Joy Global Inc., the world’s largest maker of underground mining equipment, fell the most in a year after forecasting lower-than-expected 2014 earnings as miners continue spending cuts and commodity prices drop.
Profit excluding one-time items will be $3 to $3.50 a share for the fiscal year through October, the Milwaukee-based company said today in a statement. The average of 22 analysts’ estimates compiled by Bloomberg is for $3.67. Sales for the 2014 fiscal year will drop to $3.6 billion to $3.8 billion, from $5.01 billion, Joy said.
Mining companies around the world have cut billions of dollars of capital expenditure amid surplus production of metals and coal. Spending won’t recover until commodity prices move toward “incentive levels” for producers, Joy said.
“Although we believe our markets overall will begin to improve in 2014, the timing is difficult to predict,” Ted Doheny, executive vice president and incoming chief executive officer, said in the statement. “Until a sustained demand catalyst emerges, we expect our customers will continue to be cautious and selective in deploying capital expenditures.”
The announcement on Dec. 2 by Rio Tinto Plc, the second-largest global mining company, of significant cuts to 2015 capital spending after reductions next year suggests the worst is not over for mining equipment, Karen Ubelhart, an analyst for Bloomberg Industries, said in a Dec. 3 report.
Joy fell 5.5 percent to $53.15 at the close in New York, the biggest decline since Nov. 7, 2012.
The shares may be declining because investors don’t see a “clear bottom,” Stephen Volkmann, a New York-based analyst for Jefferies Group LLC who has a hold rating on the shares, said in a telephone interview today. Next year “is unlikely to be the bottom,” he said.
In the past two years, more than 25 new CEOs have taken the helm of mining companies, seeking to cut costs and boost shareholder returns, Doheny said during a conference call with analysts today. Miners have stretched out machine rebuilds and delayed regular maintenance, he said.
“This is something that can only go on for so long, and we’re probably getting to the end of the miners’ ability to stretch these maintenance intervals,” Doheny said.
Joy said it will take “additional restructuring actions” in 2014 as it moves manufacturing capacity “eastward” to be nearer the source of potential demand growth. The cost of those changes will be about $15 million for the year, it said.
China is “huge” for the company’s strategy, Doheny said. The company will offer products designed in China that will help it grow as the country’s mining industry consolidates, he said.
Net income for the quarter ended Oct. 25 dropped 87 percent to $26.8 million, or 25 cents a share, from $212.4 million, or $1.99, a year earlier, the company said today. Adjusted per-share profit was 1 cent below the $1.12 average of 21 estimates.
The company repurchased 4.1 million shares for $214 million in the fourth quarter and has $786 million available under the current authorization by the board.