Joy Global 2Q Earnings Preview
Joy Global 2Q Earnings Preview Prepared by: Nathan Yates, M.S.F., Director of Research, on Monday, June 1, 2015 Why We’re Writing With Joy Global’s (JOY) 2Q earnings report coming on Thursday BMO, we’d like to present our predictions for the numbers. Based on our coal industry research and Caterpillar’s (CAT) recent 1Q report (weak Resource segment sales), we can make a few inferences for Joy. See below.
The Forward View We’re forecasting $863M of 2Q revenue and diluted EPS of $0.50. That’s a (7.2%) decline in y/y revenue and a $0.23 drop in EPS. Forward View expects additional, though mild, deterioration in the total bookings. Look for the y/y booking drop to be less than the revenue decline as we believe that the mining capex trough is near. The high-‐margin Service segment’s bookings are particularly key. In addition, we’re also interested in data/commentary on overdue receivables. Caterpillar’s 1Q Finance receivables past-‐ due increased to 3.08% of assets from 2.17% q/q and 2.44% y/y. Latin America was cited as a particular problem in this regard. (Hat-‐tip to Langenberg & Company for a good conversation on this subject.) This problem with collecting money from customers almost certainly isn’t limited to CAT, and we expect Joy to have similar challenges. To summarize our thinking on Joy, the company won't be growing until key coal mining customers can become less financially-‐burdened. Nonetheless, we see limited downside with Joy trading below $39 a share. The 5.2% FCF yield (TTM) is nice, too. Our $46 target price is maintained along with a Speculative Buy rating.
Disclaimers & Disclosures Analyst Certification: I, Nathan Yates, certify that the views expressed in this publication accurately reflect my personal views about the subject companies and their securities. I also certify that I have not, am not, and will not be compensated directly or indirectly in exchange for expressing any specific recommendation in this report. Recommendation Expected Return % or Range Strong Buy Speculative Buy Hold Underperform Sell
Shares are expected to deliver alpha of at least 10% Shares are expected to generate at least 5% of alpha, but significant risk remains Shares are expected to match the market's return Shares are expected to underperform by at least 5% on a risk-‐adjusted basis Shares are expected to underperform by at least 10% on a risk-‐adjusted basis
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