Joy Global (JOYG) posted an EPS of $1.21 for the third quarter FY 2009, surpassing the Zacks Consensus Estimate of 96 cents and $1.03 recorded in the year-ago quarter, primarily driven by better pricing, improved supply chain management and cost control measures.

Operating margin for the quarter expanded to 20% from 15% posted during the corresponding period of last year due to operational efficiency and favorable manufacturing variances.

Revenues grew 6% y-o-y to $956 million as a result of 19% growth in the Underground Mining Machinery segment — more than offsetting 8% and 10% decline in the Surface Mining Equipment and the Crushing & Conveying segments, respectively. Original equipment sales increased 19%, largely due to good execution of the strong backlog, primarily in the United States and South Africa.

However, after-market sales fell 4%, resulting from flat Underground Equipment business and slightly lower Surface Mining Equipment and Crushing and Conveying businesses. Domestic sales grew 28%, whereas international sales fell 12%.

New order bookings dropped 57% to $644 million (net of cancellations worth $39 million), largely driven by lower demand from commodity producers across the world who continued to curb production and delay new projects amid the present challenging business environment. The order backlog stood at $1.8 billion at the end of the quarter, compared to $2.7 billion a year ago.

Joy Global management is cautiously optimistic about the road ahead. They are hopeful of achieving the FY 2009 revenue guidance of $3.5-$3.6 billion declared earlier, but predict a decline in revenues in the next fiscal year. They anticipate new orders to remain almost 30% lower compared to current shipping levels and do not see recovery before the second half of 2010.

However, management is confident of reaping benefits from ongoing Operational Excellence programs and cost-saving initiatives. They have raised the EPS guidance for the current fiscal to $4.00-$4.20 from $3.80-$4.00 indicated previously. During the quarter, Joy Global had accomplished a significant reduction in inventory levels and expects to continue the momentum going forward. We maintain our Neutral recommendation for the company.
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