Joy Global Inc. released earnings
on Thursday May 30th, reporting an EPS of $1.73, beating consensus
of $1.56, with revenue falling to $1.36 billion from $1.54 billion. Backlog for
the company fell to $2.2 billion from $2.4 billion, with net sales decreasing
by 12% vs. the second quarter a year ago.
A decreasing backlog is the major
concern for Joy, as it questions potential revenue that will be streaming into
the company in the coming quarters. This is showing that they are not acquiring
new projects, which is something to be monitored very closely in the future. Another
problem for Joy is its reliance heavily on their sale of coal, which has not
been doing as well as natural gas. Joy believes that the future still is coal,
and they expect an increase of 60 million to 70 million tons this coming year,
but I think those numbers are ambitious due to natural gas emerging in the
market, taking up 30% of the market already and still growing.
In China,
Joy has struggled. The company is having trouble gaining traction, as the
growth in electricity slowed to 5%, less than half the rate that it was. China
is continuing to produce great amounts of coal, but Joy is having an excess
supply that they are still looking to sell off, keeping the price low. Right now,
they are selling the coal near marginal costs.
Joy has
readjusted their forecasts for the rest of the year. They believe that they are
in a correctional period right now, and are making adjustments accordingly.
They reduced earnings to between $5.60 and $5.80 and revenue between $4.9
billion and $5 billion, cutting higher estimates from the beginning of the
year. After being up the day of earnings being reported, the company is down
6%. I believe that we need to monitor Joy within the portfolio right now, as it
could have a potential to increase its backlog in these coming quarters, but
our position needs to be watched closely.
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