This summary is based on the second quarter fiscal 2008 earnings call conducted by Joy Global Inc. (JOYG) on May 29, 2008.
Management:
President and CEO: Michael W Sutherlin
VPresident and Chief Accounting Officer: Michael S Olsen
VP, IR and Corporate Communications: Sara Leuchter Wilkins
Key Investor Issues:
- Quarterly net sales rose 34% year-over-year to $843 million.
- The EPS dropped from 70 cents in the year ago quarter to 66 cents.
- The full year revenue is forecast to be in the range of $3.3 billion to $3.4 billion.
Second-Quarter Financial Highlights:
The Q2 orders were record high on the back of strengthened conditions in the U.S. coal market and continued growing demand from the international markets.
- The original equipment orders more than doubled, increasing 119%.
- The aftermarket orders firmed 30% from the previous year.
- Excluding Continental Global Group, the original equipment orders grew 102% and aftermarket orders increased 22%.
- The management advised that Continental does not have prior-year comparable.
- The underground orders increased 31% to a record $589 million led by order rates that more than doubled in the Americas, Eurasia and South Africa.
- Lower order rate growth in other regions was a result of normal lumpiness particularly in the international markets and does not change the company’s outlook.
- The surface orders at P&H more than doubled to a new record level of $557 million led by North and South America shovel orders booked for coal, cooper and iron ore markets.
The business associated with the Continental acquisition contributed $87 million to bookings in the 2008 second quarter.
- This is despite the inclusion of results for only 11 of the 13 reporting weeks in the company’s second fiscal quarter and included the first system order to Russia.
- The results demonstrate the benefit of selling integrated solutions to established Joy underground and P&H surface customers.
- The company reported that backlog increased by $900 million from a year ago to $2.4 billion.
- This includes $133 million of backlog inherited from the Continental acquisition.
The quarterly sales grew 34% to $843 million.
- This reflects a 59% increase in original equipment sales and a 22% increase in aftermarket sales versus the last year period.
- Excluding the results of Continental, revenue growth was 22% compared with last year with original and aftermarket sales 40% and 14% stronger respectively.
- The P&H surface sales firmed 37% year-over-year to $365 million due to the contribution of prior capacity investments and ongoing internal process improvements.
- The company’s underground sales increased 12% to $406 million.
- Despite the underground order rate for original equipment improving significantly versus the prior year period, the order-to-delivery lead time delayed the impact on shipments into subsequent quarters.
- The Continental acquisition added $73 million of sales during the quarter.
The quarterly operating income decreased to $114 million or 13.6% of sales.
- This is inclusive of pre-tax charges of $21 million related to the early termination of a maintenance and repair contract and purchase accounting charges of $11.1 million from the Continental acquisition.
- This is in comparison with operating income of $122 million or 19.3% of sales in the prior year period.
- The current quarter also incorporated lower overall margins from the Continental business.
- The remaining decline in margins is largely at Joy Mining and due to an exceptionally strong result in the last year’s comparable quarter.
- Favorable adjustments on a major project close-out added to the company’s prior year quarter operating profit margin, pushing it to an exceptional 22.5%.
- The company’s current margin performance of 20.4% was in line with internal forecasts and reflects continued strong earnings performance.
- The operating profit margins at P&H before the contract termination charges were essentially flat versus last year. This was a result of higher expenses associated with engineering on an Ultra Class dragline and a mobile in-pit crusher, coupled with expenses related to the current summer’s start up of the next factory on the Tianjin, China campus.
- Excluding the purchase accounting orders, Continental delivered operating margins of 12%.
The selling, administrative and product development expense was $108 million during the quarter.
- This represents 12.8% of sales versus $89 million or 14.1% of sales in the last year quarter.
- Other significant sources of expense increases included $8.4 million related to the Continental acquisitions, $2.4 million of unfavorable foreign exchange impact and $2.2 million of increased incentive-based compensation.
The quarterly effective income tax rate was 33.5%.
