Joy Global (JOY) Beats On Q2 Earnings, FY16 Outlook Weak

Joy Global Inc. (NYSE:JOY) reported adjusted earnings of 9 cents per share in the second quarter of fiscal 2016, while the Zacks Consensus Estimate was a loss of 3 cents. In the year-ago quarter, the company reported earnings of 64 cents per share.

GAAP loss per share was 16 cents for the quarter as against earnings of 57 cents in the year-ago quarter. The difference between GAAP and operating figures was due to the impact of restructuring charges of 35 cents, and a benefit of 6 cents from discrete tax adjustments and a 4 cent tax benefit from restructuring charges.

Total Revenue

Joy Global reported net sales of $602 million in the second quarter of fiscal 2016, lagging the year-ago revenue of $810.5 million by 26% but surpassing the Zacks Consensus Estimate by 2.4%.

The year-over-year decline in revenue was due to lower contributions from its Underground Mining Machinery and Surface Mining Equipment segments.

Highlights of the Release

Total bookings at Joy Global during the second quarter of fiscal 2016 were $681 million, down 9% from $745 million a year ago. A 17% decline in orders from Joy Global’s legacy underground business and a 1% reduction in bookings from the surface mining businesses led to the year-over-year drop in bookings.

Joy Global’s total backlog at the end of the fiscal second quarter was $976 million, up 11.8% from $873 million at the beginning of the fiscal year.

Product development, selling and administrative expenses in the reported quarter were $116.6 million, down 11.1% year over year.

Net interest expense in second-quarter fiscal 2016 was $11.6 million, down from $13.3 million in the second quarter of fiscal 2015.

Financial Condition

Cash and cash equivalents, as of Apr 29, 2016, were $160.9 million compared with $102.9 million as of Oct 30, 2015.

Cash from operating activities during second-quarter fiscal 2016 was $44.2 million, down from $71.1 million in the prior-year quarter.

Capital expenditure was $13 million, compared with $18 million in the prior year.

Guidance

Joy Global now expects fiscal 2016 revenue and earnings per share to be near the lower end of the previously provided guidance range. The company had earlier issued fiscal 2016 total revenue of $2.4–$2.6 billion and earnings per share of 10–50 cents. The soft guidance is because of lower coal production expected in 2016.

Joy Global is targeting cost reduction of $100 million year over year in fiscal 2016.

Other Releases

Caterpillar Inc. (NYSE:CAT) posted earnings of 67 cents per share in first-quarter 2016, in line with the Zacks Consensus Estimate.

Stanley Black & Decker, Inc.’s (NYSE:SWK) first-quarter 2016 adjusted earnings of $1.32 per share surpassed the Zacks Consensus Estimate by 10.92%.

Terex Corporation’s (NYSE:TEX) first-quarter 2016 loss of 5 cents was wider than the Zacks Consensus Estimate of a loss of 2 cents by 150.0%.

Our View

Even if Joy Global was able to beat our expectation in the fiscal second quarter, the overall outlook for mining equipment makers is still gloomy. As per an EIA report, mild weather and cheap natural gas are expected to lower 2016 U.S. coal production by nearly 150 million tons from 2015 levels. This is going to be a big blow for Joy Global as it depends to a large extent on coal miners.

The mining industry continues to face challenges as the commodity market rebalances. Amid constrained market conditions, the company is implementing cost-saving initiatives and is planning to invest in other commodities to lower its dependence on coal.

Though the company maintained its earnings per share and revenue guidance for fiscal 2016, it expects both lines to come in on the lower end of the projection. This is because of the challenging conditions prevailing in the global mining market.

Joy Global currently has a Zacks Rank #3 (Hold).

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