Joy Global Incorporation (JOY) reported adjusted earnings of $1.26 per share in the first quarter of fiscal 2012, compared with 99 cents per share in the year-ago quarter. The results of the company were a dime short of the Zacks Consensus expectation.

GAAP earnings per share in the quarter were $1.33 versus 96 cents in the first quarter of fiscal 2011.

Total Revenue

Joy Global reported net sales of $1,136.2 million in the relevant quarter, up 30.7% from $869.5 million in the year-earlier period. The growth was driven by higher contribution from Underground Mining Machinery (up 25.1%) and Surface Mining Equipment (up 38.1%), while eliminations were a marginal drag on total revenue.

The net sales from the Underground Mining Machinery increased 23% year over year excluding the impact of International Mining Machinery (IMM), as the demand was driven by international demand. Similarly, net sales at the Surface Mining Equipment excluding LeTourneau, increased 18% year over year, driven by aftermarket as well as well Original Equipment Revenues.

Net sales in the relevant quarter came in lower than the Zacks Consensus forecast of $1,153 million.

Quarter Highlights

Booking in the first quarter of fiscal 2011 rose a sharp 16.8% 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 2012, cost of sales climbed 32.2% to $772.8 million from $584.1 million a year ago. Similarly, selling and administrative expenses rose 29.7% from the previous year.

Despite year-over-year growth in costs, the operating income increased 39.0% year over year mainly due to higher sales volume and positive price realization on improved overhead absorption.

Interest expenses during the quarter were $16 million, a four-fold increase over the prior-year quarter. The hike in interest expenses was primarily due to increased borrowings of the company needed to fund the acquisition of LeTourneau and IMM.

Financial Update

Cash and cash equivalents of Joy Global as of January 27, 2012, were $283.2 million versus $288.3 million as of January 28, 2011.

Cash used in operating activities was $14.14 million in the first quarter of fiscal 2012 versus $6.97 million in the first quarter of fiscal 2011. The year-over-year increase in usage was due to increase in payments and change in inventories.

Capital expenditure at Joy Global for the first quarter was $49 million, versus $28 million spent in the year-ago quarter. The noticeable rise in capital spending was due to the company’s plans for the year to increase its global capacity and cater to increasing demands in the key growth markets.


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.

With the addition of IMM in its portfolio the company now expects its total revenue for 2012 to be in the range of $5.6 billion to $5.8 billion and earnings per share to be in the range of $7.40 to $7.80.

Peer Comparison

Joy Global competes head-to-head with the industry behemoth Caterpillar Inc. (CAT). Caterpillar’s fourth-quarter 2011 adjusted EPS was $2.25 versus $1.47 in previous year quarter. The profit far exceeded the Zacks Consensus Estimate of $1.73 per share.

Caterpillar recorded an impressive 88% rise in profits to $7.79 per share in 2011 from $4.15 per share in the previous year due to record sales, excluding the impact of acquisition of Bucyrus. This compared favorably with the Zacks Consensus Estimate of $6.80 per share.

Our View

Even though the company failed to surpass our expectation for revenue and earnings per share, the future prospects of the company look quite positive. The 15% year over year increase of capital expenditure by the international mining customers should boost prospects of the company.

The growth for mining equipments will be driven by increasing demand from China, Australia, Russia, South America and Africa. We believe the ongoing increase in demand for coal, copper and iron ore in a global scale will lead to increasing mining and hence drive the demand for mining equipments.

The company ended the first quarter of fiscal 2012 with a backlog of $3.6 billion versus $3.3 billion at the beginning of the fiscal 2012. 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.

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, which translates into a 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.

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