Let's see what is happening with Joy Global - again, I don't really care much about the current results - more interested in their macro views. We actually were negative against this name (correctly) [May 29: Joy Global with Solid Results - But I'm Not as Bullish as Everyone Else] [May 14: Deere Earnings - Why I'm Avoiding Equipment Stocks] [May 17: WSJ - Fast Rising Steel Prices Set Back Big Projects] for other reasons last spring and summer (high steel prices and petrol prices causing major stresses on their margins) but right now the opposite is happening in that arena. The stresses now are from end user demand and lack of credit availability for big ticket purchases; so we want to see how this is affecting the company and segment. Which is why I find these names interesting to follow - JOYG also puts out some nice commentary on commodity markets in its very lengthy report.
- Mining equipment maker Joy Global Inc (JOYG) posted a better-than-expected quarterly profit, helped by continued demand for its original equipment and aftermarket parts and services, but forecast 2009 results below market expectations.
- For the fourth quarter ended Oct. 31, the company posted a net income of $118 million, or $1.11 a share, compared with $70 million, or 64 cents a share, a year ago. Analysts on average expected the company to earn $1.08 a share, before items, according to Reuters Estimates.
- Joy Global said 2009 revenue may be reduced by $300 million and operating earnings by as much as $60 million, on a year-over-year basis, if exchange rates remained at their current levels.
- For the current financial year, the company forecast earnings between $3.60 and $4.00 a share, on revenue of $3.5 billion to $3.7 billion. Analysts on average were expecting earnings of $4.24 a share, excluding items, on revenue of $4.01 billion. (if they hit those numbers, still dirt cheap at about 6-7 forward earnings with a large buyback of shares still on the table in the coming years)
- Investors were bracing for the worst, but the company's quarterly results were solid and new awards were better than expected, Barclays Capital analyst Andy Kaplowitz said.
- The $1.4 billion of new orders received in the fourth quarter was 48 percent higher than a year ago, the company said. However, Joy Global also saw a couple of order cancellations during the quarter.
- "We continue to believe that much of this pessimism is priced into the stock at current levels, but there remains further headline risk as we move into 2009, which will likely result in continued near-term volatility," Macquarie Research Equities analyst Steven Song said in a note to clients.
- In its statement on Wednesday, Joy Global warned that it expects its customers to become selective about new mine expansion programs due to falling commodity prices that have limited cash flow for mining companies. (remember, less projects started today means lack of supply in 2010-2012 - hence when demand picks up, the supply will be limited = higher prices) "With the outlook for new projects and the limited number of existing projects, the company anticipates a generally decelerating trend for future original equipment orders," Joy Global said.
Cash flow from operations in the fourth quarter was $243 million, including $110 million from the reduction of working capital. Advance payments and progress billings increased in absolute terms, and both inventory and accounts receivables declined in days outstanding. The Company also repurchased over $266 million of its outstanding shares during the fourth quarter. In total, $1.1 billion of stock has been repurchased under the aggregate $2.0 billion authorization.
Comments about individual commodities below
- Pricing levels give a more differentiated view of the commodity markets. Copper is under the most pressure and recent prices at $1.69/pound are only half of their year-ago level. More importantly, it is estimated that as many as 20 percent of the world’s copper mines are unprofitable below $2.00/pound and are cash-negative below $1.50. As a result, copper output is being reduced, with announced cuts at about 4 percent of worldwide production.
- Steel production in October was down 12 percent, with both the U.S. and China down 17 percent. This reduction in steel production is impacting both iron ore and met coal.
- Announced cuts in iron ore are about 6 percent of worldwide production and it is generally believed that contract pricing will come off 2008 levels by 20 percent or more. Iron ore prices have gone up 400 percent in the last four years and this will still leave the major producers of seaborne-traded iron ore with historically strong prices.
- Slowing steel production is also impacting metallurgical grade coal. China export prices for coke are down 40 percent and this can be an indicator of forward met coal pricing. Reductions of this amount will leave met coal producers with prices that are still strong by historical comparison.
- Thermal coal prices have held up the best of the major commodities and are generally higher than a year ago despite being down from recent peaks.
- Latest crude oil pricing is well above oil sands cash production costs in the mid- to upper-$20 range. As a result, the Company expects current oil sands producers to operate at capacity and to continue previously announced expansion programs. It is estimated to take oil prices of $60 - $80 per barrel to justify new oil sands projects, primarily driven by the capital cost to build the initial stage upgrader.
[Sep 29: Interested in Joy Global Under $42 But...]
[Sep 11: Joy Global to Buyback 1/5th of Shares this Year - 2/5ths by 2011]
[Sep 3: Someone Needs to Dig Out Joy Global]
No position
1 comments:
And what happens when they guide down again next year to 3-3.20, are they still attractive then? The one thing they have going for them is the buyback, but why would they guide lower if the buyback is eliminating shares and hence should INCREASE EPS? Suspicious.
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