Joy ahead

JOY Global has sounded a fairly optimistic note on the way ahead, despite having had to weather the coal headwinds whipped up the by the shale gale in its first-quarter results for 2013.
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Joy Global CEO Mike Sutherlin.

Noel Dyson

Those results are little changed from the same time last year, with sales and operating income up only marginally.

Flat results are understandable. It’s been a bear of a year for the coal sector.

However, Joy offers a bit of succor to a hard-bitten coal sector.

“The company believes the increasing number of key indicators that are turning positive will begin to increase commodity demand and provide support for prices,” it says.

“Although [the] timing is uncertain this will lead to additional approvals for mine expansions.”

One thing Joy points to is expected additional demand for metallurgical coal due to increased global steel production.

It also highlights increased thermal coal imports from India and China.

Joy president and chief executive officer Mike Sutherlin also offers some specific hope at home.

“While some regions have underperformed, we are seeing encouraging signs from the US coal market,” he said.

“After four quarters of sequential decline, both original equipment and aftermarket orders stabilized over our first quarter.”

One thing that no doubt pleased Sutherlin was that Joy’s costs were largely unchanged.

“We are also starting to see benefits from strategic actions to lower our cost base,” he said.

The company has posted sales of $1.1 billion for the first quarter 2013, up 1% from the same period last year.

Operating profit was $221 million in the first quarter, compared with operating income of $214 million for the same time in 2012.

That was based on 19% of sales in both years.

Bookings for underground mining equipment fell 27% in comparison to last year’s first quarter.

Original equipment orders were down 30% compared to the first quarter of 2012.

This, Joy reckons, is due largely to longwall systems sold into Australia and the US in the prior year and a year over year decline in room and pillar orders in the US.

Aftermarket orders fell 24% with declines noted in all regions.

Orders for underground original equipment and aftermarket bookings were negatively impacted by foreign exchange of $3 million, compared to the first quarter of last year.

Bookings for surface mining were down 25%.

Original equipment orders fell 34% from the bookings if the first quarter of last year while aftermarket books were down 18%.

Original equipment and aftermarket orders were down in all regions.

Foreign exchange of $2 million hit surface orders for original equipment and aftermarket.

The effective income tax rate was 31% for this quarter, compared to 27.9% for the first quarter of 2012.

Continuing operations provided $92 million cash for the first quarter, compared to cash used in continuing operations of $14 million a year ago.

Capital expenditures were $55 million in the first quarter of 2013, compared to $49 million in the prior year first quarter.

Sutherlin said US aftermarket orders had declined more than end-use consumption as Joy’s customers reduced the parts inventories they held at the mine site and stretched the time between rebuilds.

“Parts orders should continue to return to end-use consumption levels and delayed rebuilds require increased work and therefore their impact is mostly timing,” he said.

Mine expansions are another matter.

“The timing of mine expansion projects has a major impact on our company outlook and we expect these projects to continue to move slowly and to be lumpy.

Sutherlin said many of the company’s customers had turned their focus to returns, which would delay any expansion plans.

While he is fairly bullish on the global outlook, he expects customers to remain conservative, meaning Joy’s base order rates, before major orders, will remain effectively flat.

On the major order front, though, Sutherlin is confident the company will pick up a couple this year.

“We expect our aftermarket orders to recover from the first quarter levels but they may not reach last year’s level for the full year,’ he said.

“Our restructuring cost reduction initiatives remain on track and will enable us to maintain our target for decremental operating margins.”

Sutherlin said Joy was on track to meet its previous guidance of earnings fully diluted per share of between $5.75 and $6.35 on revenues of $4.9 billion to $5.2 billion.

That includes $25 million of planned restructuring charges in 2013 with the savings due from them to not be realized until 2014.

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