Joy Global (JOY) is a leading purveyor of mining equipment, primarily used in the extraction of coal, minerals, and other ores. The company manufactures equipment for both surface and underground mining. In 2001, the company was reincarnated from the Chapter 11 bankruptcy of Harnischfeger Industries when it launched its initial public offering. It entered The Value Line Investment Survey in 2003.
The company suffered a rough slide in share price during the 2008 recession, but hit its highest share price in 2011. Since then, longer-term coal-related headwinds have caused the share price to retreat some. It has facilities around the world including areas of high drilling, such as Australia, China, and South Africa. Historically, 62% of sales have come from customers associated with the production of coal, and Joy Global faces considerable challenges given the weak coal demand environment. This entity employs over 16,600 employees worldwide, with over 5,900 in the United States alone.
Joy Global operates in two segments: Surface Mining Equipment and Underground Mining Machinery. The Surface Mining Equipment unit sells large-scale electric mining shovels, conveyer systems, and walking draglines in addition to servicing lifestyle management arrangements. The Underground Mining segment sells longwall shearers, flexible conveyor trains, and shuttle cars. Many of the products that Joy Global produces are very large scale. Indeed, some of its shuttle cars can carry up to 30-ton loads of coal, and its high-end electric mining shovel can handle loads over 120 metric tons. The company competes with companies such as Caterpillar (CAT - Free Caterpillar Stock Report) and Deere and Co. (DE), as well as several foreign heavy equipment manufacturers.
The long-term, secular decline in coal prices has hurt Joy Global’s top line. Coal demand growth has decreased as natural gas has gained in popularity. More electric generation is occurring using cleaner technologies, as well. Successes in coal mining efficiency have led to an oversupply, hurting longer-term prices. Indeed, the company’s mining clientele is struggling, and end-market demand for Joy’s products is suffering as a result. Joy Global’s backlog has dwindled from $2.5 billion in fiscal 2012 to $1.5 billion in fiscal 2013. Most of the decrease was in the Surface Mining Equipment segment and management expects fiscal 2014 to be another down year for the top line.
On the plus side, new products that boost efficiency, should help Joy Global through these tough times for coal. For example, the P&H 4800XPC, the company’s largest electric mining shovel, can increase production up to 20% while lowering cost per ton of coal as much as 10%. Such products allow mines to run more efficiently and may help the coal mining industry increase its profitability. This could, in turn, allow for more coal-related investments by the industry, which is good over the long term for Joy Global.
Despite these myriad challenges, Joy Global has many strengths. Its specialized tools and focus on the coal industry have lead it to become a leader in the market. Too, its long-term fiscal position remains solid, with the company directing a good portion of cash flow on share-repurchase programs. Indeed, stock buybacks lowered total share count by 3.7% during fiscal 2013, and additional repurchases should materialize in the year’s ahead. The company’s worldwide footprint and diversified income streams are helping to buffer against a weak coal demand environment.
Against a less-than-stellar backdrop, there has been a changing of the guard at Joy Global. CEO Michael Sutherline retired on February 1, 2014, with Edward Doheny stepping in as the new chief executive.
For a more thorough look at Joy Global, and the particular investment merits of its stock, subscribers should examine our full report in The Value Line Investment Survey.
At the time of this article’s writing, the author had positions in: CAT