Joy Global (JOY) In A Tight Spot On Relentless Coal Woes

On Jun 9, 2016, we issued an updated research report on Joy Global Inc. (NYSE:JOY) . The prospect of this mining equipment maker and service provider is undermined by an expected decline in coal production volumes in the U.S. However, the company is implementing cost-saving initiatives and is planning to invest in other commodities to lower its dependence on coal.

Joy Global was able to beat our earnings and revenue expectations in the fiscal second quarter 2016, but the overall outlook for mining equipment makers is still gloomy.

Joy Global’s management has implemented several strategies to optimize its cost structure and realign production capacity to cope with sluggish customer orders. The company has also decided to monetize its non-core assets and utilize the net proceeds to further strengthen its operations and financial position. The company aims to sell non-core assets in the range of $40 million to $50 million in fiscal 2016.

In the first quarter of fiscal 2016, bookings had declined 21% year over year to $549.8 million. A similar trend was noticed in the second quarter as well, with bookings declining 9% year over year to $681 million. In the fiscal second quarter, Underground and Surface Mining Equipment orders decreased 17% and 1% year over year, respectively. Given the difficult demand scenario, Joy Global is expected to witness weaker results year over year.

Stringent emission rules and ongoing softness in natural gas prices will have an adverse impact on coal demand in fiscal 2016. Joy Global expects U.S. coal production to be down nearly 190 million tons in 2016 from 2015 levels. This will go particularly against the company as coal miners contribute nearly 59% of its revenues.

Joy Global now expects fiscal 2016 revenue and earnings per share to be near the lower end of the previously provided guidance range. Another equipment maker, The Manitowoc Company (NYSE:MTW) , however, reaffirmed its expectation for 2016.

A major player in the mining equipment space, Caterpillar Inc. (NYSE:CAT) lowered its 2016 revenue expectation to the range of $40–$42 billion from its previous outlook of $40–$44 billion. The company also lowered its earnings per share expectation to $3.70 per share from $4.00.

Joy Global currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Astec Industries, Inc. (NASDAQ:ASTE) , currently carrying a Zacks Rank #2 (Buy).

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