several quarters, the list of qualified prospects continues to remain very strong," Sutherlin commented. "We believe the recent order rates reflect an effort to achieve surety of equipment supply and expect that future order rates will begin to moderate to a more sustainable level. However, we also expect the sustainable order rate to remain well above the current industry capacity. As a result, we are continuing our program of expanding realizable capacity.

"As we approach the end of our fiscal year, available capacity to increase revenues remains limited and in line with our expectations when we last issued guidance. However, we expect our operating leverage to return to the 20% range in the fourth quarter. And although we expect Continental's margins to improve significantly over the next several years, the weighting effect of its current margins resets the base for future margin improvement. We therefore expect operating earnings to remain in the range we previously guided, but are adjusting earnings per share to reflect the discrete tax adjustment we realized in this quarter. As a result, we continue to expect revenues to be between $3.3 and $3.4 billion and now expect earnings per fully diluted share to increase from the previous range of $3.15 to $3.30 to the new range from $3.37 to $3.52."


MILWAUKEE, Sept. 3, 2008 (GLOBE NEWSWIRE) -- Joy Global Inc. (Nasdaq:JOYG), a worldwide leader in high-productivity mining solutions, today reported results for the 2008 fiscal third quarter ended August 1, 2008. Net sales for the quarter were $904 million, up 45% from the same quarter of last year. Operating profit increased from $110 million in the third quarter of last year to $134 million in the current quarter. Operating income was adversely affected by charges for purchase accounting associated with the acquisition of Continental Global Group ("Continental"), the extension of the union contract at the P&H Milwaukee operations, foreign exchange movements, and operating costs that include start-up of the P&H China factory and acceleration of certain R&D programs. Net income was $113 million, or $1.03 per fully diluted share, compared to $73 million, or $0.66 per share in the year-ago quarter. Net income in the current quarter benefited from the realization of foreign tax credits of $24 million, or $0.22 per share.

"Our results for the third quarter reflect exceptional demand for our surface and underground mining equipment and services," said Mike Sutherlin, president and chief executive officer of Joy Global Inc. "Bookings for the current quarter were a record-high $1.5 billion, with quarterly orders averaging over $1 billion for the last four quarters. The latter supports our view of the long-term strength for equipment demand as our customers continue to expand mine production to fill the gap between available supply and growing demand. Our capacity expansion programs are beginning to deliver results, with 32% revenue growth in the quarter before adding in Continental. Despite record revenues, our backlogs have extended, and we continue to increase our capacity expansion plans to meet the needs of our customers.

"I am pleased to highlight several significant additional accomplishments during the quarter. We not only reached agreement on the P&H Milwaukee union contract reopener, but were able to extend that contract to August 2012 to provide cost and performance stability for four more years. Continental's third quarter reported results improved sequentially from the second quarter and were in line with our expectations. Also, we recently announced that we had entered into an agreement for our first acquisition in China with the proposed purchase of Wuxi Shengda, a manufacturer of longwall shearing machines. This acquisition will provide us access to the middle-tier provincial mining companies in China and is a platform for future growth in this major market segment."

Third Quarter Operating Results

Order bookings in the third quarter increased by 139% from the prior year to $1.5 billion, reflecting the combination of continued strength in the international markets and a resurgence of the U.S. underground coal market. Orders for original equipment increased more than threefold, while aftermarket orders were up strongly at 40%.

Underground equipment orders at Joy increased 89% to a record $743 million in the quarter. Order growth was led by the U.S., with Australia and South Africa also posting meaningful order increases. Although orders were up significantly in all product categories, they increased most strongly in room and pillar products, reflecting acceleration of mine expansion programs by the Company's domestic customers to take advantage of exceptional demand and pricing as the U.S. continues to grow its coal exports. Surface equipment orders at P&H increased 174% to a record $645 million in the quarter. Original equipment orders were up over sevenfold, and shovel orders were broadly based, with bookings in North and South America and in Australia. When delivered, those shovels will mine coal, copper, iron ore, oil sands, gold and phosphate. Continental booked $113 million of conveyor orders in the quarter, led by orders from Australasia and Eurasia (does not include China).

