Joy Global 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Most challenging market in more than a decade

“2014 was another challenging year characterized by weak commodity market conditions and slowing global economic growth. Our customers are facing depressed cash flows and oversupplied end markets. We knew that these conditions would persist in 2014 and planned for that, but it goes without saying this is the most challenging market we’ve seen in more than a decade.”

Oil sands partners have $50 costs

“While lower oil prices have cut into margins, most oilsands customers we work with have production cost around the $50 level, in some cases lower. In the current environment, they can still produce at positive margins and have more cost takeout opportunities in front of them.”

Still a good outlook for copper

“Strength in our Latin American market has primarily been driven by global copper market fundamentals. While recent global economic fears have driven a decline in copper prices dipping below $3 per pound, the medium-term outlook along with supply side dynamics continue to make copper an attractive investment. Over the medium-term, continued power grid expansion in China, which now consumes nearly 10 million tons of refined copper per year or 45% of the world’s total, will continue to drive demand dynamics.”

Supply side of copper is challenged too

“From the supply-side, a number of issues continue to contribute to the annual supply constraints that help support the copper market. These include falling ore grades, lower-than-expected ramp up from new mines and labor issues. Over the last 10 years, an average of 750,000 tons of supply has been affected by these issues and has resulted in years of deficit.”

40% of power generation was coal this year

“While coal has accounted for nearly 40% of electricity generation through the first three quarters of the year, falling gas prices have driven some switching to gas. During the calendar third quarter, natural gas accounted for 31% of electricity generation, up from 25% during the first half of the year. ”

There needs to be consolidation in the industry

“The consolidation, it feels like it has to happen. Obviously we don’t want to talk about any of our customers because of the oversupply situation. I think this winter is going to be very interesting. They are predicting a colder winter. The supplies at utilities are more than the 10-year low average. Maybe that’s the new normal. It’s interesting. We’re talking to our customers about what’s going on with oil now.

It might be an interesting effect because last year the coal burn would have gone up higher if the utilities could have gotten coal during that winter polar vortex, but they couldn’t get the coal because they couldn’t get rails. Now with that shifting a little bit, that dynamic may be different this year, so that could help. Now that’s banking on the weather forecast to help, but right now just the simple answer is, there’s too much supply and that’s got to be consolidated.”