Joy Global Surpasses Estimates

Joy Global Inc. (JOYG) posted an EPS of $1.20 for the fourth quarter of 2009, surpassing the Zacks Consensus Estimate of $1.01 and $1.11 recorded in the year-ago quarter, primarily driven by better pricing, improved supply chain management and cost control measures. For fiscal year 2009, EPS was $4.41; above both the Zacks Consensus estimate of $4.23 and the last year EPS of $3.44. 

Operating margin for the quarter remained flat at 19% as price realization and cost control efforts were more than offset by the impact of lower volumes and $11 million of severance and other related costs. Operating income in the quarter was $184 million compared to $192 million last year. Operating margin for the fiscal year 2009 expanded to 20% from 16% in fiscal 2008 primarily due to increased volume, net favorable impact of price realization, improved supply chain management, and cost control efforts partially offset by a higher proportion of original equipment sales. 

Revenues declined 7% year on year to $964 million in the fourth quarter, as a result of a 3% decline in the Underground Mining Machinery (UMM) segment, a 10% decrease in the Surface Mining Equipment (SME) segment and a 20% decline in the Crushing and Conveying (C&C) segment. Original equipment sales decreased 9%, driven by a $31 million decline in the SME segment and flat sales results in the UMM segment. Aftermarket sales fell 4.5% in the quarter. Domestic sales fell 21%, whereas international sales grew 8% during the quarter. 

Revenues increased 5% year on year to $3.6 billion for fiscal 2009, resulting from an 11% increase in the UMM segment, slightly offset by a 6% decrease in the SME segment and 19% decline in the C&C segment. Original equipment sales decreased 13%, while after-market sales remained almost flat. Domestic sales grew 9% and international sales grew 1.6%. 

New order bookings dropped 44% to $683 million in the quarter (net of cancellations new orders dropped 8%), largely driven by a 74% decline in original equipment orders and a 5% decline in aftermarket orders. The order backlog stood at $1.5 billion at the end of the quarter, compared to $1.8 billion a year ago. 

Cash from operations in the fourth quarter was $239 million, essentially flat with the prior year quarter. Days outstanding in both accounts receivable and inventory declined in the quarter. Capital expenditures of $28 million were flat with the prior year quarter. Cash from operations for fiscal 2009 was down $125 million from fiscal 2008 to $452 million. Accounts receivable and inventories were down as working capital management processes continued to improve. Capital expenditures were $10 million higher in 2009 as projects in process were completed. 

Joy Global management is optimistic about the road ahead and expects 2010 to be a year of improving order rates. Going forward, they expect original equipment orders to return to their typical lumpy pattern due to the timing and size of each project. The management foresees the greatest potential for original equipment orders in copper, international coal, iron ore and oil sands during 2010. Aftermarket orders are expected to continue to improve steadily as its international customers return to production during 2010. 

Management previously announced that its 2010 revenues would converge to the rate of incoming orders. However, they do not expect 2010 revenues to improve significantly as they expect original equipment orders booked in 2010 to become shipments in 2011 and a steadier rate of improvement for aftermarket orders. 

Joy Global is hopeful of revenues being in the $2.8-$3.0 billion range in 2010 with an EPS range of $2.65-$3.05. The company expects cash flows to be stable and has budgeted capital expenditures at $100 million.

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