Joy Global Inc. JOY reported adjusted earnings of 76 cents per share in the second quarter of fiscal 2014. The bottom line compared unfavorably with $1.73 per share earned in the year-ago quarter.
Earnings were, however, 8.6% higher than the Zacks Consensus Estimate of 70 cents.
Total Revenue
Joy Global reported net sales of $929.7 million in the reported quarter, down 31.7% from $1,360 million a year ago. The decline was due to lower contribution from the Underground Mining Machinery (down 24.1%) and Surface Mining Equipment (down 37.8%) segments.
Softness in demand persists in the global mining market. Geographically, revenue contributions decreased 38.9% year over year to $357.9 million from the U.S. and by 26.6% to $571.8 million from Rest of the World. Original equipment bookings fell significantly by 27.1%, while services bookings increased 7.6% year over year.
Net sales in the reported quarter surpassed the Zacks Consensus forecast of $924 million marginally by 0.7%.
Quarter Highlights
Booking in the fiscal second quarter declined 7.2% from the comparable quarter last year. Underground Mining Machinery booking dropped 31.4% year over year to $488.0 million, while Surface Mining booking improved 34.4% year over year to $600.5 million.
The decline in Underground Mining Machinery was primarily due to a 60% fall in original equipment orders. Since the company could not match the U.S. longwall orders received in the previous year it led to steep declines.
Backlog at the end of the quarter was $1.6 billion, higher than $1.5 billion at the end of the previous quarter.
During the reported quarter, cost of sales declined 28.3% to $651.6 million. However, cost of sales, as a percentage of total revenues, increased 325 basis points year over year. This had a dilutive impact on margins.
Operating income in the reported quarter was $125.7 million, reflecting a year-over-year decline of 54.9%.
Interest expenses during the quarter declined 8.8% to $13.8 million.
Financial Update
Joy Global's cash and cash equivalents as of May 2, 2014, were $385.8 million versus $405.7 million as of Oct 25, 2013.
Long-term debt as of May 2, 2014, was $1.23 billion, decreasing from the year-end figure of $1.25 billion.
Net cash from operating activities was $206.6 million in the first half of fiscal 2014, compared with $90.9 million in the comparable prior-year period. The increase in cash from operating activities was primarily attributable to favorable working capital changes.
Capital expenditure at Joy Global for the first half of fiscal 2014 was $44 million, down from $87 million in the comparable year-ago period. The mining equipment manufacturers are trying to lower their capex to cope with a sluggish demand situation.
Guidance
Joy Global reiterated its fiscal 2014 total revenue guidance in the range of $3.6 billion to $3.8 billion.
Excluding restructuring charges and unusual items, earnings per diluted share are expected between $3.10 and $3.50.
Other Company Releases
Astec Industries Inc. ASTE reported earnings of 41 cents per share in the first quarter of 2014, lagging the Zacks Consensus Estimate of 57 cents by 28.1%.
Caterpillar Inc. CAT announced first quarter 2014 operating earnings of $1.61 per share, beating the Zacks Consensus Estimate of $1.25 by 28.8%.
H&E Equipment Services Inc. HEES announced first quarter 2014 operating earnings of 21 cents per share, beating the Zacks Consensus Estimate of 19 cents by 10.5%.
Our View
The frigid winter in the U.S. resulted in higher usage of coal to produce electricity, consequently depleting coal reserves. In addition, higher steel usage projected for 2014 by the World Steel Association could boost met coal demand. So, these factors could bring in a glimmer of hope for mining equipment manufacturers.
However, the global supply glut of commodities is creating a downward pressure on prices and neutralizing the positive impact of the above mentioned factors.
Joy Global however continued with its share repurchase plan in the reported quarter. It bought back shares worth $7 million. Since the authorization of the $1 billion buyback program in the fourth quarter of fiscal 2013, the company has repurchased shares worth $344 million.
Joy Global currently has a Zacks Rank #3 (Hold).
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