Wednesday, December 15, 2010

Joy Global (JOYG) - Solid Results, Good Outlook

With Bucyrus (BUCY) off the market, Joy Global (JOYG) is the last man standing among the major mining equipment makers.

Joy Global Inc. is a worldwide leader in manufacturing, distributing and servicing equipment for surface mining, through its P&H Mining Equipment division; underground mining, through its Joy Mining Machinery division; and bulk material conveyor systems, through its Continental Crushing & Conveying division.

They also happen to do an excellent job in their quarterly earnings report commenting on the sectors / commodities they service, as opposed to just reporting figures.  Always worth the time to review.  Based on the Joy Global report this morning the bull market in all things Chinese (and Indian) consumption continues. [May 13, 2009: Commodities - It's China's World; The Rest of Us Just Live in It]  Booking surged 48%.

  • Joy Global said fourth-quarter bookings rose by 48 percent, which indicates mining customers would continue to raise capital expenditure to address a strong demand for commodities such as copper and coal.  "Mining companies have announced capital expenditures that are up 30 to 35 percent this year ... announced capital expenditures for 2011 are expected to rise another 15 to 20 percent."
  • Joy Global, known for its giant shovels and draglines, forecast fiscal 2011 earnings of $5.00-$5.30 a share, on revenue of $3.9-$4.1 billion.  Analysts on average were expecting earnings of $4.79 a share, on revenue of $3.86 billion, according to Thomson Reuters I/B/E/S.
  • For the fourth quarter, the company reported earnings of $1.39 a share, on revenue of $1.05 billion. Analysts were expecting earnings of $1.16 a share, on revenue of $922.8 million. 

Via Press Release:
  • The commodity end-markets have strong fundamentals and a positive outlook despite slow economic recovery in the industrialized countries and slower growth in the emerging markets, particularly China, which results from efforts to balance economic growth while containing inflation.
  • After recovering beginning in the second half of 2009 and continuing into 2010, copper demand hit an all-time high in June of 2010 and continues to run well above its prior five year range. This was not driven by China alone, and in fact, China demand has leveled from 2009 while demand from the rest of the world has increased significantly since the beginning of 2010. Copper prices have moved steadily up during 2010 in response to both increasing demand and limited capacity to expand mine production in the near term. The longer term outlook is further impacted by the continued trend of declining ore grades.
  • The seaborne demand for both thermal and metallurgical coal continues to be driven by China, India and the other emerging markets. China continues to import coal at an annualized rate of more than 140 million metric tons, up from imports of 104 million metric tons last year. India also continues to import more coal, with its imports expected to triple during the next five years. In addition to emerging market demand, coal burn has been increasing in Europe and stockpiles there have been drawn down. Seaborne thermal coal prices have been increasing on the projection that continued demand growth from the emerging markets will keep supply under pressure.
  • U. S. coal production year to date is flat with last year, but with an improving trend in more recent months. Based on the recent trend, coal demand is on pace to recover 60 to 80 million tons from last year. In addition, the favorable U.S. dollar exchange rate is increasing export opportunities for both thermal and metallurgical coal. U.S. coal production has been restricted by safety and permitting issues and is mostly flat while demand continues to improve. This has resulted in increasing prices across all regions since the first of this year. 
  • Similar to copper, global demand in 2010 for iron ore and metallurgical coal has come mostly from increases in steel production outside of China. Prices for both metallurgical coal and iron ore have been rising in recent months and should see continued upward pressure as demand growth resumes from the emerging markets. China has started to relax power rationing in the major steel-making province of Hebei, and this resulted in steel production increases in October. In addition, India’s imports of metallurgical and thermal coal are expected to rebound after weather related slowing. 
  • Inventories in the industrial sector of the developed countries were substantially reduced during 2009 as companies adjusted to lower demand volumes, and the replenishment of those inventories will add further upside to commodity demand as economic recovery continues. In addition, China and India have included significant infrastructure programs in their next five year plans. India plans to spend $350 billion over the next three years for infrastructure projects. A major focus will be on power generation, with capacity additions expected to double by 2012. China’s plan focuses on the development of the western provinces and on second and third tier cities. Fixed asset investment is targeted to grow at 20 percent per year and includes the build out of the electricity grid in the western provinces, which alone could add a million tons to annual copper demand. 
  • Based on this outlook, mining companies are realizing strong demand and prices, with the expectation of significant increases in demand during the next 3 to 5 years. As a result, they are making major increases in their capital expenditures for mine expansions. Mining companies have announced capital expenditures that are up 30 to 35 percent this year, and are approaching the levels of 2008. In addition, announced capital expenditures for 2011 are expected to rise another 15 to 20 percent.

[Dec 16, 2009: Joy Global Earnings Report Always Worth a Read]

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