August 30, 2013 at 12:12 pm #1607
Joy Global warns on revenue as coal glut hits orders
August 28, 2013 10:38 AM ET
By Sagarika Jaisinghani
(Reuters) – Joy Global Inc , a maker of mining equipment, reported a 36 percent slide in quarterly orders and warned of sharply lower revenue for a further year as coal producers cut back capital spending in the face of a supply glut and low prices.
Joy Global, which derives two-thirds of its revenue from sales to coal miners, said it would increase cost cutting to offset the slide in orders.
Its shares fell 5 percent in early Wednesday trading as the company warned revenue next year could drop a further 20 percent, on top of an already forecast fall this year.
The plunge in orders does not bode well for Caterpillar Inc , the world’s largest maker of mining and construction equipment. Its shares were down 1 percent.
“Given (Joy Global’s) weak order book and a backlog that is now essentially down to one quarter’s worth of revenue we believe there will be additional revisions to forecasts for 2014/2015,” Jefferies & Co analyst Stephen Volkmann wrote in a note.
The company’s backlog has dwindled as mounting coal stockpiles prompt some of the world’s largest producers, such as Peabody Energy Corp and Alpha Natural Resources Inc , to cut spending on mining equipment.
Joy Global’s backlog fell 27 percent to $1.6 billion at the end of the third quarter.
It maintained its forecast of revenue for the year to October 2013 of $4.9-$5 billion, down from last year’s $5.66 billion, and warned the following year would be worse.
“The current outlook (for 2014) is unlikely to support annual revenue above $4 billion,” Chief Executive Mike Sutherlin said in a statement.
This is sharply lower than the previous average expectation from analysts for revenue of $4.57 billion for the year ending October 2014, according to Thomson Reuters I/B/E/S.
“If order rates stay at current levels, 2014 revenues could come in as much as $1.5 bln below Street estimates,” Volkmann said.
FALLING CAPITAL SPENDING
Joy Global said its customers have reduced capital expenditure by as much as half and it expected spending to remain at this level until demand improves.
Aftermarket sales, which include maintenance and repair services and make up about half of sales, have also been hit.
“Our aftermarket will continue to see headwinds as mines are taken out of production and volumes decline to balance the market,” Sutherlin said.
Rival Caterpillar slashed its outlook for 2013 in July, but said it was unlikely that dealers would continue to reduce machine inventory in 2014, given the scale of the expected decline in 2013.
“Caterpillar’s thesis that mining revenues could be up in 2014 due to lack of inventory reduction does require orders to improve from recent levels, and Joy Global’s results show no sign that this is happening yet,” Volkmann said.
HIGHER COST CUTTING
Joy Global, which began restructuring its business in the second half of 2012, said it was stepping up cost cutting to adjust to the lowered outlook for 2014.
Cost of sales fell 3.6 percent to $880.2 million in the third quarter. Product development, selling and administrative expenses dropped 7 percent.
The company’s orders fell 36 percent to $695 million in the quarter ended July 26.
Net income fell 5 percent to $183.2 million, or $1.71 per share. Revenue dropped 5 percent to $1.32 billion.
Excluding items, Joy Global earned $1.70 per share.
Analysts on average expected earnings of $1.37 per share, excluding items, on revenue of $1.18 billion.
Joy Global maintained its 2013 forecast for earnings of $5.60-$5.80 per share.
The company’s shares were trading down 5 percent at $48.59 on the New York Stock Exchange on Wednesday. The stock has dropped about 20 percent this year, far short of the 14 percent rise in the S&P 500 index.
(Editing by Kirti Pandey and Rodney Joyce)
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