Joy Global (JOY) Tops Q4 EPS by 1c

Joy Global (NYSE: JOY) reported Q4 EPS of $0.43, $0.01 better than the analyst estimate of $0.42. Revenue for the quarter came in at $0 versus the consensus estimate of $791.14 million.

Market Outlook

Over the course of 2015, pricing for most major commodities served by the company's customers fell between 20 and 30 percent as supply curtailments were slow to materialize in a tepid global growth environment. Global growth is expected to improve modestly in calendar 2016. Commodity prices are not expected to see any material improvement with current over-supplied conditions which will continue to strain cash flows for most mining companies. We expect further austerity driven cost reduction measures and asset consolidation to define the mining industry in 2016.

Slowing global growth, particularly in China, impacted copper markets during the year with prices falling to just above $2.00 per pound in calendar fourth quarter. In response to the 30 percent decline in pricing this year, several major mining companies have recently announced significant production cuts over the next 18 months. Accordingly, some forecasts have the refined copper market returning to an approximate 100,000 tonne deficit in 2016. While a return to deficit could provide some support to pricing, a weaker-than-expected demand profile will likely keep copper pricing below $2.50 per pound.

The combination of regulatory pressures along with sustained sub $3.00/mmBtu natural gas has resulted in calendar 2015 being one of the most challenging years on record for the U.S. coal market. Coal fired power plant closures and coal-to-gas switching are expected to drive a nearly 100 million ton reduction in coal burn in the U.S. this calendar year. The significant reduction in coal burn along with decreased export opportunities due to the strong U.S. dollar will likely see coal production fall nearly 10 percent in 2015. With the expectation of continued natural gas pricing below $3.00/mmBtu and further coal fired power plant closures, we expect coal burn to be down approximately 50 million tons in 2016.

The international seaborne thermal coal market remains oversupplied with prices trending to the $50 dollar per ton range since May. Reduced Chinese coal imports, which are down nearly 75 million tonnes this year, have outweighed the increases in India and Southeast Asia and left the market oversupplied. During the year, currency fluctuations benefiting Australia and Russia also resulted in excess supply in the market. However, in response to low prices, exports from Indonesia have fallen nearly 20 percent through the calendar third quarter which has helped to reduce the surplus in the market. The seaborne thermal coal supply surplus is expected to persist into 2016 although increasing imports into India and Southeast Asia along with fewer new projects will help to rebalance the market.

Seaborne metallurgical coal markets have also seen reduced demand as a result of global steel production contracting nearly 3 percent through October. As a result, met coal spot prices have fallen to below $80 per tonne putting approximately 70 percent of global supply below their cash operating costs. Iron ore markets have faced a similar trend down with weakening demand driving prices below $50 per tonne. While global steel demand is projected to increase just under 1 percent in 2016 following a 1.7 percent contraction in 2015, new supply growth is expected to exceed demand growth resulting in prices likely trending at or below current levels.

The global mining market is expected to remain under pressure in 2016 as oversupplied markets continue to rebalance. Supply curtailments along with improving demand in some markets could provide some relief. However, with most mining companies’ cash flows under pressure, industry capital expenditures are now expected to decline nearly 20 percent.

Company Outlook

"With global mining capital expenditures expected to step down again in 2016, we remain intensely focused on cost reduction and cash generation," continued Doheny. "We exceeded our cost reduction targets again in 2015 and are proactively taking actions to achieve another $85 million of cost reductions in 2016. Our cash generation in the fourth quarter was strong and was driven by good results in bringing our inventory in closer alignment with current order levels. We believe there are additional opportunities to structurally reduce inventories in 2016 by leveraging our global supply chain and the recent investments we have made in our service network.

"We will also continue to drive our growth strategies with service, new product development and expansion of our hard rock platform. While adoption rates are slowed by current market conditions, we have expanded our design capabilities to deliver value-added, new Joy branded service products and consumables to our customers and are well positioned to drive growth in this area in the future. Our hybrid excavator, underground hard rock loader and prototype hard rock mechanical cutting machine are all currently operating and proving out their capabilities with customers in the field. These organically developed new products in combination with the recent acquisitions and our global service network will enable us to drive growth in current and adjacent markets in the future.

GUIDANCE:

Joy Global sees FY2016 EPS of $0.10-$0.50, versus the consensus of $1.11. Joy Global sees FY2016 revenue of $2.4-2.6 billion, versus the consensus of $2.76 billion.

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

You May Also Be Interested In

• SLM (SLM) Tops Q1 EPS by 20c; offers guidance
• Newmarket (NEU) Reports Q1 EPS of $11.23
• O'Reilly Automotive (ORLY) Misses Q1 EPS by 7c, Offers Guidance