Bucyrus (Nasdaq: BUCY ) took a strike in its first earnings for 2010, but then proceeded to defiantly call a home run ... like Babe Ruth at Wrigley Field in 1932.
Prevailing expectations for Bucyrus to achieve $0.81 in adjusted EPS proved overly optimistic within a business environment where major purchases are still being deferred wherever possible. The company batted-in only $0.69 per share on an adjusted basis. Sales for Bucyrus' underground mining unit slumped by nearly 29%, which included a nasty 46% decline in that unit's sales of new equipment.
The company fared far better in the surface mining unit, notching an offsetting 28% gain, but that was fueled primarily by the company's transformative acquisition of Terex's (NYSE: TEX ) mining equipment unit. Consolidated sales rose almost imperceptibly from the prior-year mark of about $606 million, although it's worth pointing out that the manufacturer's gross margin improved 80 basis points, to 28.9%.
Pointing to the center-field bleachers, Bucyrus issued full-year 2010 revenue guidance of about $3.7 billion. It takes a special swagger, or perhaps just supreme confidence in the gathering strength of the mining industry (as corroborated by rival Joy Global (Nasdaq: JOYG ) ), to extend a revenue target more than $300 million beyond the expectations of analysts after a swing-and-a-miss like this first-quarter result. For Fools who understand that quarterly results can fluctuate rather wildly in a business of large-scale, low-volume manufacturing, last week's miss need not be a show-stopper.
Slightly healthier than a ballpark frank
Meanwhile, denuded of its bullishly positioned mining equipment segment following the Bucyrus deal, Terex continues to drive in painful operating losses. The asset sale boosted Terex's first quarter earnings by $620 million; or $5.72 per share. Stripping away that welcome injection of liquidity, which raised Terex's cash position to a hefty $1.8 billion, the shrinking giant's operating loss came in at $0.73 per share.
For the first time in a while, however, I can safely say that the news isn't all bad for Terex this time around. For starters, that operating loss from continued operations did mark an almost $20 million improvement over the prior-year hemorrhage. Although net sales continued to decline in three of the company's four segments, the materials processing unit bucked the trend with 31% surge in net sales to $108 million.
Looking to the tell-tale trends in order backlogs, we find those metrics improving across every segment except for cranes (which experienced a 38% contraction). The greatest sequential gains from the fourth quarter of 2009 are visible in backlogs for construction and materials processing equipment; with noteworthy improvements of 64% and 68%, respectively.
All of this data, collectively, supports the widespread observations of moderately improving industrial activity from related bellwether sectors like steelmakers and railroads. Unfortunately, all earnings data emerging from construction-related businesses thus far points to offsetting weakness in these crucial segments of the U.S. and European economies.
The big picture for big equipment
Powerful, long-term trends in global coal demand emerging principally from China and India -- and rapid expansion of production in hotspots like Australia -- should boost equipment demand from the world's primary suppliers: namely Bucyrus and Joy Global.
All of the same ingredients are in place that contributed to the incredible growth these manufacturers experienced before the financial crisis (and coincidental commodity correction) took hold in 2008. An extended period of under-investment and deferred purchasing is setting the stage for an uptick in new orders that I predict will once again extend lead times for heavy mining equipment into a rapidly expanding order backlog. Most of Bucyrus' 18% year-over-year backlog expansion in the first quarter was attributable to the Terex Mining acquisition, but CEO Tim Sullivan avowed that this momentary lag belies the fact that Bucyrus is experiencing "a very high level of activity right now."
As Taseko Mines (AMEX: TGB ) CEO Russell Hallbauer pointed out back in 2008, extended lead times for key equipment can wreak havoc on miners by extending project development timelines. I submit that a reemergence of this familiar trend could exert even stronger upward price pressure upon mined materials like coal, copper, and precious metals than we are witnessing already. Coking coal producers mulling the kinds of aggressive production capacity expansions that Peabody Energy (NYSE: BTU ) and Teck Resources (NYSE: TCK ) have signaled may be well advised to place their equipment orders post-haste.
Of course, looming tightness in equipment supply is music to the ears of Bucyrus and Joy Global the way tightness in commodity supply places miners in a sweet spot. Tossing in Caterpillar (NYSE: CAT ) as another noteworthy beneficiary of the trend, I continue to consider the manufacturers of heavy mining equipment exceptionally positioned to profit from this ongoing, multi-year, secular bull market in mined commodities. As far as this Fool can see, that underlying bull market shows no signs of slowing down.