For a while anyway, people listened when E.F. Hutton spoke. Today, commodity investors bend their ears to Joy Global (Nasdaq: JOYG) -- the Oracle of Milwaukee -- when they seek superior insight into the state of global commodity demand.
Mining equipment manufacturer Joy Global reported a 34% boost to income for its first quarter of fiscal 2011, improving its operating margin to make the most of a 19% increase in net sales to $870 million. In counterpoint to Bucyrus' (Nasdaq: BUCY) delighting of analysts with results that shareholders of acquiring manufacturer Caterpillar (NYSE: CAT) will celebrate, Joy Global's profit of $102.2 million came in below consensus expectations.
Based upon the cues emerging from the global commodity markets, those expectations are bound to remain lofty going forward. New bookings expanded bullishly by 52% to reach $1.2 billion. Surging $357 million to $2.2 billion, the manufacturer's total backlog became reminiscent of the period before the financial crisis exacted a heavy toll on this and other makers of heavy equipment.
Reinforcing the company's prior bullish assessments of looming long-term growth in global demand for products like iron ore, coal, and copper, Joy Global speaks of "a multi-year expansion ahead that will become the second leg of a long growth period for mining." The characterization seems a fair one, as only now are we really starting to see capital expenditures for new mine capacity gearing up in earnest following a severe and disruptive contraction that accompanied the massive commodity correction of 2008 and 2009. Highlighted by some gargantuan individual efforts like Rio Tinto's (NYSE: RIO) planned $13 billion in CAPEX, Joy Global sees its customers collectively increasing CAPEX by 20% during 2011, following a 30% surge in 2010. Lest Fools interpret this trend as signal of a future supply glut, Joy Global documents the array of long-term demand drivers slated to absorb the supply, and rightly points out the following with respect to iron ore in particular:
The major seaborne iron ore producers have plans to increase production by more than 50 percent, but markets should remain tight for the next several years as these expansions will take 5 to 6 years to complete.
Playing music to the ears of Fools who may have dug for copper exposure after I discussed the red metal's bullish outlook last December, Joy Global adds:
Global copper demand was in excess of supply in 2010 and the annual deficit is expected to grow to around 500 million tonnes in 2011. Copper has the longest lead time and highest risk associated with new green field capacity, and this adds support for copper prices. Today's prices of $4.50 per pound are expected to top $5.00 later this year.
Inserting similarly favorable forecasts for both metallurgical and thermal coal demand, Joy Global continues to depict as solid a landscape for mining investors as one could hope for. I believe that Fools opting for baskets of sector-targeted equity exposure through vehicles like the Market Vectors Coal ETF (NYSE: KOL) or the Global X Copper Miners ETF (NYSE: COPX) are likely to outperform the major indices over the next several years, and I consider profitable exporters like Teck Resources (NYSE: TCK) primed to deliver excellent shareholder returns over a similar timeframe.
- Add Joy Global to my watchlist
- Add Bucyrus to my watchlist
- Add Caterpillar to my watchlist
- Add Market Vectors Coal ETF to my watchlist
- Add Global X Copper Miners ETF to my watchlist
- Add Teck Resources to my watchlist
