We recently reiterated our Outperform recommendation on mining equipment manufacturer, Joy Global Inc. (JOYG).
Joy Global’s primary business comprises manufacturing surface and underground mining equipment for extraction of coal, copper, iron ore, oil sands, gold and other mineral resources. The company also offers a wide range of value-added aftermarket services aimed at enhancing reliability and optimizing the work-life of machinery.
Joy Global’s operations extend to about 20 countries, providing sales and services in the U.S., Canada, Brazil, Chile, South Africa, England, Poland, Russia, India and China. The company’s international operations make for roughly 50% of its annual revenues.
Going forward, we expect Joy Global’s results to be driven by strong fundamentals in the international markets and the improving U.S. demand. These strong market fundamentals will support demand and pricing in the coming years.
We also appreciate management’s efforts to stay ahead of the curve, implementing various strategies including optimizing cost-structure, realigning production capacity with slowing demand and moving production capacity to low-cost regions. These actions taken by management are expected to improve the operational efficiency, boost profitability and solidify long-term viability of the company.
Further, Joy Global’s value-added aftermarket services provide the company a significant edge over competition. The company aims to maximize operating efficiency and the useful life of mining equipment through its aftermarket service platform.
Apart from enhancing customer satisfaction and boosting customer preference for Joy Global’s original equipment, these aftermarket services provide a stable revenue stream insulating Joy from the cyclical nature of its original equipment business.
In the third quarter of fiscal 2010, Joy Global reported adjusted earnings of $1.13 per share, ahead of the Zacks Consensus Estimate of $1.03. The company’s backlog increased to $1.8 billion at the end of the third quarter from $1.5 billion last year.
For fiscal 2010, the company expects revenues in the $3.35 to $3.4 billion range and EPS in the $4.10 to $4.15 range. The Zacks Consensus Estimates for EPS is $1.15 for the fourth quarter and $4.16 for full-year 2010.
Joy Global is scheduled to release its fiscal 2010 financial results on December 15, 2010.
Despite some signs of near-term softening in the global steel markets, particularly China, we believe the overall outlook for the mining industry remains positive for the longer-term. We believe the strong industry fundamentals will translate into robust demand over the long term. Moreover, we expect the company to benefit from its robust backlog going forward.
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