Joy Global Incorporation (JOYG) reported adjusted earnings of 96 cents per share in the first quarter of fiscal 2011, compared with 73 cents per share in the year-ago quarter. The results of the company were a dime short of the Zacks Consensus expectation.
Total Revenue
Joy Global reported net sales of $869.5 million in the relevant quarter, up 19.2% from $729.2 million in the year-earlier period. The growth was driven by higher contribution from Underground Mining Machinery (up 20.6%) and Surface Mining Equipment (up 17.6%), while eliminations were a marginal drag on total revenue.
Underground original equipment orders improved due to increased orders for longwall and room and pillar equipment in the United States and Australia while orders for Surface business original equipment remained essentially over the sequentially preceding quarter.
The Underground aftermarket equipment business benefited from increased parts demand across all regions of operations, but machine rebuilds booking trailed quarter over quarter.
Net sales in the relevant quarter came in lower than the Zacks Consensus forecast of $879 million.
Quarter Highlights
Booking in the first quarter of fiscal 2011 rose a sharp 18% over the previous quarter. The order book was strong for both the company’s original equipment and aftermarket businesses. The increase in demand, particularly for aftermarket services, is an encouraging sign implying that customers are steeping up production to meet growing demand.
During the first quarter of fiscal 2011, cost of sales climbed 16.2% to $584.1 million from $502.4 million a year ago. However, as a percentage of total revenue, cost of sales improved 172 basis points year over year.
Similarly, selling and administrative expenses rose 20% from the previous year, but as a percentage of total revenue grew only by 11 basis points.
The growth in sales during the quarter coupled with relatively lower expense levels helped the operating results of the company.
Operating income shot up 30.8% year over year, mainly due to positive price realization on improved overhead absorption. A favorable mix effect with a higher proportion of aftermarket sales also aided growth.
Interest expenses during the quarter were $4.38 million, down from $4.59 million reported in the comparable quarter last year.
Financial Update
Cash and cash equivalents of Joy Global as of January 28, 2011, were $819.5 million versus $505.1 million as of January 29, 2010.
Cash (used for)/ provided by operating activities was ($6.97 million) in the first quarter of fiscal 2011 versus $59.39 million in the first quarter of fiscal 2010. The year-over-year decline was due to increase in payments and change in inventories.
Capital expenditure at Joy Global for the first quarter was $28 million, precisely doubling the spend in the year-ago quarter. The noticeable rise in capital spending is part of the company’s plans for the year to increase its global capacity and new service centers in key growth markets.
Guidance
Joy Global expects an increase in demand for mining equipment and aftermarket services as its customers increase their production levels and add to their mine expansion plans.
The company expects its original equipment rate to increase modestly in the first half of fiscal 2011 and more aggressively in the second half, when compared to the prior year.
The company forecasts fiscal 2011 revenues in the range of $4.0 billion to $4.2 billion, while earnings per share are expected in the vicinity of $5.10 to $5.40.
Peer Comparison
Joy Global competes head-to-head with the industry behemoth Caterpillar Inc. (CAT). Caterpillar’s fourth-quarter adjusted EPS increased almost four fold to $1.47 and fiscal 2010 adjusted EPS almost doubled to $4.15 from the prior-year comparable periods.
Both the fourth quarter and fiscal year EPS outperformed the respective Zacks Consensus Estimates of $1.27 and $4.01.
Our View
The company ended the first quarter 2011 with a backlog of $2.17 billion versus $1.54 billion in the first quarter 2010 and $1.82 billion in fiscal 2010. It is encouraging to note that the backlog has grown for both Underground Mining and Surface Mining equipment suggesting all round growth in the mining sector.
Overall, the global commodities markets were driven by strong growth in emerging markets and recovery in industrialized economies. Moreover, China and India have announced major infrastructure projects, which are likely to drive ongoing demand for coal, copper and iron ore.
Despite the competitive presence of Caterpillar, we believe the market is large enough for Joy Global to benefit from increasing demands from emerging markets.
Joy Global currently retains a Zacks #2 Rank (short-term Buy rating).
Mining equipment manufacturer and service provider Joy Global Inc. is based in Milwaukee, Wisconsin. The company caters to its global consumers and provides manufacturing, distributing and servicing equipment for surface mining, through its P&H Mining Equipment division, underground mining, through its Joy Mining Machinery division and bulk material conveyor systems, through its Continental Crushing & Conveying division.
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