Joy Global (JOY) Q2 2016 Earnings Call

Joy Global (JOY) CEO Ted Doheny said the mining market is distressed

“Although there were a few positive signs that emerged during the quarter that suggested some commodity markets were moving closer to rebalancing, the overall mining market remains under significant pressure with continued reductions in capital expenditures and deferral of maintenance activities in particular with U.S. coal.”

Coal in the United States remains particularly weak

“The pressure on U.S. coal market has not subsided. Year-to-date, we seen production decline $118 million tons or 33% year-over-year as producers battle elevated inventory levels, a reduced coal demand, largely stemming from an abundant supply of low cost natural gas.  As the U.S. coal market begins to normalize at a lower level in 2017, we expect the pressures on our service business will lessen as the industry consolidates and adjusts to a new market condition. Over the medium term, as the market begins to rebalance, inventories normalize and the reorganization of the industry plays out, we expect the delayed maintenance and the remaining U.S. coal fleet will create upside to our service business.”

Joy Global (JOY) CFO Jim Sullivan said North America and China were the weakest geographical regions

“The 17% decrease in underground mining machinery bookings was comprised of 15% decrease in original equipment and an 18% decrease in service. Original equipment bookings for the underground segment were down in all regions except Eurasia with the maturity of the decline in North America and China.”

India was a surprising bright spot 

“Overall, India is starting to show its potential. On a combined basis, orders from this market in the quarter exceeded $100 million as coal production in the region is expected to be at a record high this year. Backlog increased to $976 million from $897 million at the end of the first quarter of 2016 and up 12% from the beginning of fiscal 2016.”

The fact that many of their coal equipment customers are going through various stages of the bankruptcy process is causing volatility in their orders

“Now as you know from our discussions, this market is volatile and our customers are reorganizing and that process creates some chunkiness with our business as they secure the support of their constituents and a reorganization process that does have a tendency to slow things down a bit initially, but then once they get the alignment then things pick back up. And we do have customers that are at various stages of that process and so just a bit of caution in terms of the chunkiness of that business but overall if you were to look at the pattern first half versus second half, we wouldn’t expect a big change in that segment.”

Joy Global (JOY) CEO Ted Doheny on why China is a tough market to crack

“China is tough. As we shared with you the strategy for China is still the same, we’re focusing on highly, highly differentiated products for customers who have money and where we get paid. Where we see the market going on our imported product is still for large shares where we have an opportunity to differentiate for some of those huge coal blocks, but it’s really the little stuff right now that we’re going after.  The local market is even tougher. What we’re battling to show in China is our localized new products that make a difference.  We are chasing customers where it can pay and have the ability to pay. We’re chasing orders where we can differentiate our products and help them lower their cost per ton. So, just tough, tough, tough for us in China right now.”

Joy Global 1Q16 Earnings Call Notes

Edward L. Doheny – President, Chief Executive Officer & Director

End markets took another step down

“The past quarter, our end markets took another step down with supply-demand imbalances driving prices lower by an average of 10% over the last few months. This is further strained and already pressured customer base, which will drive further austerity measures in our installed base.”

Further cost reduction actions

“the step down in the marketplace has caused us to implement further cost reduction actions. As Jim mentioned, we are now targeting $100 million in year-over-year cost savings. ”

US coal production will fall another 100m tons in 2016 battling with elevated inventories

“Higher coal inventories at both power plants and producers will certainly put downward pressure on coal production for the remainder of the year. For 2016, we now believe U.S. coal production will fall at least another 100 million tons, particularly if there is a mild summer. The elevated inventory levels will take time to work through and we’ve already seen our customers responding with shutdowns.”

Seeing service starting to pick up in Australia

“we’ve seen in probably Australia, a large market for us where over the last few years, we put a significant amount of equipment, especially on some of the mega longwalls. But we’re seeing that service starting to lock up, the slots being booked and we have visibility that are coming through as well as some of our service initiatives.”

