Will Joy Global Earnings Hold up Better Than Deere and Caterpillar?

Joy Global (NYSE: JOY  ) will release its quarterly report on Wednesday, and investors are preparing themselves for what's likely to be another big contraction in earnings and revenue this quarter. Even though peers Caterpillar (NYSE: CAT  ) and Deere (NYSE: DE  ) are also suffering from poor conditions in the industry, Joy Global's focus on mining puts it squarely in the path of devastation that plunging commodities prices have had on the miners that buy the company's equipment.

As recently as last year, Joy Global's business focus seemed like a smart move, as Caterpillar struggled from its exposure to the general construction equipment business even as mining continued to thrive. But falling prices for precious metals like gold and silver as well as base metals and mined products like coal caused big problems for mining-equipment sales, and Joy Global has seen its results plunge since early this year. Will this quarter give Joy Global a turnaround opportunity? Let's take an early look at what's been happening with Joy Global over the past quarter and what we're likely to see in its report.

Stats on Joy Global

Analyst EPS Estimate

$1.12

Change From Year-Ago EPS

(45%)

Revenue Estimate

$1.12 billion

Change From Year-Ago Revenue

(30%)

Earnings Beats in Past Four Quarters

4

Source: Yahoo! Finance.

How can Joy Global earnings recover?
In recent months, analysts have had mixed views on Joy Global earnings, raising October-quarter projections by a penny per share but cutting their full-year fiscal 2014 projections by more than 7%. The stock has made a bit of a comeback, rising 10% since early September.

Joy Global's July quarter earnings report showed the struggles that the mining-equipment maker faces in the current economic environment. The company managed to beat estimates, limiting its losses in earnings and revenue to single-digit-percentage drops. Yet dour guidance that included predictions of about a 20% drop in annual revenue beyond the current fiscal year weighed heavily on investors, and even a big stock buyback program wasn't enough to pull shares upward following the report.

The problem that Joy Global and Caterpillar share is that mining companies are cutting back on capital expenditures in an effort to rein in overall costs. Even giant BHP Billiton (NYSE: BHP  ) said that it was focusing on cutting costs, limiting its spending to its most promising projects. Similar moves from other mining companies will inevitably cause sales of equipment to fall. By contrast, Deere's agricultural focus has insulated it somewhat from the downturn, although even it saw sales decline in its most recent quarter.

Yet long-term prospects still look favorable for Joy Global investors patient enough to wait out a downturn in the commodity cycle. Chinese demand for coal is likely to rise over the next decade, spurring mining activity not just within its borders but in the U.S. and other areas of the world as well. Although Joy Global doesn't share Deere's exposure to the key food production realm, which benefits from demographic factors, it still stands to gain from the ever-rising appetite for coal around the world.

In the Joy Global earnings report, watch to see if sequential order bookings manage to climb from the previous quarter's levels, which included a 38% drop from the quarter before that. At some point, Joy Global will hit bottom, and if it can survive the downturn, now will look like a smart time to invest in the mining-equipment maker.

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