Joy Global Incorporation (JOYG) reported
adjusted earnings of $1.54 per share in the third quarter of fiscal
2011 ending July 29, compared with $1.11 per share in the year-ago
quarter. The results of the company also surpassed the Zacks
Consensus Estimate of $1.50 per share. Adjusted earnings increased
49% year over year to $163.5 million in the quarter under
review.
Adjusting for earnings accretion from LeTourneau Mining
Equipment acquisition, net of tax, of 4 cents, discrete tax benefit
of 11 cents, acquisition cost, net of tax, of 8 cents and
discontinued operations of 1 cent, the company reported earnings of
$1.62 per share, compared with $1.13 per share in year ago quarter.
Net income was $173.1 million compared with $118.5 million in the
year ago quarter.
Operational Update
Joy Global reported net sales of $1.09 billion in the reported
quarter, up 28.6% from $0.9 million in the year-earlier period. The
growth was driven by higher contribution from Underground Mining
Machinery (up 31%) and Surface Mining Equipment (up 24.5%), while
eliminations were a marginal drag on total revenue. Sales, however,
fell short of the Zacks Consensus Estimate of $1.15 billion.
Including contributions from recently acquired LeTourneau Mining
Equipment business, sales grossed $1.14 billion, up 33% year over
year.
Booking in the third quarter of fiscal 2011 grew 46% year over
year. Original equipment bookings surged 78%, while aftermarket
orders increased 22% from year ago level. The third quarter
bookings included a benefit of $79 million from changes in foreign
exchange rates.
Cost of sales climbed 32% to $739.6 million from $560.2 million
a year ago. Similarly, selling and administrative expenses of
$165.3 million rose 40% from the previous year.
Adjusted operating income grew up 20.3% year over year mainly
attributable higher sales volume, favorable price realization and
favorable manufacturing overhead absorption, partially offset by an
increase in selling, engineering and administrative expenses.
Including contributions from recently acquired LeTourneau Mining
Equipment business and acquisition cost, the company reported
operating income of $236 million in the quarter.
Interest expenses during the quarter were $6 million, up from $4
million reported in the comparable quarter last year.
Financial Update
Cash and cash equivalents of Joy Global as of July 29, 2011,
were $443.1 million versus $815.6 million as of October 29,
2010.
Cash provided by operating activities was $96.3 million in the
third quarter of fiscal 2011 versus $294.9 million in the third
quarter of fiscal 2010. The decline is attributable to increase in
inventories, partially offset by an increase in advanced
payments.
Capital expenditure at Joy Global for the third quarter was $22
million, up from $19 million spent in the year-ago quarter. For the
full year, capital expenditure is expected to be $120 million.
Looking Forward
Taking into account the strong market fundamentals, improved
throughput from Operational Excellence and synergies from
acquisitions, Joy Global raised its total revenue expectation for
2011 to $4.3–$4.5 billion from $4.1–$4.1 billion for fiscal 2011.
The guidance includes contribution of approximately $150 million
from the LeTourneau mining equipment business.
The company also raised its earnings per share guidance for 2011
to a range of $5.70 to $6.00 from $5.30 to $5.60. The guidance
includes 10 cents accretion from LeTourneau’s mining equipment
business, net of 4 cents of inventory purchase accounting charges.
It also takes into accounts 11 cents discreet tax benefit realized
and 12 cents of acquisition transaction costs incurred in the third
quarter.
Asset Repositioning
In the quarter, Joy Global closed the acquisition of LeTourneau
Technologies Inc. from Rowan Companies Inc. (RDC)
for $1.1 billion in cash. The company had agreed to buy Rowan’s
LeTourneau assets in May 2011.
The company also entered into an agreement with TJCC Holdings
Limited to purchase 534.8 million shares of International Mining
Machinery Holdings Ltd. (IMM) representing 41.1% of the shares
outstanding. It further purchased approximately 136.5 million
shares of IMM in the open market at a price of HKD 8.00 per share.
The number of shares bought represents 10.5% of the total shares
outstanding. Together with the latest open market purchase, Joy
Global’s stake in IMM aggregates to 51.6% of shares
outstanding.
Subsequent to the reported quarter, Joy Global entered into an
agreement to divest LeTourneau Technologies Drillings Systems and
Offshore Products to Cameron International
Corporation (CAM) for $375 million in cash. The
transaction is scheduled for completion in the fourth quarter of
2011.
Peer Comparison
Joy Global competes head-to-head with the industry behemoth
Caterpillar Inc. (CAT). Caterpillar's
second-quarter adjusted EPS was $1.72, surged 58% over the prior
year quarter. However, results failed to meet the Zacks Consensus
Estimate of $1.77 per share.
Sales, which grossed $14.23 billion in the quarter, jumped to an
all-time quarterly record due to increased machine demand and
continued economic growth.
Our View
The company ended the third quarter of 2011 with a backlog of
$3.20 billion versus $2.63 billion in the first quarter of 2011 and
$1.82 billion in fiscal 2010. It is encouraging to note that
backlog has grown for both Underground Mining and Surface Mining
equipment suggesting all-round growth in the mining sector.
We expect initiatives taken by the company to improve all areas
of business through its Operational Excellence programs and the
mine expansion plan that should help it to reach the updated
guidance level. Also, the acquisition of LeTourneau Technologies
Inc. is already accretive to the earnings of Joy Global.
Furthermore, the company’s 51.6% stake in China based
International Mining Machinery Holdings Ltd. will help it in
procuring leading positions in each of the major segments of the
Chinese market.
We retain our Outperform recommendation on Joy Global. The
quantitative Zacks #2 Rank (short-term Buy rating) for the company
indicates upward pressure on the shares over the near term.
Mining equipment manufacturer and service provider Joy Global
Inc. is based in Milwaukee, Wisconsin. The company caters to
consumers all around the world and provides manufacturing,
distributing and servicing equipment for surface mining, through
its P&H Mining Equipment division, underground mining, through
its Joy Mining Machinery division and bulk material conveyor
systems, through its Continental Crushing & Conveying
division.
CAMERON INTL (CAM): Free Stock Analysis Report
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