Opportunity in India

“The next region actually is, I’ll have to say growth and we’ve talked about, it is India. We’ve been quite cautious about India. India has been a potential. The government has announced that they’re going to privatize those coal blocks. ”

I know you’d love me to call a bottom but there is just so much inventory out there

“nobody can call the bottom. I’m sure that’s what you’d love me to say that we’re seeing the bottom there. We’re just trying to get ahead of it with what we see in the U.S. There is just so much out there, utilities, and I’m sure all of you have seen the inventory levels. So the customers are having to pullback on the production.”

Utilization is running at 25-35% of capacity

” as we ended 2015 is – or the reason we’ve upped our cost reduction, we saw our utilization drop in that 35% on that footprint. And as you know, we had a footprint out there that just a few years ago supported almost a $6 billion business. So, as we’ve done our restructuring and an optimization and moving our facilities and moving to service centers as well. In the first quarter, with this drop, we saw that actual utilization in that 25%.”

We’re trying to make cuts to get to 45% by the end of the year, 75% over the longer term

“So, with the actions that we have in place and accelerating our footprint plan, which basically what we’re doing is moving the 2017 plan into 2016, that’s the acceleration. We think we can get that utilization by the end of the year, that 45%. Now, to your long-term question, we’re designing that to where we see in the next three years, let’s say, to get our utilization and our capacity footprint to that 75% level.”

Don’t really have cancellations backlog is stable

“As far as cancellations, we didn’t really have. We feel that the backlog is pretty stable and that’s part of why we see us – our path to the second half of the year. But we still see the major projects that – we have quite a few more projects that are out there that we have hedged out because of the commodity prices where they are today. ”

Australian fleet has aged

“When I went – gave that walk around the world, we just see that the Australian fleet has been aging and they’re going to have to do some of those rebuilds and we just see that happening, because they’re already scheduled. As I went around the world, the South African business we see that stabilized and some growth potential. The U.S. we see that taking a step down and we have that into our guidance. So, can’t say we’re seeing any foretelling macroeconomic things that you can go from region by region, each one is pretty much dependent on the – or their mining and what our installed base looks like and our service initiative penetration capability. So, I wish I could give you one macro number, but we probably have to answer those region by region.”

Joy Global FY 4Q15 Earnings Call Notes

Ted Doheny

2016 should be another rough year

“The mining industry in 2016 will be defined by strained cash flows, further austerity measures and asset consolidation. The net effect will be the third consecutive year of double-digit decline in capital spending.”

Have had positive developments in copper markets

“In recent months, we’ve seen some potential positive developments in refined copper market. Our original estimates expected refined copper markets to be in surplus until 2017. However, the production curtailments that have already been announced could ship to refine market to a deficit as early as next year, which could support improved pricing and drive project investment.”

Facing continued headwinds in coal

“One of the largest headwinds we continue to face is in U.S. coal markets. The combination of regulatory forces and a seemingly unlimited supply of abundant low-cost natural gas is transforming the U.S. electricity industry. Although coal will continue to play an important role, we now expect that coal burn in the electric power sector could decline nearly 100 million tons in 2015.”

Coal CapEx more likely to bottom in 2017

“we see U.S. coal, which we’ve been now following for three years. We see that in the next 12 to 18 months. The data we look at is what our customers’ CapEx has been out there and we saw that’s pointing down to bottoming at 2017 on public data. So we just have to be prepared for that to take another step down in ‘16.”

Joy Global at Morgan Stanley Conference Notes

Ted Doheny – Executive Vice President, President and Chief Operating Officer

In the next 10-20 years hard rock mines will be going underground

“In the next 10 years to 20 years about 20% of the copper, the hard rock mines will be going underground. The easy stuff has gone and that’s where you’ve seen our acquisitions in the hard rock space as this market is converting from drill and blast operations to mechanized mining. ‘

Commodity prices reflect the supply/demand situation so for prices to stabilize you’re going to have to see something happen to either supply or demand

“The bearish tone was the reality. So, if we look out to the markets that we’re seeing prices are resultant of the supply and demand situation. So, if we have to wait for a pricing to move something has got to happen with the supply or the demand.”

There’s an oversupply of commodities

” looking at our various commodities around the world, there is an oversupply of the commodities through this huge ramp-up in commodities in the previous cycle. That’s got to be worked through.”

There’s been a lot of automation and mechanization in mining in the last 20 years

“part of what we’re doing in mining this same thing that happen in United States. If you went back 20 years in mining in the United States there’s 1,000 of people in mining. So part of what we done is bringing the mechanization and automation to mining which productivity very simply means doing more with less people.”

Stability in China rests on having jobs for people, which is a counterbalance to increased productivity

“So it’s going to be less people doing the work absolutely, which is a real issue in China right now because part of the stability of the China is jobs.”

We’re managing our cash aggressively

“we’re really aggressively managing our cash. We talked openly looking at the dividend going in the next year on the cash as well. That’s important to us when we did the dividend to show that we are a service company but it’s also important and keeping our investment grade rating. So as we’re looking next year with that step down, so we want to make sure we managed that part very carefully.”

Joy Global 2Q15 Earnings Call Notes

Everything down a lot

“Bookings of $745 million in the current quarter were down 29% versus the year ago period. Orders for original equipment of $150 million were down 57% and service orders of $595 million were down 15%’

Operating profit down 28%

“Operating profit, excluding $24 million of restructuring and non-cash pension settlement charge, totaled $94 million in the second quarter, down 28% from the second quarter of 2014.”

We certainly have seen our end markets take another step down

“we certainly have seen our end markets take another step down. Compared to the first quarter, we’ve seen met coal prices drop 21%, iron ore fall 11%, thermal coal fall 8%, and natural gas drop 20%. The combined impact of these forces has created additional headwinds to our business and we’re seeing this in our bookings.”

Customers now projecting double digit declines in capex through 2017

“The extended downturn in commodities has put pressure on our customers under increasing pressure. Reduced cash flows and increasing debt levels are forcing our customers to shift to austerity measures, delay service work, and withdraw our original equipment expansion plant. Overall, our mining customers are now projecting double digit declines in Capex through 2017.”

China’s housing market is the driver of seaborne commodity prices

“Given the importance that China’s housing market plays for many seaborne commodities, including copper, iron ore and met coal, a healthy Chinese housing market would have an impact on demand for these commodities.”

Seeing improving copper production

“Over the last month, we’ve seen some improvements in global copper markets as the expectations of stimulus in China along with an improving housing market in the U.S. had driven expectations for increased copper demand in coming months. Additionally, we’ve seen improvements in global copper production as production rates have reached their highest level since last June, which we believe will help our service business over the coming months.”

Met coal markets have deteriorated significantly in recent weeks

“Met coal markets have also deteriorated significantly in recent weeks. Current spot prices are trending in the $85 to $90 range, although reduced spot market transactions are creating limited visibility into the market. The 25% decline since beginning the year has left met coal prices at levels not seen since 2006 and this has certainly impacted the project pipeline. ”

Global steel production has contracted

“Global steel production contracting nearly 2% year-to-date has reduced met coal demand, at the same time, the forecast for steel consumption had been reduced to just 0.5% for 2015.”

Currencies have offset supply curtailments

“While the nearly 40 million tonnes of supply curtailments announced since 2012 have begun to impact the market, the significant currency decline in major met coal producing regions has affectively muted the supply adjustment process, leaving the market oversupplied. ”

Our customers are definitely in a distressed state

“our customers are definitely into distressed state”

Bought Montabert

“Montabert offers an interesting opportunity for us in the hard rock space. If we look at the business, we’ve actually been looking at this for eight months to your point of an auction. We found about – we know a lot about Montabert, but we saw it pop out with our MTI acquisition, is a critical part of that business and this was a critical component where they had high margins and also a world-class piece or a component with their rock breaker, and we saw it in the MTI business for their drifters and the drills.”

We knew the business and we knew it was a bit of an orphan

“we know this business, but it was somewhat of an orphan child with Doosan. And with Doosan, they bought it with the bobcat, so Ingersoll Rand put it in the bobcat package, so 70% of the business was related to construction with the breakers.”

Tough markets forcing us to get better

“As far as the share, I do think these tough markets are really making us get better and going after all the business and as we highlighted, our investment right now is in service and we’ve talked about the Surface centers, but also on the product development. The previous question, investing in the consumables, investing in our Surface products, so do believe we’re gaining share in a tough market with the third party well fitters and the pirates that are going after that business, I think we are gaining.”

It’s tough to say we see things bottoming anywhere

“Boy, it’s tough for me to say seeing the bottom. We see where it’s bottoming, as I shared in the last quarter, we thought the U.S. was bottoming, and boy, it took another step down. We did highlight, we saw Australia take a bump up and we’ve been talking about that for a while and that where we seem to gain there within — in the service bookings and so that is optimistic. We’ve also seen our customers now talking about the delivery slots into 2016 in both in the U.S. and Australia, and what that means is, they start locking those in.

So, see Australia bottoming, see some positive actions, also see some China opportunities but then again, it’s taking share, so getting our service business growing in China. ”

I don’t see much optimism from our customers. They’re shutting down more mines

“I don’t see the optimism there. I think the customers who are out there are truly analyzing where they are in their costs and where they’re in their cost curves. If they have mines that are well above the cost curve, if originally those were taken out, I think that is their price goes down, takes another step, it’s going to knock more mines out.”

Looking for acquisitions

” as we look at our M&A or kind of the acquisition, we are looking at things that match our strategy. To accelerate our business into hard rock, we need critical components to make that go faster, because the new product development just takes a long time. So we’re looking at things in the hard rock space and still in that 100 to $2 million [ph] range. We are not looking at something big, we are always looking at service companies. ”

Headline EBITDA multiples obscure the value

“Obviously the multiples are going to go up when the EBITDA has gone down and so mining companies are being hit on an EBITDA basis just like we are. The good news is the acquisition. We bought a company that’s been very stable, and we do have visibility into how we are going to improve that business, integrate it into Joy. So it’s one thing to talk about the headline valuation, EBITDA multiple those are going to be in the nine to ten type of area, but with synergies, you buy that down to seven – six, seven over a pretty short period of time.’

Joy Global FY 1Q15 Earnings Call Notes

We expected a tough quarter, but this was tough

“The added challenges to our market certainly impacted our first quarter of the year. We had expected a slower first quarter with many of our customers taking extended production shutdowns. However, the further deterioration seen in some of our major end markets resulted in a tough quarter for us.”

Economic landscape ahs become more challenging

“Over the last several months, the global economic landscape has become more challenging. While growth began slowing in the second half of 2014, the fourth quarter saw U.S. growth fall sequentially to 2.2% while the Eurozone remained weak with a 0.3% growth.”

Long term copper fundamentals remain positive

“While there certainly will be periods of volatility in copper markets, the fundamental long-term dynamics remain positive and provide an investment opportunity for most of our customers.”

Coal is probably the best opportunity for a comeback

“globally looking at it, Jerry, it’s probably the best opportunity for growth coming back is actually coal because we’ve had 2 years of reduction there. ”

“the U.S. — actually, the U.S. coal business, our service levels in the U.S. was actually flat to slightly up. So we do see that as some positive there after the 2 years reduction.”

Big change is in copper markets

“The big change, though, in the quarter for us was in the copper markets. So we’re seeing that drop-off in the first quarter, with the price of copper dropping $0.50, was a change for us”

Copper companies are reacting to price downturn with austerity

“I think what — part of what we’re seeing, as what we saw with coal when coal first took the downturn, is there is this immediate impact on margins for our customers, and there’s this push towards austerity type of cost reduction, which we’ve learned in coal, having been in and out for the third year, that, that ends up turning because it’s not sustainable. And so part of what we see in copper is just a sign of the price went down pretty materially, clearly impacting margins. And I think there is a short-term austerity type of response that we think will be rectified as we get to the back half of the year because fundamentally, copper is still in very nice shape from a supply/demand perspective. So we see it being kind of that early-stage initial reaction. And our customers know that that’s not going to win long term, but they do have to do that because they’re being, in a lot of cases, instructed from their management teams to execute in that kind of austere type way.”

