Joy Global Faces an Uncertain Future

Joy Global reported a good set of fiscal second quarter results, but the company's future remains uncertain.

Jul 21, 2014 at 12:17PM

Joy Global's (NYSE:JOY) fiscal second quarter results were impressive, beating Wall Street's expectations.

Initially, the market reacted well to the release. Earnings per share came in at $0.76, down from $1.73 a year ago but up from $0.48 reported during the fiscal first quarter. This headline figure beat consensus, which called for earnings of $0.71 per share.

What's more, Joy pleased Wall Street by guiding for full-year earnings of $3.10 to $3.50 per share; compared to Street expectations of $3.25. 

So, on the face of it things seem to be going well for Joy, however, after digging deeper and factoring in the state of the global coal market, I'm worried about Joy's long-term outlook. 

Slumping sales
Joy's consensus beating results, did much to cover up the company's terrible underlying sales figures.

During the period sales crashed 32% year on year and bookings slid 7% year on year. Bookings for surface mining equipment softened the blow, rising 34% as the company benefited from a large order for oil sands production equipment. However, orders for underground mining equipment, predominantly in the coal mining industry, fell 31% and service bookings for original equipment fell 27%.

All in all, despite a jump in bookings for surface mining equipment, Joy's results were pretty terrible. Sales are falling across the board and service revenues are also contracting.

Unfortunately, it would appear as if things are only going to get worse for Joy. 

Market pressures
It's no secret that the global coal market is struggling. Within the US, recently introduced emission regulations are forcing coal-fired power plants to shut up shop, and over in Australia, one of the world's largest coal producers, things are going from bad to worse.

According to Harry Kenyon-Slaney, the chief executive of Rio Tinto's (NYSE:RIO) energy unit, the Australian coal mining sector is "in the midst of quite possibly the most serious challenge it has ever seen to remain globally competitive. There's every chance these tough times will continue for several years."

Australian miners are now shedding thousands of jobs and mothballing high-cost mines, to drive efficiencies across their operations. High costs, a strong Australian dollar, and low coal prices are all piling pressure on the industry. 

What's more, a record level of Australian production, combined with a rise in exports from Indonesia, has dumped a huge amount of supply on the global thermal and coking coal markets, two markets that are already over-supplied.

As a result, since the beginning of 2012, the price of Australian coking coal has halved while the price of thermal coal has slumped 40%. So, to combat sliding prices, coal miners are slashing investment and cutting capital spending. For Joy, as a company that supplies coal mining equipment, this is bad news.

Less capital spending is likely to equal fewer orders and, according to some data, a quarter of mines within Queensland, Australia's largest coal mining region, are losing money. One company, Forge Group has already fallen into liquidation this year, owing creditors $800 million in Australian dollars.

Still, in the long term, the big miners, BHP Billiton, Rio Tinto, and Glencore, believe that the future for coal is bright, but this is the long term -- there are likely to be many more company failures before the market returns to growth.

The bottom line
The bottom line is that Joy is going to struggle going forward. While the company has just reported a good quarter, the fundamentals of the global coal market, a market for which Joy manufactures the equipment, are poor and investment in the sector is falling. 

It is likely that this weak backdrop will persist for a long time, and Joy faces a period of uncertainty as miners rein in their spending habits. 

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers