Backlogs, Services, and Product Upgrades Are Driving This Machine Stock
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In mid-December, 2012 Joy Global International (NYSE: JOY) declared its 4Q 2012 results with revenue of ~$1.6 billion, which were up by ~19% on a year-over-year basis. This performance has buoyed the stock, and since the declaration the stock price has seen an upward trend of ~17%.
The topline drivers to the incremental sales were:
- The surface segment of the company, which was up by ~35% y/y, benefited greatly from last year’s influx of electric shovel orders.
- Joy's Original Equipment Manufacturer (OEM) showed a good growth of ~37% y/y because of increased international orders and strong product delivery across all regions.
One more interesting thing to watch in Joy's results was its order backlogs. Even though its backlogs were down by ~10% and reached ~$1.26 billion, it will cover ~75% of the company's production plan for 2013. These include two big Capex orders lined up for next year of ~$200 million from Australia and ~$100 million from North America.
The only thing in the 4Q12 results that somewhat disappointed me was the ~25% decline in the revenue of its latest acquisition International Mining Machinery (IMM). This decline was due to low shipments from Eurasia and China and its integration issues with Joy Global. But, I think that the company will improve its integration process and increase the aftermarket services of IMM, making good use of its strong field service organization. Additionally, quality enhancements on certain products using Joy's technology should allow IMM to grow its market share within China.
Competitors Focusing on Expansion & Acquisition
With the aim to capture the growing mining market in the Asia-Pacific region, Caterpillar (NYSE: CAT) recently announced that it will open two new factories in Tongzhou, Jiangsu Province of China. These facilities will manufacture large wheel loaders according to the needs and requirements for quarry and mining applications in China and other markets. With the announcement of these proposed facilities the company now operates 27 facilities, out of which four are under construction. Caterpillar’s seriousness towards emerging markets and China is evident from the fact that in early 2012 it acquired its Chinese rival ERA Mining Machinery Ltd.
In the MINIExpo 2012 General Electric (NYSE: GE) introduced its GE mining unit and aims to increase its revenue from manufacturing mining equipment to ~$5 billion within the next 4 years. To strengthen its position it acquired Industria of Australia and Fairchild International in the U.S. General Electric's acquisitions are not only aimed at increasing volume, but also to acquire leverage over technology. The newly acquired firms have a strong history of R&D. Their achievements include advanced collision avoidance systems, remote asset monitoring, and in-vehicle monitoring systems.
Coming back to Joy Global, it has launched many new upgraded products for both surface and underground mining.
Introduction of New and Improved products
At the MINIExpo, 2012 Joy introduced a host of products that are expected to generate ~$1 billion in the next five years. Some of the products are low seam longwall and autonomous longwall systems that are expected to generate ~$300 million. A new highly automated continuous mining system that can cut, bolt, mesh, and convey simultaneously will generate ~$200 million, and the 2650 CX Hybrid a diesel-electronic rope shovel will reduce fuel consumption by 25%, from which savings of ~$200 million are expected. Along with that, it has also included the 4800 XPC shovel, a 135 ton mining shovel that is 20% more productive than previously introduced shovels and is designed with the world's largest capacity bucket.
What to expect from this Stock?
The success of Joy Global in the short run depends on how the macro factors turn out. The weak US coal market is especially the one to keep an eye on. But in the long run I feel that the backlogs, future growth of aftermarket services, and upgraded products will help the company achieve a strong position in the future.
ShwetaDubey has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company and 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!