Joy Global 2Q14 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

Conditions remain difficult

“It goes without saying that conditions in mining remain difficult and while we see some signs of stabilization in terms of our order rates and service activity, there are still challenges on the horizon”

Coal facing more headwinds in the second half

” challenges remain as U.S. coal production now faces some headwinds in the second half of 2014 from continued depressed coal prices, decreasing export opportunities and a cooler than normal summer.”

Met coal prices seem to have found a floor, but producers are still liquidating inventory

“Met coal prices remain under pressure, but seem to have found the floor to pricing as stock prices have trended in the $110 to $120 range since March. Pricing at these levels continues to pressure over half of global producers. Despite the announcement of over 20 million tons of curtailment, these cuts have not yet materially impacted the market as many producers had stockpiles built up that are still being depleted.”

Pricing environment is likely to last through 2015

“Steel production is expected to grow 3% to 4% this year and that will help support the demand side, but the current oversupply is likely to persist through 2015 capping any marginal upside pricing improvements around $130 per ton’

Iron Ore price ceiling at $100

“The 3.8% growth in global steel production has not been enough to absorb global supply increases and will likely result in a price ceiling on iron ore at $100 per ton in the absence of any major supply disruption.”

service business should stabilize in 2015, but probably still not a lot of new build

“I’ll give you just our initial thoughts on 2015, because it’s tied. We don’t see much changing. We see the service business settling. So we feel good about that. We would like to see this increase going. On the OE piece, we don’t see any major – unless there is a push on the pricing, we don’t see major projects coming through. But what we do see is some of these rebuilds have been extended for long enough period of time, some of that could show up as OE into 2015, so we’re looking at that”

We have to find our own growth in this difficult environment

“– with our acquisition, we think we have an opportunity to bring mechanized mining to hard rock. So we think that’s a growth for us. So all these are growth elements on top of the business that we think we’re going to have to have created. We’re not going to get the uplift of the past 10 years with commodity prices booming. So that’s what we mean by that.”

Joy Global 3Q13 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.

“I’ll turn the call over to Ted Doheny, who is succeeding me as President and CEO. Ted?”

“We think the U.S. aftermarket is now through most of its correction period. Certainly, a lot of machines came out of the field, as high cost production in Central App was taken offline in lieu of lower cost production from the Illinois and Powder River Basins.”

“we’ve seen production down in China year-over-year close to 2%, as lower cost seaborne imports have created challenges for domestic producers.”

“During 2013, we saw the U.S. coal market remain under pressure, but we are now seeing some improvements.”

“Met coal has gone to a similar story, with years of supply investment hitting the marketplace in 2013, and prices reaching 3-year lows in the third quarter of this year. Again, we’ve seen some firming in prices of late, as China’s import demand has increased nearly 50% from a year ago”

“this has caused met coal prices to trend at $150 per tonne level. However, these increases have been marginal and they’re still a significant amount of the global cost curve out of the money.”

“Global copper markets continue to see the strongest commodity fundamentals. In 2013, global consumption is expected to increase 3.6%. Pricing level should remain above the marginal cost of production and should attract continued investment in additional production capacity.”

“we’re probably getting to the end of the miners’ ability to stretch these maintenance intervals. We’re beginning to see our process list stabilize. We’re seeing selective projects moving forward that can achieve acceptable returns in the current pricing environment.”

“This past year was certainly challenging. We believe we will see the headwinds that are facing our end markets and customers remain an issue in 2014.”

“for 2014, we expect to achieve our targeted 34% decremental margin and deliver earnings per fully diluted share in the range of $3 to $3.50 before restructuring cost and other unusual items.”

“Thermal coal is what we talked about is bouncing around the bottom. We see some opportunities probably more in thermal coal in the second half of the year. And then, met coal, as I highlighted, we still see some production has to go offline. We know where we put in a lot of our longwall systems around the world. And so we know we have some high productivity, low-cost production coming online in 2014.”