Joy Global Inc. (JOY): There Is Little Joy in Global

Besides Joy Global Inc. (NYSE:JOY), Caterpillar is also facing a decline in revenue and earnings. It too, lowered its 2013 sales forecast. CAT’s revenue dropped down from $15.98 billion a year earlier to $13.21 billion in the first quarter of 2013. Due to slow economic growth and lower commodity prices it lowered its 2013 sales forecast to $57 billion from $61 billion.

In the second quarter ended 2013, Deere & Company experienced a 9% increase in revenue year over year, reaching $10.914 billion, driven by the agriculture and turf business. Net income attributed to the company was $1.084 billion compared with $1.056 billion for the same period last year. Its sales are projected to increase by about 5% since the fiscal year 2013 and by about 3% for the third quarter in comparison to the corresponding quarters last year.

Dividend

Joy Global Inc. (NYSE:JOY) has a dividend yield of 1.40% which is lower in comparison to Caterpillar and Deere & Company with 2.50% and 2.90% respectively. Joy’s dividend payout ratio was 10.06% in the second quarter, down 2.72% quarter over quarter. Decreasing earnings and reducing the payout ratio indicates that expansion in Joy’s future dividend seems improbable.

Coal Market

Demand for the coal market decreased due to the shifting of electric utilities to natural gas and other cheaper alternatives. Joy generated 55% of its revenue from markets outside the U.S. the Chinese market contributed 18% in its revenue while its competitor Caterpillar only derived 3% revenue from the market in China. The Chinese Market is in bad shape because of the decrease in demand and excessive supply. Things can improve but will take time.

Final Words

Joy’s huge dependence on coal is a sign of concern. China’s slow economy and soft U.S. coal market impacted Joy’s earnings negatively. The stock has greatly depreciated in the last six months. The mining industry is expected to slow this year. The best way for Joy Global Inc. (NYSE:JOY) to stay in business is by reducing its dependence on coal. I recommend investors to ‘Hold on’ to this stock and while new investors should wait until the stabilization of commodity prices or substantial growth in the mining industry.

Red Chip has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article There Is Little Joy in Global originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.