Sales in the quarter were up 45% from last year to $904 million -- also a Company record. Sales growth was strong in both original equipment and aftermarket products and services, which were up 61% and 35%, respectively.

Underground revenues at Joy increased by 31% over last year's quarter to $453 million. Revenue increases were significant in both original equipment and aftermarket, with respective increases of 45% and 19%. Despite solid revenue increases in Eurasia and South Africa, the U.S. contributed 48% of the total revenue growth in response to exceptionally strong demand. Surface revenues were up 33% from the prior year to $366 million. Revenues were up 41% in original equipment and 29% in aftermarket. Revenue growth was greatest in North and South America and in the international business unit covering Europe, Africa and Asia. During the quarter, P&H started up its first factory in Tianjin, China, and will be increasing to full production over the next six to nine months. P&H's second factory in Tianjin is on schedule to come on line and ramp up about a year following its first. The Continental conveyor product line contributed $85 million to third quarter revenues.

8 Comments – Post Your Own

#1) On September 03, 2008 at 2:33 PM, DemonDoug (31.45) wrote:

Sinchi, I love love love copper right now.  PCU near 52 week lows.  Give it another week, if PCU breaks below 20, I might finally have the dip that I've been looking for.

I'm also bullish on all hard assets.  In fact, the more oil and gold drop, the more bullish I get.

I find it astounding that JOYG had all these blockbuster earnings, and the stock is down 20%!!!  Usually these things run a few days, so I wouldn't be surprised to see it break below 50, which starts to give you a nice little dividend yield at the below 50 mark (1.4% yield at 50).

As bullish I am on commodities, at this time I actually don't directly own any mining or mining-related stocks - thanks for the heads up, this one definitely looks like a winner.

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#2) On September 03, 2008 at 2:55 PM, Zanibel17 (92.38) wrote:

Sinchiruna, these metals and mining picks are killing your score.  Don't you want to, I don't know, diversify?

I'm a big fan, don't get me wrong.  If you are right you will be number one, but you have sacrificed a ton of points in the short-run.

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#3) On September 03, 2008 at 3:28 PM, kdakota630 (28.93) wrote:

Excellent blog, and very reassuring regarding my own investments.

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#4) On September 03, 2008 at 3:38 PM, LordZ wrote:

Whats sad is no longer is the actualization of profts or losses more important than the potential actualizations, big money seems to be betting so far ahead that reality seems to get distorted, so when they sold into strength all the while now they are shorting that which they previously held long.


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#5) On September 03, 2008 at 4:53 PM, WillSurfForFood (66.70) wrote:

Nice blog. I understand why natural gas and oil companies have been punished recently but it has been suprising how every stock related to a commodity has been punished as well. It is really difficult to find a reason for some of these moves. It seems like July was a time of correction for some commodites and September will be the month of the commodity hedge funds blowing up. I think I will wait a little longer and hold on to some cash for now. 

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#6) On September 03, 2008 at 7:03 PM, abitare (29.90) wrote:

Unless there is a greater war, commodities will be crushed by a global recession. No consumption, no building, reduced  demand for commodities, that is the current reality.

Deflation Nation and frugality is the new reality. I would set a stop loss or make you best guess on the odds of the greater war.

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#7) On September 03, 2008 at 8:30 PM, nuf2bdangrus (< 20) wrote:

I've got a limit order for 50 in.  Small position.  The market has been taking way too much of my $ and I am getting nervous and small being short financials and long energy on the pullback.

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#8) On September 06, 2008 at 9:20 AM, UPEH (27.23) wrote:

Looks like you are filled nuf2... good luck.   Long term fundamentals may be fine, but short term price action says the sellers have the power.  Remember your trade timeframe and don't forget to use stops.  Cheers!

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