Finishing up at 7% yesterday, Joy Global delivered better than expected results primarily due to short covering. The boost came from service orders and surface margins. Faith in the stock is still low as seen by the extremely high short interest rates (-20%). But this latest news has caused a rally.
The drop in original equipment (OE) capital expenditures has affected their stock price since way back in 2012 and the bear thesis sets on incremental pressures that include further declines in OE and aftermarket pricing, service, parts, and normalized margin that precipitate future earnings reductions over the cycle. Of note is the quarter surface mining equipment margin that of 19% in spite of the contesting operating environment. They’re executing good and that is on track to reach their cost cutting targets from previous restructuring. The savings and strength in the Chile copper mines caused the upside in this segment. With orders of $1.05 billion it was far ahead of Wall Street predictions and expectations ~850 million but also win from an estimated $100 million in the tar sand shovel orders. These orders won’t affect the P&L until the year 2016.
The order booked in the last quarter in Australia will however affect the 2015 results. The metallurgical coal and iron ore seem to be the weakest commodities and the smaller miners are barely breaking even or just unprofitable according to the current pricing levels. The next earning season will show the value of the variability that will be the commodity prices which will set the course for the catalyst flow until the following earnings season. The company has only repurchased around $7 million of its stock in the fiscal second quarter following repurchasing $122 million of its stock in the first quarter. There could be something good, an upside from the more aggressive share repurchases during the second half.
Their management pointed to the estimated $50 million Mining Technologies International acquisition that will be accreted to the year 2015, adjusted EPS and it is paralleled with the existing 25% of the stock portfolio that is for hard rock mining which fits with their strategy to expand themselves in this category.
