Joy Global Incorporation (JOYG) reported adjusted earnings of $1.52 per share in the second quarter of fiscal 2011, compared with $1.15 per share in the year-ago quarter. The results of the company also surpassed the Zacks Consensus Estimate of $1.35 per share.
Total Revenue
Joy Global reported net sales of $1.7 billion in the reported quarter, up 18.6% from $0.9 million in the year-earlier period. The growth was driven by higher contribution from Underground Mining Machinery (up 19.1%) and Surface Mining Equipment (up 14.7%), while eliminations were a marginal drag on total revenue.
Underground original equipment orders improved on increased orders for longwall and room and pillar equipment in the United States and Australia. The Underground aftermarket equipment business benefited from strong orders for parts and component across most markets and an increase in service labor bookings in Australia.
The Surface business original equipment orders increased mainly due to growth in orders for electric mining shovels and blasthole drills used in mining coal, copper and iron ore received from customers in North America, South America, Russia and South Africa. The increase in surface aftermarket bookings was attributable to strong demand for replacement parts across most geographic regions.
The total revenue of the company in the quarter under review also bettered the Zacks Consensus forecast of $1.4 billion.
Quarter Highlights
Booking in the second quarter of fiscal 2011 were higher both year over year and on a sequential basis. New orders for original equipments saw a growth of 79% while aftermarket booking increased 22% from the year-ago level. The second quarter bookings included a benefit of $131 million from changes in foreign exchange rates.
Cost of sales climbed 16.8% to $689.9 million from $590.8 million a year ago. However, as a percentage of total revenue, cost of sales decreased 100 basis points year over year.
Similarly, selling and administrative expenses rose 12.1% from the previous year, but decreased by 77 basis points as a percentage of total revenue.
The growth in sales during the quarter coupled with relatively lower expense levels helped the operating results of the company.
Operating income shot up 29.6% year over year mainly attributable to positive price realization on improved overhead absorption. A favorable mix effect with a higher proportion of aftermarket sales also aided growth.
Interest expenses during the quarter were $3.18 million, down from $4.33 million reported in the comparable quarter last year.
Financial Update
Cash and cash equivalents of Joy Global as of April 29, 2011, were $1,071.1 million versus $815.6 million as of October 29, 2010.
Cash provided by operating activities was $256.8 million in the second quarter of fiscal 2011 versus $108.5 million in the second quarter of fiscal 2010. The increase was attributable to higher net income and cash from advance payments, partially offset by an increase in inventories.
Capital expenditure at Joy Global for the second quarter was $25 million, up from $18 million spent in the year-ago quarter. For the full year, capital expenditure is expected to be $130 million, up significantly from the year-ago level of $75 million.
Guidance
Joy Global expects a growth in demand for mining equipment and aftermarket services as its customers increase their production levels and add to their mine expansion plans.
The Operational Excellence programs started by the company continue to add value to its business. JOYG also lowered the build times for its machines that in turn lessened the time gap between the order and delivery, leading to quicker conversion of orders into revenues.
Taking into account the strong market fundamentals and improved throughput from Operational Excellence, the company raised its total revenue expectation for 2011 to $4.1–$4.3 billion from $4.0–$4.2 billion.
The company also raised its earnings per share guidance for 2011 to a range of $5.30 to $5.60 from $5.10 to $5.40 taking into consideration the strong top-line performance in second-quarter 2011. The guidance excludes costs related to the LeTourneau acquisition.
Peer Comparison
Joy Global competes head-to-head with the industry behemoth Caterpillar Inc. (CAT). Caterpillar's first-quarter adjusted EPS was $1.84, way ahead of 36 cents per share in the comparable quarter of 2010, primarily driven by higher sales volume. The company has also beaten the Zacks Consensus Estimate by a significant margin of 53 cents per share.
In the reported quarter, Caterpillar's revenues surged 57% year over year to $12.95 billion, surpassing the Zacks Consensus Estimate of $11.20 billion. The increase in revenues was a result of continued economic growth and improvement from the low levels of machine demand in the first quarter of 2010.
Our View
The company ended the second quarter of 2011 with a backlog of $2.63 billion versus $2.17 billion in the first quarter of 2011 and $1.82 billion in fiscal 2010. It is encouraging to note that backlog has grown for both Underground Mining and Surface Mining equipment suggesting all-round growth in the mining sector.
We expect initiatives taken by the company to improve all areas of business through its Operational Excellence programs and the mine expansion plan that should help it to reach the updated guidance level. We also believe the acquisition of LeTourneau Technologies, Inc. from Rowan Companies, Inc. (RDC) for $1.1 billion in cash, will be accretive to earnings once the deal is closed in the third quarter.
Joy Global currently retains a Zacks #3 Rank (short-term Hold rating).
Mining equipment manufacturer and service provider Joy Global Inc. is based in Milwaukee, Wisconsin. The company caters to consumers all around the world and provides 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.
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