Is There a Reason for Joy Here?
Growing mining activity worldwide helped mining-equipment maker Joy Global (NAS: JOYG) report strong third-quarter numbers that beat Street estimates. Can the Wisconsin-based company be a cause for your own joy in the near future, or are the solid numbers just a case of some one-time eye candy?
Joy's net sales surged 34% from the year-ago quarter to $1.1 billion, driven by higher sales in both its segments. Order bookings shot up by 49%, buoyed by a huge 97.9% rise in surface mining equipment bookings.
Most of the mining markets witnessed an uptick in activity, boosting demand from customers across all major geographic and commodities markets. For instance, higher mining activity also increased demand and, hence, sales for Terex (NYS: TEX) in its second quarter and contributed to Cummins' (NYS: CMI) 56% growth in its second-quarter U.S. revenues. Higher bookings also helped Joy's backlog grow to $3.2 billion from $1.8 billion from the beginning of fiscal 2011.
As a result of the robust top-line growth, Joy's net income shot up by 46% to $173.1 million this quarter.
Joy has been spending aggressively in expanding its business lately. In June, it acquired LeTourneau Technologies, a mining and drilling equipment company, which contributed $43.3 million to Joy's third-quarter sales.
Joy isn't the only one optimistic about the overall mining industry. Caterpillar (NYS: CAT) feels the same, having acquired mining-equipment company Bucyrus in July.
Joy has also been keen on strengthening its base in emerging markets and recently acquired an additional stake in a Chinese equipment manufacturer. China seems to have become the hub for these companies, with Caterpillar also pushing deeper into the region. With more than half of Joy's sales coming from outside the United States, such moves make sense.
Joy spent a total of $1.2 billion on these investments in the quarter. As a result, long-term debt has gone up to $873.4 million from $511.4 million year on year. However, the interest coverage ratio has also moved up significantly, from 23.2 to 39.1 year on year. The good news, though, is that Joy is earning enough to support its higher debt obligations.
Joy is already planning to sell off parts of LeTourneau. Does that mean Joy thinks the original acquisition was a bad decision? Not necessarily. Joy is simply retaining the mining-equipment part of the business, which ties in with its core competency, and selling off the drilling-products segment to Cameron International (NYS: CAM) for $375 million in cash. Joy will then use these proceeds for completing its acquisition of the Chinese company. This move makes sense, considering that it will help Joy focus on expanding its reach into emerging markets rather than spending resources on other areas with less potential.
The Foolish bottom line
Joy expects its strong performance to continue into the coming quarter. Good numbers, serious plans, and a strong return on equity of 38.2% make it look like a stock that could indeed add joy to your portfolio.
To stay up to speed on the top news and analysis on Joy Global, add it to your stock watchlist.
At the time this article was published Fool contributor Neha Chamaria owns no shares of any of the companies mentioned in this article.Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.