Joy Global Inc., a worldwide leader in high-productivity mining solutions, has reported first quarter fiscal 2015 results.
First Quarter Operating Results
"Our first quarter results highlight the continued challenges we face in our end markets as we navigate the extended trough of this cycle," said Ted Doheny, President and Chief Executive Officer. "Key commodity prices took another step-down this quarter which has created additional challenges for our customers and slowed our incoming order rates. Until supply and demand conditions improve, we anticipate reduced bookings activity, although the run rate is expected to be above the seasonally slower fiscal first quarter level. With the further slowdown in our end markets, we are accelerating our cost reduction programs while remaining steadfast in building out our new underground hard rock platform and driving new product development and service strategies that will help our customers sustainably lower their cost positions."
Consolidated bookings in the first quarter totalled US$700 million, a decrease of 19% versus the first quarter of last year. Original equipment orders decreased 30% while service orders were down 14% compared to the prior year. Current quarter bookings were reduced by US$50 million from the impact of foreign currency exchange movements versus the year ago period, a US$19 million decrease for original equipment and a US$31 million decrease for service bookings. When adjusting for foreign currency exchange, orders were down 13% compared to the first quarter of last year, with original equipment orders down 22% and service orders down 9%.
Bookings for underground mining machinery decreased 10% in comparison to the first quarter of last year. Original equipment orders decreased 16% compared to the prior year. Original equipment orders increased in North America, Australia and Africa but were more than offset by declines in all other regions.Service orders decreased 7% compared to the prior year, with an increase in Africa more than offset by decreases in all other regions. Orders for underground mining machinery were reduced by US$39 million from the impact of foreign currency exchange compared to the first quarter of last year.
Bookings for surface mining equipment decreased 28% in comparison to the first quarter of last year. Original equipment orders decreased 48% compared to the prior year. Original equipment orders decreased in all regions. Service orders decreased 21% compared to the prior year, with increases in Africa and China more than offset by reductions in all other regions. Orders for surface mining equipment were reduced by US$11 million from the impact of foreign currency exchange compared to the first quarter of last year.
Backlog at the end of the first quarter was US$1.3 billion, compared to US$1.3 billion at the beginning of the year.
Consolidated net sales totalled US$704 million, a 16% decrease versus the first quarter of last year. Original equipment sales decreased 29% and service sales decreased 10% compared to the prior year. Current quarter net sales were reduced by US$17 million from the impact of foreign currency exchange movements versus the year ago period. When adjusting for foreign currency exchange, sales were down 14% compared to the first quarter of last year with original equipment sales down 28% and service sales down 8%.
Net sales for underground mining machinery decreased 19% in comparison to the first quarter of last year. Original equipment sales decreased 37% compared to the prior year, with decreases in all regions. Service sales decreased 8% compared to the prior year, with increases in North America and China more than offset by decreases in all other regions.
Net sales for surface mining equipment decreased 13% in comparison to the first quarter of last year. Original equipment sales decreased 16% compared to the prior year, with increases in China and Latin America offset by declines in all other regions. Service sales decreased 13% compared to the prior year, with declines in all regions.
Operating profit for the first quarter of fiscal 2015 totalled US$49 million, compared to US$85 million in the first quarter of fiscal 2014. Excluding restructuring charges, operating profit for the first quarter of fiscal 2015 totalled US$50 million, compared to US$88 million in the first quarter of fiscal 2014, and return on sales was 7.0% for the first quarter of fiscal 2015, compared to 10.4% in the first quarter of fiscal 2014. The decrease in operating profit, before restructuring charges in both periods, was due to lower sales volumes and unfavourable product mix partially offset by savings from the company's cost reduction programs and lower incentive based compensation expense.
Restructuring activities continued in the quarter to optimise the company's manufacturing footprint and to better align its overall cost structure with anticipated demand.
Adjusted Net Income and Earnings Per Share Reconciliation
Fully diluted earnings per share for the first quarter of fiscal 2015 totalled US$0.24, compared to US$0.48 in the first quarter of fiscal 2014. Excluding restructuring charges, excess purchase accounting and discrete tax items, adjusted fully diluted earnings per share for the first quarter of fiscal 2015 totalled US$0.25, compared to US$0.49 in the first quarter of fiscal 2014.
The effective income tax rate was 34.0% for the first quarter of fiscal 2015, compared to 31.6% in the first quarter of fiscal 2014. Excluding discrete tax items in both periods, the effective income tax rate was 32.9% and 32.1% in the first quarter of fiscal 2015 and 2014, respectively. The increase in the effective tax rate for the quarter was primarily attributable to a change in geographical mix of projected earnings.
Cash used by continuing operations was US$18 million for the first quarter of fiscal 2015, compared to US$65 million provided by continuing operations in the first quarter of fiscal 2014. The decrease in cash from continuing operations during the first quarter versus the year ago period was primarily due to lower earnings and reduced cash generation from trade working capital.
Capital expenditures were US$22 million in the first quarter of fiscal 2015, down from US$27 million in the first quarter of fiscal 2014.
During the first quarter, the company repurchased approximately 955 thousand shares of its common stock for US$50 million. Since inception of its share repurchase program in the fourth quarter of fiscal 2013, the company has repurchased 9.8 million shares of its common stock for US$533 million, leaving US$467 million available under the current Board authorisation.
