This summary is based on the first quarter fiscal 2008 earnings call conducted by Joy Global Inc. (JOYG) on March 6, 2008.
Management:
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Sr. VP and Chief Accounting Officer: Michael S. Olsen
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CEO and President: Michael W. Sutherlin
Key Investors Issues
- Net sales of $640 million represented a 14% increase from $560.5 million a year ago.
- Net income was up 19.1% to $71.1 million or 66 cents a share, from $59.7 million or 52 cents in 2007.
- The company completed its acquisition of N.E.S. Investment Co. and its subsidiary Continental Global Group Inc. on February the 14th.
First Quarter Highlights
New orders totaled $870 million and were over 50% higher than the first quarter last year.
- New order activity was strong in substantially all of the company''s products as reflected by a $125 million complete longwall system order in Australia and a powered roof support in Russia.
- Activity was also driven by continued strength for electric mining shovels, increases in continuous miner in shuttle car orders in the United States and 44% and 16% increases in surface and underground aftermarket businesses respectively.
- The breadth of the favorable new order activity bodes well for the rest of 2008 and beyond, as for the second quarter in a row backlog increased by $230 million.
Joy Global’s net sales of $640 million represented a 14% increase from $560.5 million a year ago due to a 24% increase for surface mining equipment products and a 7% increase for underground mining machinery product.
- The increase in the surface business reflected a similar increase for both original equipment and aftermarket products as the benefits of capacity increase initiative begin to be realized.
- For the underground business a 12% increase in aftermarket products was tempered by flat original equipment sales.
- Operating profit as a percentage of net sales was 17.4% compared to 16.8% a year ago and additionally, a 21.5% return on incremental sales was achieved during the current quarter.
- Favorable price realization, product mix and benefits from product cost reduction initiatives all contributed to this improvement.
Net income increased 19.1% to $71.1 million or 66 cents a share, from $59.7 million or 52 cents a share as a result of a continued improvement in product margins and a favorable aftermarket mix.
- Selling, administrative and product development expense totaled $102 million, or 15.9% of sales, compared with $82 million, or 14.6% of sales in the prior year.
- Spending increases included costs to bring on-line new manufacturing capacity in China, costs to expand aftermarket service and support capabilities in several markets, costs to develop new products that will not have revenue impact until future years.
- Reorganization expense of $2 million was primarily from the settlement of a creditor claim relating to preemergence.
Additionally, results reflects the company''s continued investment in product development, the establishment and training of the service organization, growth market and the investment in operational efficiency initiative.
- Working capital less cash was just over $600 million, about $8 million less than working capital at the end of the prior year, though more work still needs to be done in achieving a more effective utilization of inventory.
- The company generated $86 million in cash from operation, assisted by advanced payments which were received with the new orders book.
- The company also purchased $12 million of its shares during the quarter, bringing its total share repurchase to $870 million under its current $1 billion repurchase program.
- The company completed its acquisition of N.E.S. Investment Co. and its subsidiary Continental Global Group Inc. on February the 14th.
Market Outlook:
- The overall outlook for mining equipment is very robust, as rains in South Africa and snows in China have increased coal demand and impaired supply, and both countries have experienced electricity power outages.
- Further, flooding in Australia has further crimped a major supply region that was already limited by rail and port constraints.
- These weather conditions have highlighted as stockpile levels of power generators had already been drawn down to dangerously low levels.
- Lack of coal burn was a contributing factor to power outages in South Africa and Eskom, the national electricity utility, has indicated that they will increase their coal purchases by 45 million metric tons over the next two years to replenish stockpiles.
Heavy snows in China came as stockpiles have been already drawn down to a 10 day average for the South China Grid.
- Increased coal burn rates forced the shutdown of 6% of the Grid''s capacity and as a result, China has mandated that coal exports be stopped until stockpiles can be replenished.
-This action by China will take another 40 million to 45 million metric tons of annual supply off the seaborne market and will widen the supply deficit.
- Although India has not experienced power outages, its coal stockpile levels have reportedly dropped to 7 days and therefore it has increased imports to replenish those stockpiles.
- In addition, India has only 135 gigawatts of electricity generating capacity and has thus announced adding 70 gigawatts of new power capacity, which will increase its coal imports to 80 million tons per annum by 2011, up from 30 million metric tons last year.
The cumulative effect of the changes in coal demand and supply in South Africa, China, India and Australia drives a wedge of an additional 50 million to 100 million metric tons into the supply deficit over the next few years.
- Korea has plans to build 10 new coal-fueled power plants, the UK has permitted its first coal-fueled power plant in 20 years and Europe is planning to build up to 60 gigawatts of new coal-fueled capacity to reduce its dependence on Russian controlled natural gas.
- Indonesia and Russia are building coal-fueled power plants to enable increases in oil and gas exports.
- Vietnam, the largest supplier to China, plans to completely reduce its 32 million metric tons of annual exports by 2015, leaving the U.S. as the only coal producing region in the world with near-term upside capacity.
