This Stock Presents a Dismal Picture
Anupriya is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Joy Global (NYSE: JOY) engages in the manufacture and servicing of mining equipment for the extraction of coal, copper, iron ore, oil sands, and other minerals. The company has a market cap of $6.13 billion and it is the world’s fourth largest mining equipment maker. The company reported its 4th quarter earnings which seemed to be a mixed bag for the investors as impressive quarter results were accompanied with an uncertain and weak outlook for the mining industry.
Deep Into Numbers
Joy Global reported net sales of $129 million in the current quarter climbing up by 27%. Operating profit increased to $294 million compared to $282 million in the same quarter last year. The underground mining equipment business reported a return of 22% down from a favorable 25% last year. The surface mining business rose by 2% compared to last year owing to attractive sales mix and the recently acquired LeTourneau that cashed in an operating profit of $30 million. Earnings per share of $2.12 were a sigh of relief for the investors. Though, the recent acquisition of International Mining Machinery (IMM) was disappointing with a decline of 15%. Joy's management expects IMM to recover in the coming year.
A Look at the Peers
Caterpillar (NYSE: CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide.The company’s share price may be on a decline, but the impact is connected with the overall disturbed US market and the ongoing Euro area Crisis. Caterpillar is a stock to look out for because of its unparalleled brand value and wide service network. China’s slow down will have little impact on this stock as Caterpillar relies only about 3% for its revenue on China.
Metso Corp (NASDAQOTH: MXCYY) is a global supplier of technology and services to customers in the process industries, including mining, construction, pulp and paper, power, and oil and gas. The mining industry has been affected by the disheartening market conditions and Metso is no different. Metso has recently signed a contract with ZAO Russian Copper Company (RMK) to supply crushing, screening and grinding equipment including on-site services for six years. It has also won repeat orders from Hengan group in China. Further, it has also reached an agreement with Norampac to supply the mill maintenance services for Greenpac Mill in Niagara Falls, NY, in the United States. Hence Metso is trying to use its diversified service offerings to defend its growth against the prevalent unstable market.
Joy Global witnessed a sharp demand decline in the US coal market due to natural gas becoming relatively cheap for use hinting towards the fear of excess supply of coal in the market. Joy Global had been affected by the sluggish China market due to low industrial expansion and growth there. This made its recent expansion of IMM futile as it was purchased to target China’s mining market. The company restricted its production volume in 2012 and reformed its cost structure to come in tune with the market conditions in 2013.
Joy Global has almost 30% of its revenue coming from the US coal market and thus faces a long term risk. The volatile environment is expected to stabilize in the coming year and people have high expectations from the new leadership in China, but speculations still remain. The company's capital expenditure has been kept low for the year 2013 amounting to $150 million. Cost curtailment planning is in full swing and the CEO of the company, Mr. Mike Sutherlin, reported the future plans of the company have been formulated on the basis that prevailing market conditions will continue.
My Final Take
Joy Global shares have fallen by almost 35% showing a bearish trend and the picture ahead also doesn’t seem very bright. In terms of valuation Joy Global may seem viable, but in the present market scenario I would suggest investors to stay away. Unless the disappointing coal market and China slowdown comes to an end anytime soon, investors should sit on the sidelines for now.
anupriya123 has no positions in the stocks mentioned above. The Motley Fool owns shares of Joy Global. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!