Booming copper demand and rising raw materials prices in recent years have been a boon to the mining equipment industry. Milwaukee-based Joy Global Inc. has been no exception with profit rising 68% in the second quarter over the year-earlier period and sales increasing 10% to $924 million. In fact, annual revenues have grown by nearly 140% since 2004 for the 2009 IW 50 Best Manufacturer, according to IW 500 data.
But the near future looks very different for Joy Global as copper and coal mining customers from the Central Appalachians to Russia cancel orders in response to the economic downturn. The company booked sales of $635 million in the second quarter compared with $1.2 billion during the same period last year, a 47% drop. Cancelations accounted for $96 million of the quarterly decline, the company said in an earnings statement released June 3.
Over the past three quarters, customers have canceled $300 million worth of orders, primarily from the American copper and iron ore, Central Appalachian coal and Russian coal industries.
The company reported that the backlog risk for its original equipment could be as much as $525 million. The increased risk of 26% versus the 15% previously projected stems from uncertainty surrounding an oil sands project and multiple machine orders.
"The remainder of the increased risk comes primarily from several orders for multiple machines booked with scheduled deliveries extending into 2012," the company wrote in its second-quarter report. "These orders were placed when the industry expected high growth rates to continue, but the recent downturn has changed that outlook dramatically. Although these orders will eventually be executed, the company now expects some of the later machines to be delayed significantly. As a result, the company believes it is prudent to add these to backlog risk."
| At A Glance Joy Global Inc. Milwaukee, Wis. Primary Industry: Machinery Number of Employees: 11,800 2008 In Review Revenue: $3.4 billion Profit Margin: 10.95% Sales Turnover: 1.29 Inventory Turnover: 3.17 Revenue Growth: 8.19% Return On Assets: 17.53% Return On Equity: 51.69% |
The company projects annual revenues will be between $3.5 billion and $3.6 billion.
"We have gained increased confidence in our fiscal 2009 and increased clarity into fiscal 2010," said Mike Sutherlin, president and CEO of Joy Global. "We have had intensive discussions with our customers as we worked closely with them to cancel and reschedule equipment necessary for their financial stability. I believe these discussions have generated substantial goodwill. The changes we have made in our backlog risk assessment have not changed our overall revenue expectations. In fact, they have provided greater certainty of those revenues. We still expect 2009 to meet our original guidance, and we continue to expect 2010 revenues to be lower than 2009 unless our markets begin to improve in the interim."
Sutherlin added that the company expects to incur a $10 million charge during the second half, primarily associated with severance benefits as it cuts costs.
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