Friday, October 22, 2010

Bookkeeping: Restarting Bucryus (BUCY) on Earnings Miss

Finding reasonable entries during this non stop melt up has been difficult to say the least.  Market selloffs are generally hours in duration, and only rescind the move of the previous day or day and a half - so we're always chasing.  We do have a lower risk opportunity presented by an earnings miss in mining equipment maker Bucryus (BUCY).  Technically the stock has fallen back to the 50 day moving average area, which also happens to be the lows of the previous 30 days - so a nice line in the sand to trade against.  I have restarted a position with a 2.1% exposure; if this level of $67ish is punctured we can be out with minimal loss. (I'm allowing $1 dollar berth for the games the computers are playing)

Of course the risk of not buying stocks that "only go up" (buy high, sell higher) is you might be stepping in front of a multi day/week losing streak.  Hence a stop loss that is relatively tight.  I'll give it to $67ish to shake me out.

As for earnings, the company is digesting a huge acquisition via way of Terex (TEX) and in a market where 'long term's is tomorrow, the market is more worried about beating XYZ number than the powerhouse being built.

[Dec 22, 2009: More Color on Terex-Bucryus Deal] 
[Dec 21, 2009: Bucyrus Buys Mining Assets of Terex]

That said there were some weakness in the earnings report that I did *not* like, so we'll see if its a trend or a one off.  Generally Bucryus is going to trade with the commodity complex as if it was a piece of corn or an ounce of palladium, per HAL9000 algo.  Like I said, there is not much to lose here as we are risking about a $1.50 per share.

(please note - everything you read below is for entertainment purposes - let's keep it real... if the dollar goes down go forward, the stock will go up  - that is all the "analysis" that is being done in the market dominated by first grade logic; everything else is just details)


Full report here.

The company reported 96 cents versus analysts $1.10 - much of the miss was due to a big jump in a few expense line items - interest expense & ammortiziation as the company has taken on debt for the acquisition.   SGA has also jumped, but in time the company should reduce 'redundancies' - if you know what I mean.  For the year the company should make something in the $3.70 to $3.80 range so it is actually cheaper than Caterpillar (CAT) at about 18.5 forward PE.

Due to the Terex acquisition there are a lot of moving parts but basically the business is split into 2 parts (a) Surface Mining and (b) Underground Mining - and each of those 2 parts is further split into original orders and aftermarket [parts & service].  With the acquisition of the Terex business the surface business metrics are not organic.

Surface Mining OEM: +120%
Surface Mining Aftermarket: +49%
Underground Mining OEM: -3%
Underground Mining Aftermarket: +20%

So the surface business was the strength, and underground business showed some trouble.  However, the organic growth even in the surface aftermarket was poor - it is being masked by the Terex acquisition

  • Excluding the impact of Terex Mining, original equipment sales increased by approximately 24% and 4% for the quarter and nine months ended September 30, 2010, respectively, compared to the same periods of 2009. The increases were primarily due to increased electric mining shovel sales.  (good)
  • Excluding the impact of Terex Mining, aftermarket parts and service sales decreased by approximately 19% and 10% for the quarter and nine months ended September 30, 2010, respectively, compared to the same periods of 2009. (not good)

  • The decrease in underground mining original equipment sales for the quarter ended September 30, 2010 compared to the same period of 2009 was primarily in the room and pillar product line, partially offset by an increase in the longwall product line

On the positive side, backlog for the next 12 months in both segments looks good - but again the surface mining is mixed in with the new Terex business

Backlog next 12 months
Surface: +58%
Underground: +39%

Same issue with new orders

Unlike Joy Global who writes an excellent earnings report full of end market analysis - i.e. we see ABC trends in the coal market, Bucyrus just sticks to the numbers so not much to glean in terms of the broader industry.


As I said above all this analysis is overkill. Every algo is trained on the dollar - if it gets trashed go forward, BUCY will surely rally ... and vice versa.

Long Bucryus in fund; no personal position

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