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.”

Joy Global 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Beginning to see some signs of improvement, but commodity price under pressure

“Though macroeconomic indicators are moving in the right direction, commodity prices are still under pressure. We are beginning to see the signs of stabilization. But overall, soft market conditions continue to make customers cautious about spending on new projects.”

Transitioning from just an aftermarket business to a service business

“You probably noticed Jim use the word service instead of aftermarket in his comments on the first quarter financial results. This is purposeful. Service excellence and growth is a core strategy for our business and the name aftermarket doesn’t describe what we do and where we’re going. Given the importance of our service business, we are continuing to invest in service centers globally that will support our installed fleet and provide world-class technical expertise to our customers.”

Seeing coal stabilize for the first time in 2 years

“For the first time in 2 years, we are seeing some incremental positive signs coming from the U.S. coal market. While production fell below 1 billion tonnes in 2013 for the first time in 20 years, U.S. coal production is expected to rebound by 35 million to 45 million tonnes this year. The continued normalization of utility inventories as well as the recent weather-driven spike that pushed natural gas prices above $5 should drive an increase in coal consumption in the U.S.”

Still excess steel capacity

“global steel production is expected to increase over 3% this year, reaching 1.63 billion tonnes, as global demand remains healthy. Excess production capacity of approximately 200 million tonnes exists globally. Strengthening economic activity will support demand, although prices will remain weak.”

Metallurgical coal still out of balance

“Weak steel prices will continue to put pressure on steel making inputs, particularly metallurgical coal. Seaborne met coal demand is expected to grow nearly 5% in 2014. Oversupply conditions persist and supply cuts have not been enough to balance markets. We’ve continued to see spot prices decline below $135 per tonne, and this resulted in the Q1 2014 contract settling at $143 per tonne, the lowest level seen since 2009.”

Chinese restocking cycle has peaked for iron ore

“After ending the year around $135 per tonne, iron ore prices have trended lower in recent weeks, a sign that the Chinese restocking cycle has reached completion”

Some customers stretched out re-builds a little too long

“Part of the effect that we had in our bump in the first quarter, some of the customers got in trouble by stretching the rebuilds too long and we actually had some very strong quick book and turn, anecdotally. ”

More supply coming to market for Met coal. High cost producers under a lot of pressure

“we still believe that there’s pricing pressure on met coal. So that’s got to work itself out. And there’s still the high-cost producers are under a lot of pressure. We also know, because we’re connected to this fleet, we put some significant longwalls into the U.S. and to Australasia — Australia that are driving a different step function in that cost curve and making that met coal more productive. So that’s going to put supply into the pipeline, again, putting more pressure on the high-cost. So again, that matches what you see in the commodity pricing, if that helps with some color.”

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.”

Joy Global at Morgan Stanley Industrials Conference 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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“I’ve been at Joy now for over 10 years, it’s the first time that I’ve seen the industry in surplus capacity across a broad range of commodities, and that’s fundamentally a different position than we’ve seen for the last decade.”

“the outlook for the U.S. market is improving with coal-fired generation up and stockpiles coming down, and they’ll translate to production increases next year for our U.S. customers. We’re seeing corrections in China. The surplus of coal in the seaboard markets is impacting China and they’re going through the correction phase in that market.”

“we see a restocking phase in China, in particular in the metals markets. We see pretty low inventory levels of iron ore. Net coal prices are coming up. Copper inventories are lower than the exchange inventories would indicate. And they’re coming down and we’re seeing the prices in copper begin to move up again as well.”

“So there’s a lot of positive factors in these markets, but we still are focused in our business on taking costs out, lowering our cost base, and preparing for a wide range of outcomes.”

“we are in a downturn that started for us — we saw the peak order rates in 2011-2012”

“We expect to bump along the bottom for a longer period of time obviously than we did in 2009, and we expect the recovery to be a slower, steadier recovery.”

“we track the prospects that our customers are working on and we put that on our prospect list of those projects that we expect to come to equipment selection in the next 12 months. And in that list, that list has ticked up more recently. So we’re seeing some projects being taken off the list as those projects get reevaluated, but we’re seeing new projects come on the list. And more recently we’re seeing more projects come on the list that have been taken off the list.”

“I think we’ve seen the worst of the equipment CapEx reductions and I think that we’ll slowly start to see improvement in CapEx”

“n the U.S., we saw the rebuild activity go to zero. So all the rebuilds were just deferred indefinitely. So in 2012 we had about 900 continuous miners running in the U.S. market, today we have 700 continuous miners.

In operating mode, those miners would need to get rebuilt about every two years. So there’s a significant rebuild activity that in the U.S. market has gone to zero.”

“We’re strictly a mining equipment company. We’re not going to be diversified industrial. We may broaden our exposure in the mining space, but we’re not going to be, you know, we do one thing really well and we sell and support mining equipment. We’re going to continue to do that because we do it well.”