Adjusted diluted earnings per share and adjusted net income metrics are provided to present consistency within the results across periods. These measures are not purported to be alternatives to diluted earnings per share or net income.
The outlook for global growth in 2015 has been reduced in recent months as the slowing trends seen in the second half of 2014 have continued. Weak commodity prices, diverging monetary policy and weak world trade all present challenges to the growth outlook. After showing some signs of improvement, growth in Europe remains stagnant with the fourth quarter registering just 0.3%. Slowing housing market activity and a movement towards consumer driven growth has China adjusting to a new normal level of economic activity. The strength seen in the U.S. economy during the second half of 2014 now faces headwinds from slowing activity in the energy sector. Combined, these challenges contribute to a decidedly more difficult end market unfolding for the company in 2015.
The decline in oil prices seen during the second half of 2014 has continued with prices hovering around US$50 per barrel. Record production, elevated inventories, and weakening global demand are expected to result in oil prices remaining depressed through mid-2015, if not longer depending upon the speed of the supply response.
Although the underlying fundamentals of copper remain strong with low global inventory levels and a production deficit of approximately 500 000 t in 2014, near-term demand uncertainty has driven prices down nearly 10% since December 2014. New supply growth is expected to move the global copper market to a surplus in 2015 / 2016 before returning to a longer-term deficit.
Entering 2015, U.S. coal markets were expected to be under pressure from power plant retirements and the looming implementation of increasingly stringent regulations. Over the last several months, added pressures have materialised from lower natural gas prices and exports have been hampered by a stronger U.S. dollar. Current natural gas prices have declined to below US$2.90/mmBtu as record production has increased inventories. Forward curves for natural gas point to around US$3.00/mmBtu for 2015 which will continue to pressure major U.S. coal basins. Exports are also facing challenges in global markets as seaborne thermal coal is trending around US$60 per t and met coal prices remain range-bound between US$110 and US$120 per t. U.S. coal exports are expected to decline approximately 8% in 2015 falling to 90 million t. The combined effect is likely to see U.S. coal demand decline by nearly 50 million t in 2015 which will have a direct impact on overall production.
The challenges seen in seaborne thermal coal markets are expected to persist throughout 2015 as supply growth continues to outpace a strained demand environment. Despite Indian coal imports growing annually at 16%, strong production in Indonesia coupled with 8% growth in Australian exports have left the seaborne thermal coal market well supplied.
Conversely, seaborne metallurgical coal markets appear closer to finding an equilibrium balance as prices have averaged US$114 per t since April 2014. The production curtailments announced in 2014 are expected to support prices at current levels, with the possibility of some marginal improvement by year-end. On the demand side, the largest driver remains the health of global steel consumption which is expected to increase approximately 2% in 2015. The combination of continued supply restraint and stable demand should continue to drive metallurgical coal back to an equilibrium point.
Global steel consumption will continue to influence seaborne iron ore markets. With additional supply set to reach the market in 2015, global iron ore prices, currently trending around US$65 per t, will remain under pressure. Should a substantive downward revision to global steel markets occur, iron ore prices could trend lower.
The increase in economic uncertainty along with further deterioration in commodity prices continues to adversely impact our business. While mining capital expenditures were expected to decline in 2015 by over 10%, further reductions in spending have been announced in recent weeks as the industry battles depressed commodity prices and an uncertain demand outlook. Mine productivity improvements and cost reductions are the focus of the industry as further mine and asset consolidation is expected to take place in 2015.
"The macro-economic and commodity price environment that marked the beginning of our fiscal year has worsened in recent months," continued Doheny. "Lower commodity prices have decreased our customers' cash flows and they are continuing to reduce capital expenditures and delay maintenance in an uncertain demand environment.
"Our direct service business remains a critical and stabilising force for us, but we have recently seen slowing in the bookings profile as maintenance and rebuild schedules are stretched. There has also been evidence of commodity production declines in some end markets that is also impacting our service bookings. Although production declines will help to rebalance supply and demand fundamentals, they will also put pressure on our near-term service booking activity.
"In light of the slower market environment, we are accelerating our facility optimisation plan and are taking additional cost reduction actions to those previously announced. Our cost savings initiatives are now projected to result in US$10 million to US$20 million of restructuring charges which will increase total expected savings in fiscal year 2015 from US$25 million to US$50 million. We are committed to prudently managing our business for softer market conditions, while retaining our ability to ramp up capacity when growth returns.
"The result of the slower macro-economic environment and incremental commodity pricing challenges that emerged in the quarter is a reduction in our full year 2015 guidance. We now expect revenues to be between US$3.3 billion and US$3.6 billion with earnings per fully diluted share, excluding restructuring and unusual items, to be in the range of US$2.50 to US$3.00. This compares to our previously announced guidance for the full year 2015 of revenues between US$3.6 billion to US$3.8 billion and earnings per fully diluted share, excluding restructuring and unusual items, of US$3.10 to US$3.50. As is typical for our company, we expect our earnings and cash generation will be greater in the second half of the fiscal year.
"As a company, we've traversed difficult market conditions before while maintaining our commitment to the future. We continue to do that today and remain focused on working with our customers to deliver differentiated, innovative solutions that they need to maximise their mine performance.”
Adapted from press release by Joe Green
Read the article online at: https://www.worldcoal.com/coal/05032015/joy-global-quarter-fiscal-operating-results-2021/