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.