Shareholders of mining equipment maker Joy Global (Nasdaq: JOYG ) are finding some nice presents under the tree this year, and if Congress behaves itself, the holiday cheer could continue a few more years.
Joy's operating income for the fiscal fourth quarter rose nearly 12% to $147.5 million on net sales of $735.9 million. Operating results would have been even better except for some needed investment related to infrastructure development in China and higher product development costs. These costs partially offset an impressive 200-basis-point improvement in gross margins, which came in at 33.4%.
Net income, however, fell 18% to $69.6 million for the quarter, largely due to tax adjustments. These adjustments, combined with some favorable tax adjustments in the previous year, contributed to a full-year net income decline of nearly 33%, to $279.8 million. On a per-share basis, income dropped from $0.71 to $0.64 for the quarter, and from $3.42 to $2.54 for the year. The market pushed shares up about 7% yesterday, and pulled archrival Bucyrus International (Nasdaq: BUCY ) along for a 4% ride, as well.
It must have been the big shiny package labeled "outlook" that caught the eye of investors. Joy Global's business consists mostly of selling gigantic equipment -- electric shovels, 4,000-ton draglines, huge drills, and big "longwall" systems -- used to mine coal, both underground and in open pits. Some equipment sales go to miners of copper, oil sands, and iron ore, but it's mostly coal.
The good news is that international markets for both thermal coal used to fire power plants and metallurgical coal used to make steel have been strong. The U.S. market has lately been a little soft, but it now appears this market is firming up.
A little further out, Joy estimates that additional power plant capacity will come online by 2012, boosting coal demand in the U.S. by 100 million tons. That's about 1.5 times the total production of CONSOL Energy, the fifth-largest coal producer in the U.S.
Beyond that, "regulatory uncertainties," as the company put it, could put a damper on future holiday seasons. In other words, Congress and state regulators could impose rules to combat emissions of carbon dioxide, and this could make new coal-fed plants less economically appealing for power generators and utilities like Duke Energy (NYSE: DUK ) , Southern Company (NYSE: SO ) , and Allegheny Energy (NYSE: AYE ) .
Congress' recent decision not to require utilities to get 15% of their energy from renewable sources provides some reason for hope. Failing that, the outlook for international coal is likely to remain strong for years to come.
Any company that depends on coal prices and production will probably always be cyclical, but if you can stand the bumpiness, now might be a good time to take a closer look at Joy Global or Bucyrus. Or better yet, both.