Profit up, but outlook brings little Joy

WHILE its fiscal 2012 year came to an “exceptional finish”, including a 23% profit jump in the fourth quarter, equipment manufacturer Joy Global said it expected weaker sales in 2013 and assumed current market conditions would continue.
Profit up, but outlook brings little Joy Profit up, but outlook brings little Joy Profit up, but outlook brings little Joy Profit up, but outlook brings little Joy Profit up, but outlook brings little Joy

Joy Global CEO Mike Sutherlin.

Donna Schmidt

For the period ended October 26, the Wisconsin-based company recorded net income of $US212.6 million, up year-on-year from $172.3 million, while net sales rose more than 19% from $1.3 billion in 2011 to $1.6 billion.

Unfortunately, the OEM has not been without impact from the industry’s ongoing woes.

Orders were down 5% overall to $1.3 billion, with surface bookings slipping 22% and underground bookings basically flat over 2011 year. Conversely, the 5% drop is still a 22% sequential improvement from the third quarter of 2012.

“Our entire organization did an outstanding job of catching up on deliveries and giving us an exceptional finish to fiscal 2012," president and chief executive officer Mike Sutherlin said.

“This strong execution will be important as we begin adjusting to the lower volumes that we expect for 2013.

“We are setting our plans for 2013 on the basis that current market conditions continue. Although there is upside potential in our markets, the timing is uncertain and unlikely to occur until current excess mine capacity is reduced.”

Looking whole-year, the company’s net earnings came in at $762 million, 25% higher than 2011’s total of $609.6 million. Revenue jumped nearly 29% from $4.4 billion to $5.6 billion.

Bookings decreased 9% to $5.1 billion from the prior year, with year-on-year order declines in its legacy business partially offset by $356 million of incremental bookings from LeTourneau and $218 million of bookings from IMM.

Aftermarket orders were flat, officials said, while original equipment orders dropped 40% year-on-year.

The OEM’s total backlog at the end of the fiscal year was $2.6 billion, an improvement of more than $3.3 billion at the beginning of the fiscal period. Backlog related to the legacy business, it said, was $2.3 billion at year’s end, while LeTourneau and IMM-related backlog was $300,000 million.

Bookings for underground mining machinery, excluding IMM, decreased 17% in comparison to last year and original equipment orders declined 35% over whole-year 2011.

Looking ahead, Joy officials noted the company had endured “significant adjustments” in some of its core markets, including an economic growth slowdown in China has reduced thermal coal demand for power generation.

Additionally, weak pricing and rising costs had reduced profitability in Australia. Some of the factors sending costs up in the country include resource extraction taxes, carbon taxes, elevated demands in labor negotiations, extended regulatory review and a strong local currency.

“Despite this depressed outlook, there is the potential for upside,” the company said, spotlighting the US in particular.

“Natural gas prices in the US have been improving and should continue moving toward the cost of replacement, which the company estimates is above $4 per million British thermal units [and] as a result, power generation should continue switching back from natural gas to coal, but it is not expected that all of the volume losses will be regained.

“However, the upside can be extended by utilizing the greater excess capacity available in the coal-fired generating fleet. Exports from the US will be at their second consecutive record level in 2012, and customers are investing in port expansions that can double export capacity over the next five years.”

Sutherlin called the 2012 fiscal year “transitional” for the OEM, as it moved from building backlogs to depleting them and from catching up on the market to lowering its base cost.

“Both sides of those equations have an impact on how we view our fiscal 2013," he said.

What Joy initially thought would bring opportunity – help from international markets – eventually became just another headwind for it to weather, Sutherlin said.

The progressive decline over the course of the year also had a compounding effect on its rate of incoming orders.

“Although there are early positive indicators in each of the most adversely effected markets, we do not see near term recovery,” Sutherlin said.

“Our customers are confident that they have enough available excess capacity in their fleets to enable them to respond to initial improvements in demand [and] as a result, recovery in commodity demand must prove that it is sustainable before we will see a broad capex response from our customers.”

Going into the 2013 fiscal year, Joy said it was targeting revenues of $4.9 billion to $5.2 billion with capital expenditures reduced to $150 million.

However, officials said there were carryover projects already in progress that would increase its expenditures to about $200 million.

“We will continue our restructuring in 2013, with the focus on balancing and optimizing our global manufacturing footprint,” Sutherlin said, adding costs were projected at $25 million.

“The timing of the projects is concentrated in the second half of 2013, and the expected payback is nine months. As a result, almost all of the savings will be realized in fiscal 2014.”

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