Joy Global (JOY) Tops Q4 EPS Views; Issues Light FY15 Outlook

Joy Global (NYSE: JOY) reported Q4 EPS of $1.38, $0.23 better than the analyst estimate of $1.15. Revenue for the quarter came in at $1.13 billion versus the consensus estimate of $1.05 billion.

Bookings $783 million, down 27 percent from a year ago.

Joy Global sees FY2015 EPS of $3.10 - $3.50, versus the consensus of $3.57. Joy Global sees FY2015 revenue of $3.6 - $3.8 billion, versus the consensus of $3.79 billion.

Market Outlook

During 2014, most major commodity markets served by the company remained in surplus as a slower than expected supply response was met by weakening global demand. These conditions resulted in a depressed pricing environment for most of the year that continued to influence the capital spending plans of our customers. Mining industry capital expenditures declined in 2014 for the second consecutive year, with further declines expected in 2015 as companies seek to optimize their mining portfolios to operate in a lower commodity price environment.

Since peaking during July, global economic growth has slowed in recent months as geographic and geopolitical issues have weighed on the overall global economy. Manufacturing conditions in the Eurozone slowed throughout the year weighing on economic growth, which reached 16-month lows in November. Along with this, consumer confidence in Europe has eroded and suggests the need for further policy measures to avoid a renewed contraction in economic activity. Chinese growth remains muted as the ongoing transition to a more consumer driven economy has slowed manufacturing growth. While growth in China is expected to exceed 7 percent in 2014, conditions constraining growth persist, including a cooling of the housing market, high levels of debt and a weak export market.

After one of the coldest winters on record in 2013, U.S. coal markets were poised to see a rebound in production during 2014. However, a cooler-than-normal summer, record domestic natural gas production, and reduced export opportunities reduced the U.S. coal production outlook. Production during 2014 is now expected to be flat, while coal consumption in the electric power sector should increase 2 to 3 percent. Coal inventories across the country remain 15 percent below 10-year averages and could provide a catalyst for increased production should demand pick up. Looking into 2015, U.S. coal markets will remain constrained as expected gas production growth of nearly 5 percent and depressed seaborne prices weigh on U.S. coal production, which will likely be flat with 2014.

After falling over 20 percent during 2014, seaborne thermal coal markets are expected to remain under pressure as new supply outpaces demand in 2015. The ramp-up of mine projects started during the 2011 to 2013 cycle is expected to reach a peak in 2015, before the market begins to rebalance in 2016 and beyond. Thermal coal prices are expected to average $65 per tonne in 2015 pressuring nearly 40 percent of the seaborne market.

Seaborne thermal coal markets continue to be influenced by domestic Chinese policies including import restrictions, usage bans, and production curtailments. Domestic Chinese production is down 3 percent year-to-date and likely has established a new near-term run rate of 3.5 billion tonnes of production. Over 1,800 mines in China have been closed since 2013 due to safety reasons and production inefficiencies, and further consolidation is expected to continue in 2015. The domestic Chinese market is expected to recover slowly as excess capacity is absorbed and the effects of governmental policies continue to materialize in 2015.

Similar conditions are expected in the met coal market where prices now sit at 5-year lows nearing $110 per tonne. While nearly 30 million tonnes of curtailments have been announced year-to-date, the impact of these cuts won’t be felt until 2015. Oversupplied conditions are expected to elicit further supply curtailments in 2015 before a recovery in prices begins. Further straining the market is the decelerating growth rate in global steel production. 2014 is likely to finish with global steel production increasing approximately 3 percent, before slowing to a 2 percent growth rate in 2015.

The slowdown in steel production has also impacted the global iron ore market. The seaborne iron ore market is facing nearly 200 million tonnes of new supply coming online in 2015 and 2016. Combined with the possibility of slowing demand, iron ore prices are expected to remain in the range between $70 and $85 per tonne with movements primarily driven by the reaction of marginal supply in China and elsewhere.

Despite copper prices falling over 10 percent since the beginning of the year and with current prices hovering around $3 per pound, further investment remains attractive for 90 percent of copper producers. Through the first nine months of the year, the global copper market has seen a deficit of nearly 425,000 tonnes with a full-year deficit expected at approximately 270,000 tonnes. New supply growth in 2015 is expected to move the market to a surplus of nearly 355,000 tonnes on average for the next two years. Post-2016, the copper market is expected to return to deficit as economic growth drives demand and investment in new capacity growth slows.

While global economic growth is expected to improve modestly in 2015, the rate of growth has been reduced in recent months which could exacerbate the supply rationalization process facing most major commodity markets. Multi-year low commodity prices will continue to impact customer capital expenditure decisions and drive demand for only those products and services that improve mine productivity and reduce operating cost. While a number of mines have closed over the last year, there remain many high-cost uneconomic mines that will face pressure in 2015 as the industry continues to consolidate and optimize the global portfolio of mines.

For earnings history and earnings-related data on Joy Global (JOY) click here.

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