The mining industry faced a tough market in 2012 due to the global economic slowdown. With Joy Global Inc. (NYSE:JOY) strongly entrenched in this industry, they were hit hard, suffering a 16.13% drop in their stock. With strength returning and economic indicators pointing in a favorable direction, however, they have the potential to push back towards their previous highs.
Joy Global’s 2012 Summary
Net sales for 2012 rose to $5.66 billion, a 28.5% increase from 2011
Underground mining machinery sales rose 20.6%
Surface mining equipment sales rose 39.7%
Operating income rose 27.4% to $1.2 billion
Original equipment sales rose 51.8%
After-market sales rose 12.7%
The United States was a difficult area for Joy Global Inc. (NYSE:JOY) in 2012. The coal market was beaten down mainly because of the drop in natural gas prices. Cheap natural gas prompted companies to switch from coal to generate electricity.
2012 in review:
Coal production decreased by about 70 million tons, or 7%, for the year
Coal-fired generation fell 13% for the year, but this was mainly over the first 4 months
From April to November, this increased 10% as natural gas prices rose
The coal market is expecting gains to continue in 2013 due to higher natural gas prices, as well as improving economic activity. Exports grew 15% from 2011 and should remain at these levels. 2012 started off bad, but gained steam in the end.
First Quarter and Going Forward
Joy Global Inc. (NYSE:JOY) reported first quarter earnings on Feb. 27. Here are the highlights:
Earnings per share came in at $1.33 versus estimates of $1.14
Revenues were $1.15 billion versus estimates of $1.08 billion
Management backed full year estimates for earnings per share of between $5.75 and $6.35 on revenues of $4.9 to $5.2 billion
The quarterly dividend was maintained at $0.175 per share
Market Outlook
There are several positives for the mining industry going forward. Imports of seaborne thermal coal is expected to increase steadily in China, India, Japan, and Europe. Global steel production is expected to rise in 2013, which means there will be a higher demand for metallurgical coal and iron ore.
The global demand for copper is expected to grow, as production increases are expected in Africa due to the completion of mines, and in China because of their improving economy. All of these factors will be catalysts for overall demand of Joy Global’s products and services.
Takeover Rumors
Joy Global Inc. (NYSE:JOY) has been a hot topic in takeover rumors. The most popular rumor had to do with General Electric Company (NYSE:GE) buying Joy in order to build their mining equipment business. General Electric Company (NYSE:GE) currently offers a wide range of mining products and services, including motors, power generation, transportation, water treatment, dust control, and financing. This is all housed under their General Electric Company (NYSE:GE) Transportation unit.
General Electric Company (NYSE:GE) Transportation
Reported fourth quarter profits of $252 million, up from $226 million in the fourth quarter of 2011
Full year profits rose to $1 billion, up 32.1% from 2011
General Electric Company (NYSE:GE) stated that their acquisitions and investments in technology “have positioned us well to continue to deliver value to our customers and for strong operating performance in 2013.” I believe General Electric Company (NYSE:GE) will make an offer to buy Joy Global in 2013 and will eventually take them over, unless someone else beats them to it.
Current Price
As of the market close on March 8, Joy Global is trading at $63.13. With earnings per share of $7.24, this means they are trading at a multiple of just 8.72. They are currently 23% below their 52 week high of $82.02, and industry growth could easily push them back towards this mark. Also, they pay an annual dividend of $0.70, or 1.11%.
Caterpillar
The largest manufacturer of construction and mining equipment in the world is Caterpillar Inc. (NYSE:CAT). They too offer maintenance, servicing, and training to the industry. Despite the slowed economy in 2012, Caterpillar Inc. (NYSE:CAT) reported record sales, revenue, and profit.
Revenues rose 10% to $65.875 billion
Profit per share rose 15% to $8.48
Maintained quarterly dividend of $0.52 per share
This company, like Joy Global, will experience further growth with the expected gains in the mining industry. Caterpillar Inc. (NYSE:CAT) has a healthy yield of 2.30% and is currently trading 20.8% below their 52 week high. As you can see from the chart below, these two stocks have very similar chart patterns.
The Foolish Bottom Line
The mining industry is recovering steadily from the lows in 2012 and should continue to rise over the next several years. As the global economy recovers, Joy Global Inc. (NYSE:JOY) and Caterpillar Inc. (NYSE:CAT) will experience substantial gains from their current levels. I currently own shares of Joy Global and will be adding to this position on any weakness in the market. Both Joy Global and Caterpillar Inc. (NYSE:CAT) are great long term investments.
The article Jump for Joy Global originally appeared on Fool.com and is written by Joseph Solitro.
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