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Joy Global books billion-dollar quarterly loss

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World Coal,

Joy Global has booked a quarterly loss of US$1.343 billion in the three months ending 30 October on the back of a US$1.199 billion impairment charge to its underground reporting unit. “During 2015, global commodity markets declined further as supply surpluses led to prices of most major commodities falling well over 25%, which adversely impacted our bookings rate,” said Ted Doheny, President and CEO of Joy Global.

Consolidated bookings for the quarter totalled US$617 million – a fall of 21% compared to the same period last year. Underground bookings were down 10% to US$364 million, while bookings in the opencast mining sector were down 27% to US$294 million.

The company also said it decided to redeem the entire US$250 million aggregate principal amount of its 6% senior notes due in 2016 in order to “reduce interest expense and improve bank and credit rating leverage,” the company said. Other cost-cutting measures included reducing the dividend to US$0.01 per share – down US$0.20 per share – and amending its revolving credit facility and term loan agreements.

Looking ahead and the company said it did not see any improvement in the mining sector with low commodity prices continuing to put pressure on mining company cash flows.

“With global mining capital expenditure expected to step down again in 2016, we remain intensely focused on cost reduction and cash generation. We will also continue to drive our growth strategies with service, new product development and expansion of our hard rock platform,” said Doheny, highlighting the company's hybrid excavator, underground hard rock loader and prototype hard rock mechanical cutting machine as new products the company expects to drive growth in current and adjacent markets.

Doheny also mentioned its global service network as a potential growth area, although analysts at Morgan Stanley sounded a note of caution here: "the service side of the portfolio has surprised investors to the downside throughout the downturn [...] To this point, miners continue to do all they can to cut costs, including bringing service in-house and cannibalising parked equipment. We expect this to continue into 2016e (and perhaps beyond), especially since commodity production is expected to be weak yet again."

Yet Doheny ended on a note of cautious confidence: “We are controlling the things that we can and are confident in our strategies and operational execution will position us well for the future. But the state of our end markets sets up another challenging year in 2016 with revenue expected to be US$2.4 billion – US$2.6 billion.”

"For its part, Joy is operating well, and will continue to do more restructuring to help buffer the downside," said analysts at William Blair, echoing Doheny's comments and adding some positivity at the end: "The stock continues to face a lack of positive catalysts and deteriorating end-markets, though the bottom may be in sight now."

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