This summary is based on the second quarter fiscal 2008 earnings call conducted by Joy Global Inc. (JOYG) on May 29, 2008.
Management:
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CEO and President: Michael W. Sutherlin
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VP and Chief Accounting Officer: Michael S. Olsen
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VP, IR and Corporate Communications: Sara Leuchter Wilkins
Key Investors Issues
- Net sales were $843 million, up 34% from $629 million a year ago.
- Net income was $72.1 million or 67 cents a share, down 7.1% from $77.6 million or 71 cents a share in 2007.
- Bookings were $1.2 billion, up 64.8% from compared to $728 million in 2007.
Half Year Highlights:
- Revenues increased 24.4% from $1.19 billion in 2007 to $1.48 billion.
- Net income rose 4.4% to $143 million or $1.32 a share from $137 million or $1.22 a share in the prior year.
Second Quarter Highlights
Bookings were $1.2 billion, up 64.8% from compared to $728 million in 2007, including new orders totaling $87 million from the Continental conveyor business which was acquired during February 2008.
- Both the underground mining equipment and the surface mining equipment businesses had a record bookings quarter for new orders of $589 million and $557 million respectively.
- Excluding the benefit of the Continental booking, orders for new equipment increased 102% from last year, while the after-market bookings grew at a 22% rate.
- The recovery of the North American coal market that began a couple of quarters ago continued and strong levels of new orders outside of the U.S. were reported.
- The company''s backlog that has increased by over $200 million in each of the previous two quarters grew by over $500 million, inclusive of a $133 million of backlog associated with the Continental acquisition.
Net sales were $843 million, up 34% from $629 million a year ago, including $73 million of net sales from the Continental business on strong bookings.
- Excluding the Continental sales, net sales increased by 22% with a 40% increase in original equipment shipments and a 14% increase in after-market revenue.
- Surface mining equipment sales increased by 37% while the underground mining machinery business reported a 12% increase in net sales.
- For the underground business, the softness in new orders in the North American coal market in early 2007 adversely affected net sales in the first two quarters of the 2008 fiscal year.
- However, this segment of the market is poised to benefit from the strong level of new orders received over the last three quarters.
Net income was $72.1 million or 67 cents a share, down 7.1% from $77.6 million or 71 cents a share in 2007 due to higher cost of sales.
- The surface mining equipment business recorded a pre-tax charge of $21 million associated with the early termination of a maintenance and repair contract associated with the first installation of a 19/20 [ph] dragline put in service in 1996.
- Joy recorded two items associated with the Continental acquisition i.e purchase accounting charges reduced operating profit by $23.3 million and compares to operating profit of $121.6 million in the second quarter last year.
- Operating profit as a percentage of net sales was 13.6% and included a 4.2% reduction as a result of the items discussed above, and compares to 19.3% in 2007.
- The decrease in this percentage from a year ago was driven by the 22.5% return on sales realized by the underground mining machinery business.
Working capital was $845 million, $61 million greater than in the prior year due to the Continental acquisition along with an increase in accounts receivable associated with an increase in a number of original equipment units shipped late.
- Working capital was also affected by the increase in the inventories to support the projected growth in sales volume.
- This was offset by a $45 million improvement in advance payment received in connection with new orders and the efficient management of trade accounts payable.
Operational Insights:
- Despite the significant investments made by customers over the last five years, their increase in mine production has not kept pace with the growth in commodity demand, resulting in commodity markets being extremely tight or in supply deficit.
- Commodity demand continues to grow as the emerging markets industrialize.
- Significant infrastructure investments in a wider range of countries including Russia, Indonesia, Turkey, Dubai, and Brazil will require a very significant step up in investment to enable mine capacity to catch demand.
- Thus the firm will require a higher sustainable level of investment to ensure mine capacity grows at pace with future demand.
The coal markets have gone through an unprecedented supply shock within the past year and power plants in South Africa and China were taken offline because they ran out of coal.
- India''s average stockpile level was drawn down to seven days and China recently had 32 power plants offline again because of coal shortages.
- Adding to this wide gap is the need to replenish stockpiles to more normal levels as Eskom, the state electric utility in South Africa has announced that it will buy an additional 45 million tons of coal over the next two years.
- India has stepped up its coal imports, and China has resumed restricted exports with an effective loss of 20 to 25 million tons a year from the seaborne market.
- In addition, coal exporting countries, such as Russia, Indonesia and Thailand are increasing their domestic consumption of coal and this has limited their export capacity, hence coal markets are expected to be in deficit by 60 to 100 million tons this year.
