How Joy Global Will Survive Commodities' Plunge
On Thursday, Joy Global will release its latest quarterly results. After peaking in 2011, the company has seen its stock lose nearly half its value amid the weakening macroeconomic environment, especially in key markets like China.
More recently, April's crash in gold prices has led to calls that the commodity supercycle might finally be turning downward. If true, that could plunge the mining industry into a long-term decline and threaten sales of mining equipment for years. Let's take an early look at what's been happening with Joy Global over the past quarter and what we're likely to see in its quarterly report.
Stats on Joy Global
Analyst EPS Estimate
Change From Year-Ago EPS
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Will Joy Global's earnings bring investors any joy this quarter?
In light of recent events, analysts haven't been all that optimistic about Joy's earnings prospects over the past several months, with cuts of $0.06 per share to their April-quarter estimates as well as reductions for the fiscal 2013 and 2014 years. The stock has performed pretty badly, losing more than 11% since late February.
Early in the quarter, things were beginning to look up for Joy Global. In its previous quarterly report, Joy said that conditions in the commodity markets looked like they were starting to improve, especially in the coal market, where rising natural gas prices were finally helping to support demand.
But sales trends remain abysmal in many parts of the market, especially in the former growth hot-spot of the Asia-Pacific region. Rival Caterpillar has seen sales in the region swing from year-over-year gains as recently as November to declines of 20% or more in each of the past three months. Latin America has been a bright spot for Caterpillar, but otherwise, the rest of the world has seen a substantial slowdown, with overall sales down 13% in April.
Moreover, the big drop in commodities prices in April will almost certainly weigh even further on mining-company demand for equipment in the future. With dramatically lower profit margins possible, especially among some miners with high cost structures, capital budgets could see further cuts and reduce sales further for Joy, Caterpillar, and other mining-equipment makers.
One interesting side-note is whether the drop in Joy's stock will lead to further speculation about its being a takeover target. Ever since last year, General Electric has been named as a potential buyer of Joy Global in GE's efforts to boost its own presence in the mining-equipment industry.
In Joy's quarterly report, watch to see whether future CEO Edward Doheny starts to assume his new leadership role on the conference call. With current CEO Michael Sutherlin formally retiring next February, it'll be essential for Joy to establish a smooth transfer of power given the tough times facing the company.
Joy Global is a substantial player in mining equipment, but Caterpillar is the market share leader in an industry in which size matters, and its quality products, extensive service network, and unparalleled brand strength combine to give it solid competitive advantages. Read all about Caterpillar's strengths and weaknesses in The Motley Fool's brand-new report. Just click here to access it now.
Click here to add Joy Global to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.
The article How Joy Global Will Survive Commodities' Plunge originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of General Electric. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.