“We’re focused on bringing not lower prices to our customers but more value to our customers. How do we improve our value component for our customers? Other competitors are doing the same thing. So we’re not seeing that, you know, trying to gain market share by lowering their price.”

“Yes. What we’re seeing in the aftermarket is, you know, it’s an interesting phenomenon, as our customers take costs out of their operations. We saw this in the oil and gas space where the oil companies in the ’80s took a lot of costs out. And they took out a lot of their ability to engineer their own projects and then began to look at the suppliers to provide the engineering content for the projects.

So, yes, that developed into integrated supply capability with the major oil service suppliers. We’re seeing the same thing in the mining space, as they take more and more costs out, we’re seeing them look to the equipment suppliers to add more resources into those operations. We have projects today where we have a significant number of our engineering people that are officed with our customers, working on a project side by side.

So when a customer in the past would develop a spec and give us a spec to work to, now we’re co-developing the spec with them. And that’s — it is a change but it’s a change for the positive because it puts us in more of a partnership embedded relationship with our customers.

And so the tendency to shop around, you know, no one has time to do that anymore. Everybody is stretched to thin. The need to bring companies like Joy Global into, not just deliver equipment but to manage the project, you know, we’re doing a lot of turnkey work but we design and build equipment, we install and commission it, and we’ll take a lifecycle management contract for the first five or ten years. And that’s becoming more common in the market.”

Joy Global 2Q13 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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“Backlog fell to $2.2 billion from $2.4 billion at the beginning of the second fiscal quarter.”

“Our prospect list has bottomed and improved this quarter. Projects that were de-scheduled are being replaced…However, the new normal will sustain rather than materially increase our order rate, at least in the near term.”

“surplus mine capacity in most commodities is putting pressure on prices, customer margins and their cash flow. Management at most mining companies has been changed and they have new mandates. Second, CapEx spend on mining equipment is down 40% to 50%…projects will go forward selectively. They must be low risk and they must come in low in the marginal cost curve. Most of these projects can achieve returns without material improvement in market demand.

“projects will go forward selectively. They must be low risk and they must come in low in the marginal cost curve. Most of these projects can achieve returns without material improvement in market demand.”

“we’ll leave it to others to predict timing and we’ll continue to operate under the assumption that the inflection point is over the horizon. As such, we will continue to focus on process efficiency, a reduction of our base cost and on cash flow.”

“the outlook for the U.S. coal market has turned positive. I guess, this is first in, first out, if you will. With natural gas prices above $4 per million BTUs, fuel for power generation is increasingly switching back to coal.”

“China continues to slow and cannot seem to find traction. The growth in electricity production has slowed to 5%, below half the prior rate. And despite this slowing, domestic coal production continued to grow at 7% or 8%.”

“I think copper is an underestimated market, especially because of the inventory that has moved from private to exchange stocks. Our customers agree with copper strongly represented on our prospect list.”

“Our aftermarket order rates slowed in the first quarter, but quickly started to improve in the second quarter. This confirmed our belief that the decline in the international markets would quickly correct.”

“we saw that go through about 5 quarters to — for the order rates to come down, bottom out and begin to improve. We saw the order rates bottom between the fourth and first quarters and improvement for this quarter”

” I think it tells you that there’s — this is more about cutting costs and driving cost reductions”

“our customers don’t have the — they’re not carrying the inventories of parts that they used to, so now they’re going to need and expect us to have instantaneous delivery”

“Yes, I definitely think we’re at a low point. There’s no doubt about that. I think the question is what does the slope look like as things get better and how long will that take.”

“old projects that weren’t going to make the ROI thresholds have been cleaned out. New projects have replaced them so we’re looking at a new set of projects that have been reviewed by new management teams. And I think that they’re more likely to go forward.”

“equipment we delivered in 2011, 2012, those will come into normal rebuild cycles”

“The price levels have stayed sort of in that $3.20 to $3.40 kind price range. And that stays at an incentive level for copper producers. And so we’ve seen investments in copper. We’ve seen customers talk about continued expansion in copper without a lot of reservation. I mean, we’re — there are a number of projects that are underway in various phases.”

“both met coal and thermal coal, on a global basis, we probably have 5% to 7% excess capacity. It seems like a lot now because everybody’s fighting over — more supplies fighting over less demand. But it’s a single-digit kind of capacity excess. And so that’s going to take us a little bit of time to work off some combination of closing, some high-cost mines that need to come out and demand improving. But I think we need to see supply/demand balance get closer, which is probably not a couple of quarters away, maybe 1 year away before you begin to see the point where our customers are willing to accelerate their CapEx.”

“2 things, I think, we’ve done in the business that we feel very confident that we’re going to be able to hold margins pretty well. And one of those things is being very transparent with our customers on pricing. We’ve been consistent, open, transparent with them on pricing when we need to price. And we haven’t tried to overprice in the up cycle and they’ve — I think they’ve developed a confidence that we’re fair and balanced with them. And therefore, we’re able to execute pricing when we need to in the down cycle.”