Joy Global Incorporation ( JOY - Analyst Report ) reported adjusted earnings of $2.04 per share in the second quarter of fiscal 2012, compared with $1.52 per share in the year-ago quarter.

The results of the company were 9 cents ahead of the Zacks Consensus Estimate of $1.95.

Total Revenue

Joy Global reported net sales of $1.54 billion in the relevant quarter, up 45.0% from $1.06 billion in the year-earlier period. The growth was driven by higher contribution from Underground Mining Machinery (up 36.7%) and Surface Mining Equipment (up 57.4%), while eliminations were a marginal drag on total revenue.

The increase in shipment of original equipment at Underground Mining Machinery and Surface Mining Equipment benefited results.

Backlog at the end of the quarter was $3.1 billion, dipping sequentially from $3.6 billion at the end the first quarter of fiscal 2012. Considering the uncertainties in the current US coal market, the company has lowered the backlog for underground equipment by $118.7 million.

Net sales in the relevant quarter came in higher than the Zacks Consensus forecast of $1.45 billion.

Quarter Highlights

Booking in the second quarter dropped 19% over the previous quarter. Lackluster booking was attributable to a drop in domestic order and sluggishness in some international pockets. These negatives were marginally offset by strong order from China and South Africa.

During the second quarter, cost of sales climbed 49.4% to $1.03 billion from $0.7 billion a year ago.

Selling and administrative expenses rose 28.6% from the previous year, but declined as a percentage of total revenue by 151 basis points year over year.

Operating income shot up 31.7% year over year mainly due to higher sales volume. Besides, contribution from acquired assets also benefited results.

Interest expenses during the quarter grew by $3 million to $17 million. The increase was attributable to payment of incremental interest associated with the borrowings for funding the acquisition of LeTourneau and IMM.

Financial Update

Cash and cash equivalents of Joy Global as of April 27, 2012, were $390.9 million versus $288.3 million as of October 28, 2011.

Cash from operating activities was $110.6 million in the second quarter of fiscal 2012 versus $256.8 million in the second quarter of fiscal 2011. The year-over-year decline was due to increase in accounts receivables.

Capital expenditure at Joy Global for the second quarter was $65 million, up $40 million from the year-ago quarter. The noticeable rise in capital spending is part of the company’s plans for the year to increase its global capacity and aftermarket service infrastructure.

Guidance

Joy Global notes that the strength in the international market will not be able to offset the softness in US aftermarket demand. The company expects weakness in the US aftermarket to hit total revenues by $100 million and reduce earnings per share by 18 cents in fiscal 2012. The excess accounting charges for the purchase of IMM are now estimated to be 17 cents per share for the fiscal.

Taking into consideration the above factors, the company presently forecasts fiscal 2012 revenues in the range of $5.5 billion to $5.7 billion, while earnings per share are expected in the vicinity of $7.15 to $7.45.

Peer Comparison

Joy Global competes head to head with the industry behemoth Caterpillar Inc. ( CAT - Analyst Report ) . Caterpillar’s first-quarter adjusted earnings per share increased 29% year over year to $2.37, ahead of the Zacks Consensus Estimate of $2.13.

Revenues increased 23% year over year to $15.98 billion, surpassing the Zacks Consensus Estimate of $15.82 billion. Volumes grew for both new equipment and aftermarket parts as well as across all geographic regions except Latin America.

Our View

Despite Joy Global’s forecast beating results this quarter, we are cautious about the reduction in backlog as well as order booking. The decline in U.S. thermal coal demand and the uncertainties involving the Eurozone debt crisis have affected the demand for Joy Global’s products.

The silver lining for the mining companies is higher production of steel in the U.S. and China and 90 gigawatts of thermal power additions in China and India, leading to an increase of 300 million tons of thermal coal demand.

Despite the imposing presence of Caterpillar, we believe the market is large enough for Joy Global to benefit from increasing demand from the emerging markets.

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 its global consumers 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.