Woe Is Joy Global

 | Dec 12, 2013 | 11:00 AM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:




On Dec. 10, after the close of markets in New York, mining equipment pure play Joy Global (JOY) reported earnings of $1.11 a share for the company's fiscal fourth quarter that ended in October, a penny a share below the Wall Street consensus and well below the $1.99 a share in the October quarter of fiscal 2013, and then cut guidance for the 2014 fiscal year to a range between $3.00 and $3.50 a share vs. the $3.81 estimate on Wall Street. The company projected revenue of $3.6 billion to $3.8 billion vs. the Wall Street estimate of $3.87 billion and against $5.01 billion for the fiscal year that ended in October 2013. Total orders in the quarter were down 19% from the October quarter in fiscal 2013.

Not surprisingly, Joy Global shares fell 5.5% in trading on Dec. 11.

As messy as those results were and as punishing as the market performance was on Dec. 11, I think the implications for the entire mining equipment industry, which at this point is mostly Caterpillar (CAT) and Joy Global, and for the mining companies are just as negative.

During its conference call on Dec. 11, Joy Global indicated that the sector isn't going to see a significant turn until the second half of calendar 2014 (at the earliest).

The problem for mining companies is that even in sectors where prices for commodities have stabilized, there's a big overhang of potential new supply and deep uncertainty about whether any recent price improvement is permanent.

For example, Joy Global noted that it had begun to see marginal improvements in the U.S. coal market in 2013 as consumption picked up with rising prices for natural gas. But while inventories are down from 2012 levels, they still stand at 155 million tons. Exactly how optimistic is the coal mining industry? Not very to judge from the sector's budgets for capital spending. "Looking forward," the company said, "thermal coal capex will remain under pressure but appears to be near the bottom."

Considering how many times I've heard "appears to be near the bottom," that phrase isn't exactly reassuring.

There is one sign that maybe this time "near a bottom" means something. While original equipment orders at Joy Global fell 38% year over year in the quarter, aftermarket orders fell just 3%. Typically aftermarket orders (i.e., orders for spare parts or service on already owned machinery) recover before orders for new equipment.

Joy Global had similar things to say for other mining commodities. Iron ore, for example, has rallied and seems to be holding at $135 a ton, but iron ore producers have added a lot of capacity, so the company remains cautious in its outlook on iron ore. "Although we believe our markets overall will begin to improve in 2014, the timing is difficult to predict," Ted Doheny, Joy Global's incoming CEO, said. "Until a sustained demand catalyst emerges, we expect our customers will continue to be cautious and selective in deploying capex."

Columnist Conversations

we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...
View Chart »  View in New Window » View Chart » 
Hug declines in Advance Auto Parts (AAP) and Dick's Sporting Goods (DKS) made for great chances to buy stock a...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.