Joy Global Cuts 2012 Forecast as Mining Expenditure Declines
Joy Global Inc. (JOY), the world’s fourth- largest mining equipment maker, cut its full-year profit and sales forecasts and said revenue may not increase next year as commodity demand slowed in the U.S. and China.
Earnings excluding restructuring costs will be $7.05 to $7.20 a share on revenue of $5.45 billion to $5.55 billion in the year through October, the Milwaukee-based company said today in a statement. That’s lower than its May forecast for per-share profit of $7.15 to $7.45 on sales of $5.5 billion to $5.7 billion.
“The outlook for our business has continued to decline over the past quarter,” Chief Executive Officer Mike Sutherlin said in the statement. “The deceleration of China demand has deteriorated international markets more quickly and severely than previously expected.”
Miners are reducing capital spending and production in response to slower demand. While the greatest cuts are coming from U.S. coal producers, higher cost mines are spurring closures in Australia and Russia, Joy Global said. Lower electricity use is curbing coal demand in China. While the U.S. and Chinese markets may have bottomed, a recovery will be “sluggish,” Sutherlin said.
Joy Global will accelerate cost cuts in a “softer market” during the fourth quarter and next fiscal year to improve efficiency and margins, Sutherlin said. While restructuring costs may reach $20 million, reducing fully diluted per-share earnings by 13 cents, the actions will result in about $40 million of annual cost savings in the next fiscal year, the company said.
“People are willing to give them the benefit of the doubt because their track record is so strong,” said Ted Grace, a Boston-based analyst for Susquehanna Financial Group, a market maker for Joy Global. The company outperforms most peers in terms of metrics such as return on invested capital, he said today in a telephone interview.
Joy Global’s return on invested capital in the last calendar year was 27 percent, compared with 14 percent for Caterpillar Inc. (CAT), the world’s largest mining-equipment maker, according to data compiled by Bloomberg.
Commodity prices have declined as much as 22 percent from this year’s high in February, according to the Standard & Poor’s GSCI Spot Index of 24 raw materials. BHP Billiton Ltd. (BHP), the world’s largest mining company, said Aug. 22 that it put off approvals for about $68 billion of projects after its second- half profit fell 58 percent.
“Mining projects already under way will continue, but they are being slowed by additional engineering review,” Joy Global said. The focus increasingly is on projects that carry less risk and many larger, new plans have been pushed out beyond 2013, the company said.
Under current market conditions, spending for next year will be unchanged, the company said.
“U.S. coal is performing about in line with the company’s plan,” Larry De Maria, a New York-based analyst for William Blair & Co. who has a buy rating on the shares, said in a report today. “However, weakened global macro is having a larger detrimental effect than initially thought.”
Joy Global’s full-year forecast is also lower than the average analysts’ estimates for per-share earnings of $7.32 on sales of $5.58 billion. Joy also cut its full-year profit and revenue forecasts on May 31.
Net income climbed 12 percent in the fiscal third quarter ended July 27 to $193.5 million, or $1.82 a share, from $173.1 million, or $1.61, a year earlier. Profit was $1.79 a share excluding acquisition costs and other one-time items, trailing the $1.89 average of 19 analysts’ estimates.
Second-quarter sales rose 22 percent to $1.39 billion from $1.14 billion, missing the $1.43 billion average of 16 estimates.
Joy Global’s results may pressure shares of Caterpillar, Stephen Volkmann, a New York-based analyst for Jefferies & Co. who has a hold rating on both companies, said in a report today. “Joy management continues to temper near-term outlook on end markets as capital spending plans by miners continue to be extended,” Volkmann said.
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