In spite of the tough market conditions, Joy Global’s (JOY, Financial) impressive quarterly performance illustrates its operational efficiency. Also, it is investing aggressively into its strategic growth plans, going forward. For the past 18 months, Joy is consistently focused on enhancing its ability to better handle the difficult market conditions coupled with increasing the shareholder returns.
Research and development will advance its growth
Joy is consistently focusing its research and development initiatives on the advanced solutions that are believed to considerably reduce the cost, enhance productivity and protect people from the harms of the mining operations. These innovative products and system development are estimated to generate significant growth opportunities for its business.
Although the global economy is facing tough times, the entire commodity demand is developing as evidenced from the worldwide growth readings recorded at a three year highs. The supply rationalization process is at varied stages with all the commodities and is expected to allow its customers to enhance their mine productivity and reduce their total operational cost.
The main focus of Joy’s strategy is its service commitment to its customers and the capability to service its current fleet of equipments. Joy ensures the complete utilization and supreme efficiency of its equipments which is at the center to its customer’s success. Joy is continuously investing into its service abilities globally. After a recent launch of a new service center in Australia, Joy is about to complete the development of a state-of-the-art facility in Peru and Russia to further build on its service ability serving the future market growth. These service centers have capability to handle both underground and surface equipment.
Seeing strong improvements
Joy has witnessed an excellent third consecutive quarter of year-over-year service bookings growth increasing 7% during the third quarter. Year-till-date, service bookings increased 6% over last year. This trend of enhanced service bookings is estimated to continue into fiscal 2015 with the line of equipments employed in the field for the last five years reaching different stages of reconstruction and maintenance cycle.
The rebuild and maintenance cycle is continuously struggling with weaker commodity prices. But, Joy is tracking its fleet closely and is embedded with its customers at their respective mine sites. For instance, Joy started witnessing the signs of improvement for its U.S. service business which began stabilizing although at weaker levels compared to the previous levels. This healthy rebound in the U.S. service booking experienced by Joy in the quarter was primarily due to its failure in continually differing maintenance which has negatively affected its service business for the previous 18 months.
The global coal demand has expanded slightly in the lower single-digits backed by 3.8% growth in steel production for year-till-date with several producers under strain. However, this allows an opportunity for Joy to work closely with its customers to reduce their operating costs and improve upon the position of the cost curve.
Steel production is estimated to grow in 3% to 4% range for this year and is expected to support the demand parameters, but the present situation of over supply will probably persist throughout 2015 preventing any trivial pricing enhancements. The iron ore prices globally are under pressure with the ramped production in Australia and significant exports in already over supplied market.
Moreover, the increased capability of several state owned enterprises to bear huge losses for an increased time duration is continuously developing uncertainty in worldwide iron ore pricing. In the quarter, Joy booked two shovels with a key Chinese iron ore producer, keen on upgrading the mine performance with enhanced technology to reduce their cost structure.
Further, the ongoing consolidation and closers of unsafe mines is expected to inculcate market mechanization. Joy strategizes on injecting technology into its local China products coupled with working on completely integrated systems to enhance the performance of the mines. Customers are increasingly shifting from purchasing pieces of a longwall system to purchasing the overall integrated longwall system from Joy.
Conclusion
For the copper markets worldwide in the quarter, Joy closed three major shovel orders for copper mines. Joy’s service business in Latin America also uniquely returned to the significant 2012 levels. The belief about copper to remain at poor levels after 2015 is continuously driving long-term investments for the players that are extremely well-positioned on the cost curve.
